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3. acquisition on february 1 , 2019 , the company completed the acquisition of all issued and outstanding shares of scalar decisions inc. ( `` scalar `` ) , a leading technology solutions provider in canada , for a total final purchase price of $ 88 million , of which $ 13 million is deferred to satisfy potential indemnity obligations and is expected to be paid in the first quarter of 2021. the purchase price allocation is final . 4. allowance for credit losses the changes in the allowance for credit losses related to accounts receivable were story_separator_special_tag unless otherwise indicated or the context otherwise requires , as used in this `` management 's discussion and analysis of financial condition and results of operations , '' the terms `` we , '' `` us , '' `` the company , '' `` our , '' `` cdw '' and similar terms refer to cdw corporation and its subsidiaries . `` management 's discussion and analysis of financial condition and results of operations '' should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this report . this discussion contains forward-looking statements that are subject to numerous risks and uncertainties . actual results may differ materially from those contained in any forward-looking statements . see `` forward-looking statements '' above . overview cdw corporation , a fortune 500 company and member of the s & p 500 index , is a leading multi-brand provider of information technology ( `` it '' ) solutions to small , medium and large business , government , education and healthcare customers in the us , the uk and canada . our broad array of offerings ranges from discrete hardware and software products to integrated it solutions and services that include on-premise , hybrid and cloud capabilities across data center and networking , digital workspace , security and virtualization . we are vendor , technology , and consumption model `` agnostic '' , with a solutions portfolio including more than 100,000 products and services from more than 1,000 leading and emerging brands . our solutions are delivered in physical , virtual and cloud-based environments through approximately 7,000 customer-facing coworkers , including sellers , highly-skilled technology specialists and advanced service delivery engineers . we are a leading sales channel partner for many original equipment manufacturers ( `` oems '' ) , software publishers and cloud providers ( collectively , our `` vendor partners '' ) , whose products we sell or include in the solutions we offer . we provide our vendor partners with a cost-effective way to reach customers and deliver a consistent brand experience through our established end-market coverage , technical expertise and extensive customer access . we have three reportable segments , corporate , small business and public . our corporate segment primarily serves us private sector business customers with more than 250 employees . our small business segment primarily serves us private sector business customers with up to 250 employees . our public segment is comprised of government agencies and education and healthcare institutions in the us . we also have two other operating segments : cdw uk and cdw canada , each of which do not meet the reportable segment quantitative thresholds and , accordingly , are included in an all other category ( `` other '' ) . we may sell all or only select products that our vendor partners offer . each vendor partner agreement provides for specific terms and conditions , which may include one or more of the following : product return privileges , price protection policies , purchase discounts and vendor incentive programs , such as purchase or sales rebates and cooperative advertising reimbursements . we also resell software for major software publishers . our agreements with software publishers allow the end-user customer to acquire software or licensed products and services . in addition to helping our customers determine the best software solutions for their needs , we help them manage their software agreements , including warranties and renewals . a significant portion of our advertising and marketing expenses are reimbursed through cooperative advertising programs with our vendor partners . these programs are at the discretion of our vendor partners and are typically tied to sales or other commitments to be met by us within a specified period of time . for a discussion of results for the year ended december 31 , 2019 , see `` item 7. management 's discussion and analysis of financial condition and results of operations '' of our annual report on form 10-k for the year ended december 31 , 2019 , filed with the securities and exchange commission on february 28 , 2020. trends and key factors affecting our financial performance we believe the following key factors may have a meaningful impact on our business performance , influencing our ability to generate sales and achieve our targeted financial and operating results : general economic conditions are a key factor affecting our results as they impact our customers ' willingness to spend on information technology . this is particularly the case for our corporate and small business customers , as their purchases tend to reflect confidence in their business prospects , which are driven by their discrete perceptions of business and general economic conditions . additionally , changes in trade policy and product constraints from suppliers could have an adverse impact on our business . 29 table of contents the global spread of the novel coronavirus ( `` covid-19 '' ) pandemic continues to create significant macroeconomic uncertainty , volatility and disruption . story_separator_special_tag for the definitions of non-gaap operating income , non-gaap operating income margin , non-gaap income before income taxes , non-gaap net income and net sales growth on a constant currency basis and reconciliations to the most directly comparable us gaap measure , see `` results of operations - non-gaap financial measure reconciliations . '' the results of certain key business metrics are as follows : replace_table_token_6_th ( 1 ) there were 254 selling days for each of the years ended december 31 , 2020 , 2019 , and 2018 . ( 2 ) defined as total debt minus cash and cash equivalents . ( 3 ) cash conversion cycle is defined as days of sales outstanding in accounts receivable and certain receivables due from vendors plus days of supply in merchandise inventory minus days of purchases outstanding in accounts payable and accounts payable-inventory financing , based on a rolling three-month average . 31 table of contents story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > 33 table of contents operating income operating income by segment , in dollars and as a percentage of net sales , and the year-over-year percentage change was as follows : replace_table_token_9_th * not meaningful ( 1 ) segment operating income includes the segment 's direct operating income , allocations for certain headquarters ' costs , allocations for income and expenses from logistics services , certain inventory adjustments and volume rebates and cooperative advertising from vendors . ( 2 ) includes the financial results for our other operating segments , cdw uk and cdw canada , which do not meet the reportable segment quantitative thresholds . ( 3 ) includes headquarters ' function costs that are not allocated to the segments . operating income was $ 1,179 million for the year ended december 31 , 2020 , an increase of $ 46 million , or 4.0 % , compared to $ 1,134 million for the year ended december 31 , 2019. operating income increased primarily due to higher gross profit dollars and cost saving measures implemented during the year , partially offset by higher payroll expenses and a higher provision for credit losses . total operating margin percentage increased 10 basis points to 6.4 % for the year ended december 31 , 2020 , from 6.3 % for the year ended december 31 , 2019 primarily due to higher gross profit margin and cost saving measures implemented during the year , partially offset by higher payroll expenses and a higher provision for credit losses as percentage of net sales . corporate segment operating income was $ 490 million for the year ended december 31 , 2020 , a decrease of $ 96 million , or 16.3 % , compared to $ 585 million for the year ended december 31 , 2019. corporate segment operating income decreased primarily due to lower gross profit dollars and higher payroll expenses due to coworker compensation investments . corporate segment operating margin percentage decreased 60 basis points to 7.2 % for the for the year ended december 31 , 2020 , from 7.8 % for the year ended december 31 , 2019 primarily due higher payroll expenses and a higher provision for credit losses as a percentage of net sales , partially offset by the mix of netted down revenue and cost saving measures . small business segment operating income was $ 99 million for the year ended december 31 , 2020 , a decrease of $ 9 million , or 7.8 % , compared to $ 108 million for the year ended december 31 , 2019. small business segment operating income decreased primarily due to lower gross profit dollars , a higher provision for credit losses and higher payroll expenses due to coworker compensation investments . small business segment operating margin percentage remained flat at 7.1 % for both the year ended december 31 , 2020 and 2019 primarily due to the mix of netted down revenue , partially offset by increased payroll expenses and a higher provision for credit losses as a percentage of net sales . public segment operating income was $ 678 million for the year ended december 31 , 2020 , an increase of $ 203 million , or 42.8 % , compared to $ 475 million for the year ended december 31 , 2019. public segment operating income increased primarily due to higher gross profit dollars , partially offset by higher sales payroll expenses . public segment operating margin percentage increased 140 basis points to 8.3 % for the year ended december 31 , 2020 , from 6.9 % for the year ended december 31 , 2019 , primarily due to a mix into more profitable product offerings and services and by cost saving measures as a percentage of net sales . other operating income was $ 66 million for the year ended december 31 , 2020 , a decrease of $ 36 million , or 35.0 % , compared to $ 102 million for the year ended december 31 , 2019. other operating income decreased primarily due to lower gross profit dollars , higher payroll expenses due to higher average coworker count and coworker compensation investments in addition to a 34 table of contents higher provision for credit losses . other operating margin percentage decreased 150 basis points to 3.2 % for the year ended december 31 , 2020 , from 4.7 % for the year ended december 31 , 2019 , primarily due to higher payroll expenses and a higher provision for credit losses as a percentage of net sales .
| results of operations results of operations , in dollars and as a percentage of net sales are as follows : replace_table_token_7_th net sales net sales by segment , in dollars and as a percentage of total net sales , and the year-over-year dollar and percentage change in net sales are as follows : replace_table_token_8_th ( 1 ) there were 254 selling days for both the years ended december 31 , 2020 and 2019. total net sales for the year ended december 31 , 2020 increased $ 435 million , or 2.4 % , to $ 18,468 million , compared to the prior year . the impact of foreign currency fluctuations did not have an impact to net sales growth . for additional information , see `` non-gaap financial measure reconciliations '' below regarding constant currency net sales growth . for the year ended december 31 , 2020 , net sales growth was driven by education and government customers prioritizing integrated solutions including notebooks , accessories and services to support remote enablement and the census project . these public customer increases were partially offset by decreases in most hardware categories in our other business segments due to the impact of the covid-19 pandemic on customer demand . for additional information , see note 18 ( segment information ) to the accompanying consolidated financial statements . 32 table of contents corporate segment net sales for the year ended december 31 , 2020 decreased $ 653 million , or 8.7 % , compared to the year ended december 31 , 2019. the decrease was primarily driven by decreases across all major hardware categories due to the impact of the covid-19 pandemic on customer demand , partially offset by an increase in software .
| 6,000 |
see `` note 9. story_separator_special_tag the following discussion of the corporation 's historical results of operations and of its liquidity and capital resources should be read in conjunction with the consolidated financial statements of the corporation and related notes . statements that are not historical are forward-looking and involve risks and uncertainties . see `` item 1a . risk factors '' and the forward-looking statements section within `` item 1. business '' for further information . overview the corporation has two reportable segments : office furniture and hearth products . the corporation is a leading global office furniture manufacturer and marketer , and a leading manufacturer and marketer of hearth products . the corporation utilizes a decentralized business model to deliver value to customers via various brands and selling models . the corporation is focused on growing its existing businesses while seeking out and developing new opportunities for growth . consolidated net sales for 2019 decreased 0.5 percent or $ 10.9 million compared to the prior year . the change was driven by a decrease in both the office furniture and hearth products segments . the decrease in office furniture was driven by lower sales in the office furniture supplies-driven business , partially offset by a small increase in the office furniture contract business . included in the sales results for the office furniture contract business was a $ 23.1 million negative impact from closing and divesting small office furniture companies . the hearth products segment saw decreases in both the new construction and retail businesses . net income attributable to the corporation in 2019 was $ 110.5 million compared to net income of $ 93.4 million in 2018 . the change was primarily driven by lower restructuring , transition , and impairment charges , price realization , net productivity and improved sg & a efficiency . these factors were partially offset by lower volume and higher input costs . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > , operating income increased 67.1 percent or $ 51.5 million to $ 128.2 million compared to $ 76.7 million in 2017 . the change was primarily driven by lower restructuring , transition , and impairment charges , price realization , net productivity and cost savings , and the impact of closing and divesting small office furniture companies . these factors were partially offset by higher input costs , the amortization and implementation costs from the business system transformation initiative , strategic investments , and higher variable compensation . interest expense , net interest expense , net was $ 8.6 million , $ 9.4 million , and $ 6.1 million in 2019 , 2018 , and 2017 , respectively . the decrease in 2019 was driven by higher interest income , as the corporation held a larger average balance of excess cash in interest-bearing accounts , and lower average debt balance year over year . higher interest rates and increased amortization of debt costs drove approximately $ 2.2 million of the increase in 2018 . in 2017 , the corporation capitalized approximately $ 1.5 million of interest costs related to the business systems transformation initiative . capitalization of interest ceased during the third quarter of 2017 , driving a relative increase in 2018 interest expense . income taxes the following table summarizes the corporation 's income tax provision ( in thousands ) : replace_table_token_6_th the income tax provision reflects a higher rate in 2019 compared to 2018 primarily due to increased worldwide income resulting in a lower rate benefit on tax credits , increased foreign income and state taxes . the increase in the effective tax rate in 2018 compared to 2017 was primarily driven by a reduction to the corporation 's deferred income taxes related to the tax cuts and job act enacted in december 2017 ( the `` act '' ) , which resulted in a remeasurement of the corporation 's deferred tax assets and liabilities at the new federal statutory rate of 21 percent . excluding the effects of the act , the corporation 's effective rate for 2017 would have been 36.2 percent . the decreased 2018 rate compared to the 2017 rate excluding the effect of the act was primarily driven by the federal statutory rate decreasing from 35 percent to 21 percent for 2018. additionally , the 2018 effective rate benefited from the release of valuation allowances on certain deferred tax assets . see `` note 9. income taxes '' in the notes to consolidated financial statements for further information relating to income taxes . 23 net income attributable to hni corporation net income attributable to the corporation was $ 110.5 million or $ 2.54 per diluted share in 2019 compared to $ 93.4 million or $ 2.11 per diluted share in 2018 and $ 89.8 million or $ 2.00 per diluted share in 2017 . office furniture the following table presents certain key highlights from the results of operations in the office furniture segment ( in thousands ) : replace_table_token_7_th net sales in 2019 for the office furniture segment decreased 0.5 percent or $ 8.9 million compared to 2018 . the change was driven by a decrease in both the office furniture and hearth products segments . the decrease in office furniture was driven by lower sales in the office furniture supplies-driven business , partially offset by a small increase in the office furniture contract business . included in the sales results for the office furniture contract business was a $ 23.1 million negative impact from closing and divesting small office furniture companies . net sales in 2018 for the office furniture segment increased 2.7 percent or $ 45.4 million compared to 2017 . sales increased in both the supplies-driven and contract businesses . the sales increase was partially offset by a decrease of $ 57.6 million from the impact of closing and divesting small office furniture companies . operating profit as a percentage of net sales increased 160 basis points in 2019 compared to 2018 . story_separator_special_tag cash flow – operating activities operating activities were a source of $ 219.4 million of cash in 2019 compared to a source of $ 186.4 million cash in 2018 . the higher cash generation compared to the prior year was primarily due to improved earnings and changes in working capital timing , driven by higher accrued expenses . changes in working capital balances resulted in a $ 3.3 million use of cash in 2019 compared to a $ 10.7 million use of cash in the prior year . cash generated from operating activities in 2017 totaled $ 133.1 million and changes in working capital balances resulted in a $ 29.4 million use of cash . the corporation places special emphasis on management and control of working capital , including accounts receivable and inventory . management believes recorded trade receivable valuation allowances at the end of 2019 are adequate to cover the risk of potential bad debts . allowances for non-collectible trade receivables , as a percent of gross trade receivables , totaled 1.3 percent , 25 1.5 percent , and 0.7 percent at the end of fiscal years 2019 , 2018 , and 2017 , respectively . the corporation 's inventory turns were 8.8 , 9.1 , and 8.9 , for fiscal years 2019 , 2018 , and 2017 , respectively . cash flow – investing activities capital expenditures , including capitalized software , were $ 66.9 million in 2019 , $ 63.7 million in 2018 , and $ 127.4 million in 2017 . these expenditures are primarily focused on machinery , equipment , and tooling required to support new products , continuous improvements , and cost savings initiatives in manufacturing processes . the decrease between 2018 and 2017 was primarily due to the completion of the corporation 's operational transformations and the launch of the business systems transformation initiative which included an integrated information system . the corporation anticipates capital expenditures for 2020 in an estimated range of $ 60 million to $ 70 million . real estate transaction – in the first quarter of 2018 , the corporation entered into a sale-leaseback transaction , selling a manufacturing facility and subsequently leasing back a portion of the facility for a term of 10 years . the net proceeds from the sale of the facility of $ 16.9 million are reflected in `` proceeds from sale and license of property , plant , equipment , and intangibles '' in the consolidated statements of cash flows . see `` note 15. leases '' in the notes to consolidated financial statements for further information . cash flow – financing activities long-term debt - the corporation maintains a revolving credit facility as the primary source of committed funding from which the corporation finances its planned capital expenditures , strategic initiatives , and seasonal working capital needs . cash flows included in financing activities represent periodic borrowings and repayments under the revolving credit facility . during the second quarter of 2018 , the corporation issued $ 100 million of private placement notes . the proceeds were used to repay outstanding borrowings under the revolving credit facility . see `` note 8. long-term debt '' in the notes to consolidated financial statements for further information . dividend - the corporation is committed to maintaining or modestly growing the quarterly dividend . cash dividends declared and paid per share are as follows ( in dollars ) : replace_table_token_9_th the last quarterly dividend increase was from $ 0.295 to $ 0.305 per common share effective with the june 3 , 2019 dividend payment for shareholders of record at the close of business on may 17 , 2019. the average dividend payout percentage for the most recent three-year period has been 57 percent of prior year earnings or 28 percent of prior year cash flow from operating activities . stock repurchase - the corporation 's capital strategy related to stock repurchase is focused on offsetting the dilutive impact of issuances for various compensation related matters . the corporation may elect to opportunistically purchase additional shares based on excess cash generation and or share price considerations . the board authorized $ 200 million on november 9 , 2007 and an additional $ 200 million each on november 7 , 2014 and february 13 , 2019 for repurchases of the corporation 's common stock . see `` note 11. accumulated other comprehensive income ( loss ) and shareholders ' equity '' in the notes to consolidated financial statements for further information . contractual obligations the following table discloses the corporation 's obligations and commitments to make future payments , by period , under contracts ( in thousands ) : replace_table_token_10_th 26 ( 1 ) interest has been included for all debt at the fixed or variable rate in effect as of december 28 , 2019 , as applicable . see `` note 8. long-term debt '' in the notes to consolidated financial statements for further information . ( 2 ) purchase obligations include agreements to purchase goods or services that are enforceable , legally binding , and specify all significant terms , including the quantity to be purchased , the price to be paid , and the timing of the purchase . ( 3 ) other long-term obligations represent payments due to members who are participants in the corporation 's deferred and long-term incentive compensation programs , liability for unrecognized tax liabilities , and contribution and benefit payments expected to be made pursuant to the corporation 's post-retirement benefit plans . it should be noted the obligations related to post-retirement benefit plans are not contractual and the plans could be amended at the discretion of the corporation . the disclosure of contributions and benefit payments has been limited to 10 years , as information beyond this time period was not available . other long-term obligations of $ 33.1 million , primarily insurance allowances and long-term warranty , are not included in the table above due to the corporation 's inability to predict their timing .
| results of operations the following table presents certain key highlights from the results of operations ( in thousands ) : replace_table_token_4_th replace_table_token_5_th 21 net sales consolidated net sales for 2019 decreased 0.5 percent or $ 10.9 million compared to the prior year . the change was driven by a decrease in both the office furniture and hearth products segments . the decrease in office furniture was driven by lower sales in the office furniture supplies-driven business , partially offset by a small increase in the office furniture contract business . included in the sales results for the office furniture contract business was a $ 23.1 million negative impact from closing and divesting small office furniture companies . the hearth products segment saw decreases in both the new construction and retail businesses . consolidated net sales for 2018 increased 3.8 percent or $ 82.0 million compared to 2017 . the change was driven by an increase in both the office furniture and hearth products segments . office furniture segment sales increased in both the supplies-driven and contract businesses which were partially offset by a $ 57.6 million negative net impact of closing and divesting small office furniture companies . the hearth products segment saw increases in both the new construction and retail businesses . gross profit gross profit as a percentage of net sales increased 10 basis points in 2019 compared to 2018 primarily driven by price realization and net productivity , offset by lower volume and higher input costs . gross profit as a percentage of net sales increased 100 basis points in 2018 compared to 2017 primarily driven by lower restructuring and transition costs , price realization , net productivity and cost savings , partially offset by higher input costs .
| 6,001 |
the following discussion contains “ forward-looking statements ” that reflect our plans , estimates , beliefs and expected performance . our actual results may differ materially from those anticipated as discussed in these forward-looking statements as a result of a variety of risks and uncertainties , including those described in “ cautionary statement regarding forward-looking statements ” and “ item 1a . risk factors ” included elsewhere in this annual report , all of which are difficult to predict . in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . we assume no obligation to update any of these forward-looking statements except as otherwise required by law . this section includes comparisons of certain 2020 financial information to the same information for 2019. year-to-year comparisons of the 2019 financial information to the same information for 2018 are contained in “ item 7. management 's discussion and analysis of financial condition and result of operations ” of our annual report on form 10-k for the year ended december 31 , 2019 filed with the securities and exchange commission on february 28 , 2020 , which comparative information and the information therein under the caption “ factors affecting the comparability of our financial condition and results of operations ” are incorporated by reference herein . market factors see “ item 1. business ” for information on our products and business . demand for our products and services depends primarily upon the general level of activity in the oil and gas industry , including the number of drilling rigs in operation , the number of oil and gas wells being drilled , the depth and drilling conditions of these wells , the number of well completions , the level of well remediation activity , the volume of production and the corresponding capital spending by oil and natural gas companies . oil and gas activity is in turn heavily influenced by , among other factors , oil and gas prices locally and worldwide , which have historically been volatile . the key market factors impacting our product sales are the number of wells drilled and placed on production , as each well requires an individual wellhead assembly and , at some time after completion , the installation of an associated production tree . we measure our product sales activity levels against our competitors by the number of rigs that we are supporting on a monthly basis as it is correlated to wells drilled . each active drilling rig produces different levels of revenue based on the customer 's drilling plan , which includes factors such as the number of wells drilled per pad , the time taken to drill each well , the number and size of casing strings , the working pressure , material selection and the complexity of the wellhead system chosen by the customer and the rate at which production trees are eventually deployed . all of these factors may be influenced by the oil and gas region in which our customer is operating . while these factors may lead to differing revenues per rig , we are able to broadly forecast our product needs and anticipated revenue levels based on general trends in a given region and with a specific customer . increases in horizontal wells drilled as a percentage of total wells drilled , the shift towards pad drilling , and 21 an increase in the number of wells drilled per rig are all favorable trends that we believe enhance the demand for our products relative to the active rig count . our rental revenues are primarily dependent on the number of wells completed ( i.e. , hydraulically fractured ) , the number of wells on a well pad and the number of fracture stages per well . well completion activity generally follows the level of drilling activity but can be delayed due to such factors as takeaway capacity , storage capacity and budget constraints . changes to the number of drilled but uncompleted wells ( “ ducs ” ) could provide additional opportunities or headwinds for our rental business relative to general drilling activity . field service and other revenues are closely correlated to revenues from product sales and rentals , as items sold or rented almost always have an associated service component . therefore , the market factors and trends of product sales and rental revenues similarly impact the associated levels of service and other revenues generated . our business experiences some seasonality during the fourth quarter due to holidays and customers managing their budgets as the year closes out . this can lead to lower activity in our three revenue categories as well as lower margins , particularly in field services due to lower labor utilization . recent developments and trends the ongoing covid-19 pandemic negatively impacted our business and revenues beginning as early as march 2020. throughout 2020 , the inability to control the spread of the virus and the recent resurgence in cases globally has resulted in continued travel restrictions , school and business closures and stay-at-home orders worldwide . although vaccines have begun to be administered all over the world , until vehicle and airline travel returns to activity levels closer to those prior to the pandemic , demand for oil will continue to be depressed . oil prices have recovered from the lows experienced in april 2020 , trading above $ 50 per barrel in january 2021 partially due to saudi arabia announcing that it will cut one million barrels a day of crude production starting in february 2021. as oil began trading above $ 60 per barrel in mid-february 2021 primarily due to harsh winter weather conditions resulting in production disruptions , there has been increasing speculation that saudi arabia will restore production of an incremental one million barrels per day starting in april 2021. even with these recent increases in commodity prices , our customers ' activity continues to be significantly lower than 2019 and early 2020 levels , which translates into reduced demand for our products and services . story_separator_special_tag income allocated to the non-controlling interest is not subject to u.s. federal or state tax . liquidity and capital resources at december 31 , 2020 we had $ 288.7 million of cash and cash equivalents . our primary sources of liquidity and capital resources are cash on hand , cash flows generated by operating activities and , if necessary , borrowings under our abl credit facility . depending upon market conditions and other factors , we may also have the ability to issue additional equity and debt if needed . as of december 31 , 2020 , we had no borrowings outstanding under our abl credit facility and had $ 45.2 million of available borrowing capacity . additionally , we were in compliance with the covenants of the abl credit facility as of december 31 , 2020. we expect that our existing cash on hand , cash generated from operations and available borrowings under our abl credit facility will be sufficient for the next 12 months to meet working capital requirements , anticipated capital expenditures , expected tra liability payments , anticipated tax liabilities and dividends to holders of our class a common stock as well as pro rata cash distributions to holders of cw units ( other than cactus inc. ) . we currently estimate our net capital expenditures for the year ending december 31 , 2021 will range from $ 10 million to $ 15 million , excluding acquisitions , mostly related to rental fleet investments . we continuously evaluate our capital expenditures , and the amount we ultimately spend will depend on a number of factors , including , among other things , demand for rental assets , available capacity in existing locations , prevailing economic conditions , market conditions in the e & p industry , customers ' forecasts , volatility and company initiatives . 25 our ability to satisfy our long-term liquidity requirements , including cash distributions to cw unit holders to fund their respective income tax liabilities relating to their share of the income of cactus llc and to fund liabilities related to the tra , depends on our future operating performance , which is affected by , and subject to , prevailing economic conditions , market conditions in the e & p industry , availability and cost of raw materials , and financial , business and other factors , many of which are beyond our control . we will not be able to predict or control many of these factors , such as economic conditions in the markets where we operate and competitive pressures . if necessary , we could choose to further reduce our spending on capital projects and operating expenses to ensure we operate within the cash flow generated from our operations . tax receivable agreement ( tra ) the tra generally provides for the payment by cactus inc. to the tra holders of 85 % of the net cash savings , if any , in u.s. federal , state and local income tax and franchise tax that cactus inc. actually realizes or is deemed to realize in certain circumstances . cactus inc. will retain the benefit of the remaining 15 % of these net cash savings . to the extent cactus llc has available cash , we intend to cause cactus llc to make pro rata distributions to its unitholders , including cactus inc. , in an amount at least sufficient to allow us to pay our taxes and to make payments under the tra . except in cases where we elect to terminate the tra early , the tra is terminated early due to certain mergers , asset sales , or other forms of business combinations or changes of control or if we have available cash but fail to make payments when due under circumstances where we do not have the right to elect to defer the payment . we may generally elect to defer payments due under the tra if we do not have available cash to satisfy our payment obligations under the tra . any such deferred payments under the tra generally will accrue interest . in certain cases , payments under the tra may be accelerated and or significantly exceed the actual benefits , if any , we realize in respect of the tax attributes subject to the tra . in these situations , our obligations under the tra could have a substantial negative impact on our liquidity . assuming no material changes in the relevant tax law , we expect that if the tra were terminated as of december 31 , 2020 , the estimated termination payments , based on the assumptions discussed in note 9 of the notes to the consolidated financial statements , would be approximately $ 315.1 million , calculated using a discount rate equal to one-year libor plus 150 basis points , applied against an undiscounted liability of $ 362.5 million . a 10 % increase in the price of our class a common stock at december 31 , 2020 would have increased the discounted liability by $ 15.1 million to $ 330.2 million ( an undiscounted increase of $ 17.5 million to $ 380.0 million ) , and likewise , a 10 % decrease in the price of our class a common stock at december 31 , 2020 would have decreased the discounted liability by $ 15.1 million to $ 300.0 million ( an undiscounted decrease of $ 17.5 million to $ 345.0 million ) . cash flows year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table summarizes our cash flows for the periods indicated : replace_table_token_4_th net cash provided by operating activities was $ 143.4 million and $ 209.6 million for the years ended december 31 , 2020 and 2019 , respectively . operating cash flows for 2020 decreased from 2019 primarily due to the overall reduction in revenue due to the economic downturn evidenced by a decrease in net income adjusted for certain noncash items offset by an increase in cash generated from changes in net working capital and $ 14.2
| consolidated results of operations the following discussions relating to significant line items from our condensed consolidated statements of income are based on available information and represent our analysis of significant changes or events that impact the comparability of reported amounts . where appropriate , we have identified specific events and changes that affect comparability or trends and , where reasonably practicable , have quantified the impact of such items . 23 year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table presents summary consolidated operating results for the periods indicated : replace_table_token_3_th nm = not meaningful revenues product revenue for the year ended december 31 , 2020 was $ 206.8 million , a decrease of $ 150.3 million , or 42 % , from $ 357.1 million for the year ended december 31 , 2019. the decrease was primarily due to lower sales of wellhead and production related equipment as our customers reduced their drilling and completion activity for most of 2020 in direct response to the overall industry downturn resulting from depressed commodity prices exacerbated by the covid-19 pandemic . rental revenue for the year ended december 31 , 2020 was $ 66.2 million , a decrease of $ 75.6 million , or 53 % , from $ 141.8 million for the year ended december 31 , 2019. the decrease was primarily attributable to reduced completion activity by our customers as part of the industry downturn in 2020. field service and other revenue for the year ended december 31 , 2020 was $ 75.6 million , a decrease of $ 53.9 million , or 42 % , from $ 129.5 million for the year ended december 31 , 2019. the decrease was primarily attributable to lower customer activity in 2020 related to the industry downturn , resulting in lower billable hours and ancillary services .
| 6,002 |
” overview we are a leading provider of management and technology consulting , analytics , engineering , digital solutions , mission operations , and cyber services to u.s. and international governments , major corporations , and not-for-profit organizations . our ability to deliver value to our clients has always been , and continues to be , a product of the strong character , expertise and tremendous passion of our people . our approximately 27,200 employees work to solve hard problems by making clients ' missions their own , combining decades of consulting and domain expertise with functional expertise in areas such as analytics , digital solutions , engineering , and cyber , all fostered by a culture of innovation that extends to all reaches of the company . through our dedication to our clients ' missions , and a commitment to evolving our business to address their needs , we have longstanding relationships with our clients , some more than 75 years . we support critical missions for a diverse base of federal government clients , including nearly all of the u.s. government 's cabinet-level departments , as well as increasingly for top-tier commercial and international clients . we support our federal government clients by helping them tackle their most complex and pressing challenges such as protecting soldiers in combat and supporting their families , advancing cyber capabilities , keeping our national infrastructure secure , enabling and enhancing digital services , transforming the healthcare system , and improving government efficiency to achieve better outcomes . we serve commercial clients across industries including aerospace , financial services , health and life sciences , energy , and transportation . our international clients are primarily in europe , the middle east and southeast asia . 43 financial and other highlights effective april 1 , 2019 , the company adopted accounting standard codification ( asc ) no . 842 leases ( topic 842 ) , using the modified retrospective transition approach and , as a result , comparative information for the prior fiscal years have not been retrospectively adjusted . see note 2 to our accompanying consolidated financial statements for more information on the impact of the adoption of this accounting standard . during fiscal 2020 , the company generated its highest annual revenue since its initial public offering and reported increases in headcount and backlog for the year . revenue increased 11.3 % from fiscal 2019 to fiscal 2020 primarily driven by sustained client demand and increased client staff headcount to meet that demand . revenue also benefited from higher billable expenses as compared to the prior year . operating income increased 11.1 % to $ 669.2 million in fiscal 2020 from $ 602.4 million in fiscal 2019 , while operating margin was 9.0 % in both years . the increase in operating income was primarily driven by the same factors driving revenue growth as well as strong contract performance . these increases in operating income were partially offset by approximately $ 10.0 million in covid-19 related expenses , including transitional costs , temporary reductions in billability during the month of march of fiscal 2020 , and charges related to certain contracts involving a ready workforce that we believe we may not be able to recover . during fiscal 2019 the company also benefited from an $ 11.2 million reduction in expense as a result of an amendment and associated revaluation of our long term disability plan liability . the company also incurred incremental legal costs during fiscal 2019 and 2020 in response to the u.s. department of justice investigation and matters which purport to relate to the investigation , a portion of which was offset by the receipt of insurance reimbursements . we expect to incur additional costs in the future . based on the information currently available , the company is not able to reasonably estimate the expected long-term incremental legal costs or amounts that may be reimbursed associated with this investigation and these related matters . we are monitoring the evolving situation related to the covid-19 outbreak and we continue to work with our stakeholders to assess further possible implications to our business and to take actions in an effort to mitigate adverse consequences . to protect employee health and safety while covid-19 remains a threat , we plan to continue to deliver a majority of our services to clients via telework for the foreseeable future . in cases where telework options or effectiveness are limited , we are working closely with clients to achieve safe return plans guided by federal , state and local policies and advice from other experts . we are also working closely with our clients , where classified work is concentrated , to retain continuity of service and ensure a ready workforce . we expect to continue to be impacted by the inability of certain employees to perform their contract requirements at their designated work locations due to facility closures or restrictions as a result of covid-19 and can not perform such work remotely . while the cares act contains a provision that allows federal contractors to seek specified reimbursement for certain employees who are unable to perform their contract requirements due to government restrictions , such provision does not require the government to reimburse a contractor and reimbursements are also subject to limitations and do not extend past september 30 , 2020. as a result , we believe that some of our costs for certain employees who are unable to perform their contract requirements due to government restrictions will not be reimbursed and we expect that approximately $ 6 million per month for the fee on certain contracts involving a ready workforce may not be reimbursed or may exceed reimbursements in the near term . although we can not currently predict the overall impact of the covid-19 outbreak , the longer the duration of the event , the more likely it is that it could have an adverse effect on our business , financial position , results of operations and or cash flows . story_separator_special_tag we prepare adjusted net income to eliminate the impact of items , net of tax , we do not consider indicative of ongoing operating performance due to their inherent unusual , extraordinary , or non-recurring nature or because they result from an event of a similar nature . we view net income excluding the impact of the re-measurement of the company 's deferred tax assets and liabilities as a result of the 2017 tax act as an important indicator of performance consistent with the manner in which management measures and forecasts the company 's performance and the way in which management is incentivized to perform . `` adjusted diluted eps '' represents diluted eps calculated using adjusted net income as opposed to net income . additionally , adjusted diluted eps does not contemplate any adjustments to net income as required under the two-class method as disclosed in the footnotes to the consolidated financial statements . `` free cash flow '' represents the net cash generated from operating activities less the impact of purchases of property , equipment , and software . 46 below is a reconciliation of revenue , excluding billable expenses , adjusted operating income , adjusted ebitda , adjusted ebitda margin on revenue , adjusted ebitda margin on revenue , excluding billable expenses , adjusted net income , adjusted diluted eps , and free cash flow to the most directly comparable financial measure calculated and presented in accordance with gaap . replace_table_token_9_th 47 ( a ) fiscal 2020 and fiscal 2019 reflect debt refinancing costs incurred in connection with the refinancing transactions consummated on november 26 , 2019 and july 23 , 2018 , respectively . ( b ) represents the supplemental contribution to employees ' dependent care fsa accounts in response to the covid-19 outbreak . ( c ) reflects the combination of interest expense and other income ( expense ) , net from the consolidated statement of operations . ( d ) reflects tax credits , net of reserves for uncertain tax positions , recognized in fiscal 2020 related to an increase in research and development credits available for fiscal years 2016 to 2020 . ( e ) release of pre-acquisition income tax reserves assumed by the company in connection with the carlyle acquisition . ( f ) reflects the adjustments made to the provisional income tax benefit associated with the re-measurement of the company 's deferred tax assets and liabilities as a result of the 2017 tax act . ( g ) with the enactment of the 2017 tax act , the fiscal 2018 adjustment is reflected using assumed effective tax rate of 36.5 % , whereas fiscal 2019 and 2020 adjustments are reflected using an effective tax rate of 26 % . these rates approximate the blended federal and state tax rates for fiscal 2018 , 2019 and 2020 , respectively , and consistently exclude the impact of other tax credits and incentive benefits realized . ( h ) excludes an adjustment of approximately $ 1.6 million , $ 1.8 million , and $ 1.9 million of net earnings for fiscal 2020 , 2019 , and 2018 , respectively , associated with the application of the two-class method for computing diluted earnings per share . factors and trends affecting our results of operations our results of operations have been , and we expect them to continue to be , affected by the following factors , which may cause our future results of operations to differ from our historical results of operations discussed under “ — results of operations. ” business environment and key trends in our markets we believe that the following trends and developments in the u.s. government services industry and our markets may influence our future results of operations : uncertainty around the timing , extent , nature and effect of congressional and other u.s. government actions to approve funding of the u.s. government , address budgetary constraints , including caps on the discretionary budget for defense and non-defense departments and agencies , as established by the bipartisan budget control act of 2011 ( `` bca '' ) and subsequently adjusted by the american tax payer relief act of 2012 , the bipartisan budget act of 2013 , the bipartisan budget act of 2015 , the bipartisan budget act of 2018 , and the bipartisan budget act of 2019 and address the ability of congress to determine how to allocate the available budget authority and pass appropriations bills to fund both u.s. government departments and agencies that are , and those that are not , subject to the caps ; budget deficits and the growing u.s. national debt increasing pressure on the u.s. government to reduce federal spending across all federal agencies together with associated uncertainty about the size and timing of those reductions ; cost-cutting and efficiency initiatives , current and future budget restrictions , continued implementation of congressionally mandated automatic spending cuts and other efforts to reduce u.s. government spending could cause clients to reduce or delay funding for orders for services or invest appropriated funds on a less consistent or rapid basis or not at all , particularly when considering long-term initiatives and in light of uncertainty around congressional efforts to approve funding of the u.s. government and to craft a long-term agreement on the u.s. government 's ability to incur indebtedness in excess of its current limits and generally in the current political environment , there is a risk that clients will not issue task orders in sufficient volume to reach current contract ceilings , alter historical patterns of contract awards , including the typical increase in the award of task orders or completion of other contract actions by the u.s. government in the period before the end of the u.s. government 's fiscal year on september 30 , delay requests for new proposals and contract awards , rely on short-term extensions and funding of current contracts , or reduce staffing levels and hours of operation ; delays in the completion of future u.s. government 's budget processes , which have in the past and could in the future delay procurement of the
| results of operations the following table sets forth items from our consolidated statements of operations for the periods indicated : replace_table_token_12_th nm - not meaningful fiscal 2020 compared to fiscal 2019 revenue revenue increased to $ 7,463.8 million from $ 6,704.0 million , or an 11.3 % increase , primarily due to sustained client demand and increased client staff headcount to meet that demand . revenue growth was also driven by an increase in billable expenses , including subcontractors and direct expenses on behalf of our clients . cost of revenue cost of revenue increased to $ 3,379.2 million from $ 3,100.5 million , or a 9.0 % increase . this increase was primarily due to an increase in salaries and salary-related benefits of $ 250.4 million , and an increase in employer retirement plan contributions of $ 12.7 million . the increase in salaries and salary-related benefits was driven by an increase in headcount growth and annual base salary increases . cost of revenue as a percentage of revenue was 45.3 % and 46.2 % in fiscal 2020 and fiscal 2019 , respectively . billable expenses billable expenses increased to $ 2,298.4 million from $ 2,004.7 million , or a 14.7 % increase . the overall increase was primarily attributable to an increase in use of subcontractors in fiscal 2020 driven by client demand . in addition , contracts which require the company to incur direct expenses on behalf of clients increased over the prior year . billable expenses as a percentage of revenue were 30.8 % and 29.9 % for fiscal 2020 and fiscal 2019 , respectively . general and administrative expenses general and administrative expenses increased to $ 1,036.0 million from $ 927.9 million , or an 11.6 % increase . the increase was primarily due to salaries and salary-related benefits of $ 52.0 million , driven by headcount growth as well as annual base salary increases .
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the amendments in this asu clarify that an in substance repossession or foreclosure occurs , and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan , upon either the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement . additionally , story_separator_special_tag the purpose of this discussion is to focus on significant changes in the financial condition and results of operations of the company during the years ended december 31 , 2013 , 2012 and 2011 . the executive overview summarizes information management believes is important for an understanding of the financial condition and results of operations of the company . topics presented in the executive overview are discussed in more detail within , and should be read in conjunction with , this management 's discussion and analysis of financial condition and results of operations and the accompanying consolidated financial statements included in this annual report on form 10-k. the discussion of the critical accounting policies and analysis set forth below is intended to supplement and highlight information contained in the accompanying consolidated financial statements and the selected financial data presented elsewhere in this annual report on form 10-k. executive overview general notable accomplishments for the company during 2013 included the following : total end of period loans increased 12 % . this growth reflects management 's strategy to grow the company 's commercial and consumer portfolios while further diversifying the risk profile of the overall loan portfolio . credit quality - nonperforming assets declined $ 390 million or 41 % , while the company 's allowance for loan losses to period end loans decreased from 1.78 % at december 31 , 2012 to 1.38 % at december 31 , 2013. the company made investments in personnel and technology while reducing overall expenses . the company 's risk-based and leverage capital ratios remained significantly above the “ well-capitalized ” standard that is currently in effect in the prompt corrective action framework . in addition to the accomplishments listed above , the recent implementation of a new core banking platform has enabled the company to provide its customers with real-time information . it has also significantly reduced the time necessary during the new account opening process and simplified the process for the company 's customers . the new core banking platform has also facilitated the company 's ability to introduce new products and services , and provide its customers access to various mobile platforms to conduct their banking transactions . notable products and services introduced during 2013 included : nba banking - as official bank of the nba , the company launched its first all-digital account during the 2013 nba all-star weekend . the product combines a checking and savings account with exclusive nba content and uses the company 's digital platforms . business mobility bundle - product designed to provide micro-businesses the tools needed to manage their financial needs including e-business checking account , online and mobile banking , and a merchant services mobility pack with a secured card reader for processing debit and credit card payments . mobile deposit - app that allows mobile device users the ability to deposit a check by taking a picture and transmitting to the bank . picture bill pay - expanding on the capabilities of its mobile device app , this feature allows customers to pay bills and add payees by taking pictures of their paper bills with their mobile device . the company has utilized its new core banking platform to provide a comprehensive mobile banking offering to its clients . the company is also currently testing the next generation of drive-thru banking technology that allows customers to operate an atm-like machine for self service or opt for live assistance from a teller . the company also introduced 44 four new checking account products as part of a comprehensive deposit account redesign aimed at creating straightforward and transparent banking options for customers . economic and regulatory 2013 saw moderate economic growth driven by improvements in labor market conditions , increased household spending and further strengthening of housing markets . household spending continued to moderately increase and borrowing costs remained at historically low levels . compared to december 31 , 2012 , the housing market continued to strengthen as demonstrated by price increases , favorable shifts in supply and demand and some encouraging signs from certain homebuilding activities . however , continued elevated unemployment contributed uncertainty about the strength of economic growth . the global economy continued to recover unevenly amid concerns over the economic health of the european union and reports of slowing growth in emerging markets . while actions were taken during 2012 to ease the european sovereign debt crisis , uncertainty about the sustained financial health of certain european countries continues to exist . during the second quarter of 2013 , the federal reserve board reaffirmed that a highly accommodative monetary policy will remain in effect for a considerable time after its asset purchase program ends and the economic recovery strengthens . accordingly , the federal reserve board conveyed that it anticipates maintaining key interest rates at historically low levels , as long as the unemployment rate remains above 6.5 % and its long-term inflation goals are not met . as a result of executing its monetary policy , the federal reserve board continues to maintain large portfolios of u.s. treasury notes and bonds and agency mbss with plans to continue adding treasuries and agency mbss to its portfolio . however , the federal reserve indicated it is prepared to increase or reduce the pace of its purchases as the outlook for the labor market or inflation changes . story_separator_special_tag the decline in these noninterest expense categories was partially offset by a $ 34.6 million increase in equipment expense and a $ 15.1 million increase in professional services . income tax expense was $ 170.8 million for the year ended december 31 , 2013 compared to $ 219.7 million for the year ended december 31 , 2012 . this resulted in an effective tax rate of 28.9 % for 2013 and a 31.4 % effective tax rate for 2012 . certain key credit quality metrics continued to show improvement during the year ended december 31 , 2013 . specifically , nonperforming assets excluding covered assets were $ 486.3 million at december 31 , 2013 , a decrease of $ 318.1 million compared to december 31 , 2012 . at the same time , past due loans declined slightly during 2013. the company 's total assets at december 31 , 2013 were $ 72.0 billion , up slightly from december 31 , 2012 levels . total loans excluding loans held for sale were $ 50.7 billion at december 31 , 2013 , an increase of $ 5.7 billion or 12.6 % from year-end december 31 , 2012 levels . the growth in loans was primarily due to increases in commercial loans , residential mortgages and indirect auto lending . deposits increased $ 2.8 billion or 5.4 % compared to december 31 , 2012 , driven by transaction accounts which increased 7.4 % fueled by savings and money market growth . noninterest bearing demand deposits increased 6.5 % despite the expiration at december 31 , 2012 , of a provision from the dodd-frank act which provided temporary unlimited deposit insurance coverage on noninterest bearing deposits . certificates 46 and other time deposits decreased 0.9 % at december 31 , 2013 compared to december 31 , 2012 primarily as a result of a decrease in certificates of deposits over $ 100,000. total shareholders ' equity at december 31 , 2013 was $ 11.5 billion , an increase of $ 404.2 million compared to december 31 , 2012 . critical accounting policies the accounting principles followed by the company and the methods of applying these principles conform with accounting principles generally accepted in the united states of america and with general practices within the banking industry . the company 's critical accounting policies relate to ( 1 ) the allowance for loan losses , ( 2 ) fair value of financial instruments , ( 3 ) income taxes and ( 4 ) goodwill impairment . these critical accounting policies require the use of estimates , assumptions and judgments which are based on information available as of the date of the financial statements . accordingly , as this information changes , future financial statements could reflect the use of different estimates , assumptions and judgments . certain determinations inherently have a greater reliance on the use of estimates , assumptions and judgments and , as such , have a greater possibility of producing results that could be materially different than originally reported . allowance for loan losses : management 's policy is to maintain the allowance for loan losses at a level sufficient to absorb estimated probable incurred losses in the loan portfolio . management performs periodic and systematic detailed reviews of its loan portfolio to identify trends and to assess the overall collectability of the loan portfolio . accounting standards require that loan losses be recorded when management determines it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated . estimates for the allowance for loan losses are determined by analyzing historical losses , historical migration to charge-off experience , current trends in delinquencies and charge-offs , the results of regulatory examinations and changes in the size , composition and risk assessment of the loan portfolio . also included in management 's estimate for the allowance for loan losses are considerations with respect to the impact of current economic events . these events may include , but are not limited to , fluctuations in overall interest rates , political conditions , legislation that may directly or indirectly affect the banking industry and economic conditions affecting specific geographical areas and industries in which the company conducts business . while management uses the best information available to establish the allowance for loan losses , future adjustments to the allowance for loan losses and methodology may be necessary if economic or other conditions differ substantially from the assumptions used in making the estimates . such adjustments to original estimates , as necessary , are made in the period in which these factors and other relevant considerations indicate that loss levels vary from previous estimates . a detailed discussion of the methodology used in determining the allowance for loan losses is included in note 1 , summary of significant accounting policies , in the notes to the consolidated financial statements . fair value of financial instruments : a portion of the company 's assets and liabilities is carried at fair value , with changes in fair value recorded either in earnings or accumulated other comprehensive income ( loss ) . these include investment securities available for sale , trading account assets and liabilities , loans held for sale , mortgage servicing assets , and derivative assets and liabilities . periodically , the estimation of fair value also affects investment securities held to maturity when it is determined that an impairment write-down is other than temporary . fair value determination is also relevant for certain other assets such as other real estate owned , which is recorded at the lower of the recorded balance or fair value , less estimated costs to sell . the determination of fair value also impacts certain other assets that are periodically evaluated for impairment using fair value estimates , including goodwill and impaired loans . fair value is generally based upon quoted market prices , when available .
| summary of significant accounting policies , in the notes to the consolidated financial statements for further details . equipment expense increased by $ 34.6 million in 2013 due primarily to increases in software amortization of approximately $ 26.5 million and hardware depreciation of $ 5.1 million related to the company 's implementation of a new core banking platform as well as several other it projects implemented during 2013 . professional services expense represents fees incurred for the various support functions , which includes legal , consulting , outsourcing and other professional related fees . professional services expense increased by $ 15.1 million in 2013 to $ 191.4 million compared to 2012 . amortization expense decreased by $ 31.1 million in 2013 due to a lower level of intangible assets in 2013 compared to 2012 . 56 fdic insurance decreased by $ 45.5 million in 2013 as a result of revisions to the fdic 's guidance for calculating the assessment and also due to improvements in the earnings , credit quality and liquidity factors used to calculate the assessment . marketing expense increased by $ 9.1 million in 2013 , primarily due to an increase in advertising expense during 2013 . other noninterest expense represents postage , supplies , subscriptions , provision for unfunded commitments and oreo expenses . other noninterest expense decreased in 2013 to $ 200.3 million compared to $ 234.9 million in 2012 due in part to an overall decrease in expenses related to oreo which decreased by $ 9.4 million . in addition , the provision for unfunded commitments decreased by $ 33.9 million due to the improvement in credit quality . 2012 compared to 2011 noninterest expense was $ 2.4 billion for the year ended december 31 , 2012 , a decrease of $ 2.0 billion compared to the year ended december 31 , 2011 .
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these costs to fulfill a contract do not meet the criteria for capitalization and are expensed as incurred . upon adoption of asc topic 606 on january 1 , 2018 , the company elected the following practical expedients : ● portfolio approach – the company applied the portfolio approach to contract reviews within its identified revenue streams that have similar characteristics , and the company believes this approach would not differ materially than if applying asc topic 606 to each individual contract . ● significant financing component – the company expects the period between when it transfers a promised good or service to a customer and when the customer pays for the good or service to be one year or less . ● immaterial performance obligations – the company disregards promises deemed to be immaterial in the context of the contract . ● shipping and handling activities – the company considers any shipping and handling costs that are incurred after the customer has obtained control of the product as a cost to fulfill a promise . shipping and handling costs associated with finished goods delivered to customers are recorded as a selling expense . collaboration and royalty revenue the terms of these agreements typically include story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve significant risks and uncertainties . as a result of many factors , such as those set forth in part i , item 1a . risk factors , of this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . we are a science-driven global biopharmaceutical company focused on the discovery , development and commercialization of clinically differentiated medicines that provide benefits to patients with rare disorders . our ability to commercialize products is the foundation that drives our continued investment in a robust diversified pipeline of transformative medicines and our mission to provide access to best-in-class treatments for patients who have an unmet medical need . our strategy is to leverage our strong scientific expertise and global commercial infrastructure to maximize value for our patients and other stakeholders . we have a portfolio pipeline that includes several commercial products and product candidates in various stages of development , including clinical , pre-clinical and research and discovery stages , focused on the development of new treatments for multiple therapeutic areas , including rare diseases and oncology . we have two products , translarna ( ataluren ) and emflaza ® ( deflazacort ) , for the treatment of duchenne muscular dystrophy , or dmd , a rare , life threatening disorder . translarna has marketing authorization in the european economic area , or eea , for the treatment of nonsense mutation duchenne muscular dystrophy , or nmdmd , in ambulatory patients aged two years and older and in brazil for the treatment of nmdmd in ambulatory patients aged five years and older . in july 2020 , the european commission approved the removal of the statement “ efficacy has not been demonstrated in non-ambulatory patients ” from the indication statement for translarna . during the year ended december 31 , 2020 , we recognized $ 191.9 million in sales of translarna . we hold worldwide commercialization rights to translarna for all indications in all territories . emflaza is approved in the united states for the treatment of dmd in patients two years and older . during the year ended december 31 , 2020 , emflaza achieved net sales of $ 139.0 million . our marketing authorization for translarna in the eea is subject to annual review and renewal by the european commission following reassessment by the european medicines agency , or ema , of the benefit-risk balance of the authorization , which we refer to as the annual ema reassessment . in june 2020 , the european commission renewed our marketing authorization , making it effective , unless extended , through august 5 , 2021. in february 2021 , we submitted a marketing authorization renewal request to the ema . this marketing authorization is further subject to a specific obligation to conduct and submit the results of an 18-month , placebo-controlled trial , followed by an 18-month open-label extension , which we refer to together as study 041. the final report on the trial and open-label extension is to be submitted by us to the ema by the end of the third quarter of 2022. each country , including each member state of the eea , has its own pricing and reimbursement regulations . in order to commence commercial sale of product pursuant to our translarna marketing authorization in any particular country in the eea , we must finalize pricing and reimbursement negotiations with the applicable government body in such country . as a result , our commercial launch will continue to be on a country-by-country basis . we also have made , and expect to continue to make , product available under early access programs , or eap programs , both in countries in the eea and other 140 territories . our ability to negotiate , secure and maintain reimbursement for product under commercial and eap programs can be subject to challenge in any particular country and can also be affected by political , economic and regulatory developments in such country . there is substantial risk that if we are unable to renew our eea marketing authorization during any annual renewal cycle , or if our product label is materially restricted , or if study 041 does not provide the data necessary to maintain our marketing authorization , we would lose all , or a significant portion of , our ability to generate revenue from sales of translarna in the eea and other territories . translarna is an investigational new drug in the united states . story_separator_special_tag we initiated a registration-directed phase 2/3 placebo-controlled trial of vatiquinone in children with mitochondrial disease and associated refractory epilepsy in the third quarter of 2020 and anticipate data from this trial to be available in the third quarter of 2022. we also initiated a registration-directed phase 3 trial of vatiquinone in children and young adults with friedreich ataxia in the fourth quarter of 2020 and anticipate data from this trial to be available in 2023. we expect to complete enrollment for both of these trials by the end of 2021. in the second quarter of 2020 , we initiated a phase 1 trial in healthy volunteers to evaluate the safety and pharmacology of ptc857 . we expect to data from the phase 1 trial to be available in the first half of 2021. on may 29 , 2020 , we acquired censa pharmaceuticals , inc. , or censa , a biopharmaceutical company focused on the development of ptc923 for orphan diseases . we expect to initiate a registration-directed phase 3 trial for ptc923 for phenylketonuria , or pku , in mid-2021 . in june 2020 , we initiated a phase 2/3 clinical trial evaluating the efficacy and safety of ptc299 , a dihydroorotate dehydrogenase inhibitor that we have also been developing in oncological indications , in patients hospitalized with sars-cov 2 infection . we expect data to be available from this trial in the second half of 2021. in addition , we have a pipeline of product candidates and discovery programs that are in early clinical , pre-clinical and research and development stages focused on the development of new treatments for multiple therapeutic areas , including rare diseases and oncology . covid-19 impact the global pandemic caused by a strain of novel coronavirus , covid-19 , has impacted and is continuing to impact the timing of certain of our clinical trials and regulatory submissions as well as other aspects of our business operations . in particular , the following expectations have been revised as a result of the impact or expected impact of the covid-19 pandemic : as previously disclosed , our expected completion of study 045 was delayed as certain patients were unable to have the final study muscle biopsies performed at our clinical trial site at the university of california , los angeles as a result of the covid-19 pandemic . as a result , completion of the trial was delayed by approximately six months . the final study muscle biopsies were completed in october 2020 and we announced the results of study 045 in february 2021. although study 045 did not meet its pre-specified primary endpoint , we plan to discuss the study 045 dystrophin results and the totality of existing clinical and real-world data with the fda to determine if there is a potential path to approval based on these results and data . there is substantial risk that the fda will determine that the results from our clinical trials and existing real-world data are not sufficient to support a marketing approval for translarna for the treatment of nmdmd in the united states . in that case , as we expect to have data for study 041 in the third quarter of 2022 , and subject to a positive outcome in that study , we would plan to re-submit the nda at that time . as previously disclosed , certain of the third-party development and manufacturing organizations that we contract with for analytical testing have prioritized materials and testing kits to support sars-cov 2 testing , diverted employees to support covid-19 related programs and reduced their workforce to comply with social distancing requirements imposed in connection with the covid-19 pandemic . as a result of this shift in resources , we experienced a delay in generating analytical data needed to respond to questions sent by the ema regarding our maa for ptc-aadc for the treatment of aadc deficiency in the eea . following a clock stop extension , we submitted responses to the ema 's questions and we currently expect an opinion from the chmp in the second quarter of 2021 . 142 as previously disclosed , in response to discussions with the fda we intend to provide additional information concerning the use of the commercial cannula for ptc-aadc in young patients . however , due to hospitals generally canceling elective surgeries in response to the covid-19 pandemic and other administrative delays resulting from the covid-19 pandemic , we have been delayed in our ability to gather such information . we now anticipate submitting a bla for ptc-aadc for the treatment of aadc deficiency in the united states in the second quarter of 2021. as a result of the covid-19 pandemic , the brazilian ministry of health is continuing to experience significant delays processing centralized group purchase orders . almost all of our brazilian product revenue for translarna is attributable to such purchase orders . these centralized group purchase order delays have caused , and may continue to cause , fluctuations in our ability to generate revenue in brazil . the covid-19 pandemic has impacted multiple investigational new drug application , or ind , enabling activities for our gene therapy programs targeting friedreich ataxia and angelman syndrome . we expect to dose our first patient in a clinical study for our friedreich ataxia program by the end of 2021 and we continue to work towards submitting a filing in support of the first-in-human study for our angelman syndrome program . to date , except as otherwise disclosed with respect to brazil , our ability to generate revenue has not been significantly affected by the covid-19 pandemic . however , due to travel restrictions , social distancing and the continued global uncertainty resulting from the covid 19 pandemic , we may have difficulty identifying and accessing new patients , supporting existing patients and meeting with regulatory authorities or other governmental entities , which may negatively affect our future revenue . we continue to remotely connect with our existing patient base and have not encountered any material issues in supplying those patients .
| financial operations overview to date , our net product revenues have consisted primarily of sales of translarna for the treatment of nmdmd in territories outside of the united states and sales of emflaza for the treatment of dmd in the united states . our process for recognizing revenue is described below under “ critical accounting policies and significant judgments and estimates—revenue recognition ” . roche and the sma foundation collaboration . in november 2011 , we entered into the sma license agreement pursuant to which we are collaborating with roche and the sma foundation to further develop and commercialize compounds identified under our sma program with the sma foundation . the research component of this agreement terminated effective december 31 , 2014. we are eligible to receive additional payments from roche if specified events are achieved with respect to each licensed product , including up to $ 135.0 million in research and development event milestones , up to $ 325.0 million in sales milestones upon achievement of specified sales events , and up to double digit royalties on worldwide annual net sales of a commercial product . as of december 31 , 2020 , we had recognized a total of $ 105.0 million in milestone payments and $ 4.8 million royalties on net sales pursuant to the sma license agreement . as of december 31 , 2020 , the remaining potential research and development event milestones that can be received is $ 30.0 million . the remaining potential sales milestones as of december 31 , 2020 are $ 325.0 million upon achievement of certain sales events . pursuant to the royalty purchase agreement , we sold to rpi the assigned royalty payment , in consideration for $ 650.0 million . we have retained a 57.067 % interest in the royalty and all economic rights to receive the remaining potential regulatory and sales milestone payments under the license agreement .
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the company received $ 0.3 million and $ 0.5 million in cash proceeds from the exercise of stock options during the years ended december 31 , 2019 and 2018 , respectively . upon exercising of options , the company withheld shares for employee taxes of 1 thousand and 6 thousand for the years ended december 31 , 2019 and 2018 , respectively . the total intrinsic value of options exercised during the years ended december 31 , 2019 and 2018 was $ 1.0 million and $ 4.1 million , respectively . restricted stock : the company has issued restricted stock to employees and nonemployee directors generally with vesting terms up to five years after the date of grant . the fair value of the restricted stock is equal to the market price of the company 's common stock on the date of grant . expense for restricted stock is amortized ratably over the vesting period . a summary of outstanding restricted stock and award activity as of december 31 , 2019 and 2018 are as follows : replace_table_token_17_th the total fair value of restricted stock awards vested during the years ended december 31 , 2019 , 2018 and 2017 was $ 4.7 million , $ 8.6 million , and $ 6.8 million , respectively . the total share-based compensation charged against income during the years ended december 31 , 2019 , 2018 and 2017 was $ 4.5 million , $ 3.1 million , and $ 4.3 million , respectively . the total costs of the options and restricted stock awards charged against income was $ 2.9 million , $ 2.2 million and $ 3.4 million during the years ended december 31 , 2019 , 2018 and 2017 , respectively . also included in the years ended december 31 , 2019 , 2018 and 2017 was $ 0.3 million , respectively , for 63,300 performance-based deferred shares in expense for certain key executives that became fully vested on december 31 , 2019. included for each of the years ended december 31 , 2019 , 2018 and 2017 was $ 0.6 million in expense for 210,000 performance-based contingent shares granted to our chief executive officer ( “ ceo ” ) that became fully vested on december 31 , 2019 based on the achievement of certain company performance targets . included for the year ended december 31 , 2019 was $ 0.7 million for 17,780 performance-based contingent shares for certain other key executives granted in 2019 . 48 the total income tax benefit recognized in the consolidated statements of income for restricted stock awards was $ 7.5 million , $ 2.5 million and $ 2.1 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . there was $ 2.7 million of total unrecognized compensation cost related to restricted stock awards as of december 31 , 2019 , which is expected to be recognized over a weighted-average period of 1.90 years . there was $ 1.6 million of unrecognized compensation cost related to the 17,780 performance-based shares discussed above as of december 31 , 2019 , which is expected to be recognized over 2.00 years . 9. accumulated other comprehensive income ( loss ) the following table sets forth the components of accumulated other comprehensive income ( loss ) , net of tax where applicable ( in thousands ) : replace_table_token_18_th 10. financial instruments certain financial assets and liabilities are accounted for at fair value , which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the following fair value hierarchy prioritizes the inputs used to measure fair value : level 1 – quoted prices are available in active markets for identical assets or liabilities as of the reporting date . active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis . level 2 – pricing inputs are other than quoted prices in active markets included in level 1 , which are either directly or indirectly observable as of the reporting date . level 2 includes those financial instruments that are valued using models or other valuation methodologies . level 3 – pricing inputs include significant inputs that are generally less observable from objective sources . these inputs may be used with internally developed methodologies that result in management 's best estimate of fair value from the perspective of a market participant . 49 the following tables present the company 's cash and financial assets that are measured at fair value on a recurring basis for each of the hierarchy levels ( in thousands ) : replace_table_token_19_th replace_table_token_20_th the company had no realized losses or gains for the years ended december 31 , 2019 , 2018 and 2017 , respectively . as of december 31 , 2019 , 2018 , and 2017 , gross unrealized losses and gains related to individual securities that had been in a continuous loss position for 12 months or longer were not significant . the maturities of the company 's investment securities generally range up to 3 years for municipal bonds and for government and agency securities . 50 11. income taxes income tax expense for the years ended december 31 , 2019 , 2018 and 2017 consisted of story_separator_special_tag critical accounting policies and estimates our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america . our significant accounting policies are described in note 2 to the consolidated financial statements . story_separator_special_tag the portion of the benefits associated with tax positions taken that exceeds the amount measured as 26 described above is reflected as a liability for unrecognized tax benefits in our consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination . we evaluated our tax positions and determined that we did not have any material uncertain tax positions . our policy is to recognize interest and penalties accrued on uncertain tax positions as part of income tax expense . for the years ended december 31 , 2019 , 2018 and 2017 , no material estimated interest or penalties were recognized for the uncertainty of certain tax positions . we file income tax returns in the united states , and various states and foreign jurisdictions . we are generally no longer subject to united states federal , state and local income tax examinations by tax authorities for the years before 2016. deferred tax assets are recognized for deductible temporary differences 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 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 will not be realized . deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment . leases : the company determines if an arrangement is a lease at inception and categorizes leases with contractual terms longer than twelve months as either operating or finance . all the company 's leases are operating leases . the right-of-use ( “ rou ” ) assets represent the company 's right to use an underlying asset for the lease term , and lease liabilities represent an obligation to make lease payments arising from the lease . rou assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term . as most of the company 's leases do not provide an implicit interest rate , the company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments . the rou asset also consists of any prepaid lease payments and lease incentives received . the lease terms used to calculate the rou asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the company will exercise that option . lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense . background medifast is the company behind one of the fastest-growing health and wellness communities called opta via ® , which offers lifelong transformation , one healthy habit at a time ® . reflecting the success of its approach to health and wellness for its clients , medifast has consistently grown revenue ahead of peers and competitors . of equal importance , our business model is expected to deliver reliable growth year after year . medifast has redefined direct selling by combining the best aspects of the model , while eliminating those dimensions that have typically challenged other companies . medifast is often compared to diet and weight loss-only companies or to multi-level marketing companies , but our model is very different . the company supports clients through independent opta via coaches , majority of whom were clients first . our product sales accounted for 98 % of our revenues in 2019 , 2018 , and 2017 , respectively . we review and analyze a number of key operating and financial metrics to manage our business , including the number of active earning opta via coaches and average quarterly revenue generated per opta via coach in the opta via business unit . as we previously disclosed , global expansion is an important component of our long-term growth strategy . in july 2019 , we commenced our international operations , entering into the asia pacific markets of hong kong and singapore . our decision to enter these markets was based on industry market research that reflects a dynamic shift in how health care is being prioritized and consumed in those countries . our opta via business unit accounted for approximately 96.4 % , 92.9 % , and 85.1 % of our revenues in 2019 , 2018 and 2017 , respectively . in march 2018 , we announced a change in how our business is managed , operating performance is reviewed and resources are allocated . as a result , beginning in the first quarter of 2018 , we changed how we report financial performance to align with changes in the way we now manage the business and now operate and report as a single sales segment , opta via . we previously disclosed entity-wide financial information for multiple segments ( e.g . opta via , medifast direct , franchise medifast weight control centers and medifast wholesale ) . although we have 27 one reportable segment , we continue to market our products and programs through our medifast direct ecommerce platform and our franchise medifast weight control center channels . consolidated results of operations - 2019 compared to 2018 the following table reflects our consolidated statements of income for the years ended december 31 , 2019 and 2018 ( in thousands , except percentages ) : replace_table_token_4_th story_separator_special_tag style= '' clear : both ; max-width:100 % ; position : relative ; min-height:11.5pt ; '' > declaration and payment of dividends . the company 's cash , cash equivalents and investment securities decreased from $ 101.0 million at december 31 , 2018 to $ 92.7 million at december 31 , 2019. net cash provided by operating activities increased $ 23.5 million
| revenue : revenue increased $ 212.7 million , or 42.4 % , to $ 713.7 million in 2019 from $ 501.0 million in 2018. the total number of active earning opta via coaches for the three months ended december 31 , 2019 increased to 31,800 from 24,100 for the corresponding period in 2018 , an increase of 32.0 % . the average revenue per active earning opta via coach decreased 9.2 % to $ 5,229 for the three months ended december 31 , 2019 from $ 5,756 for the three months ended december 31 , 2018. this year-over-year growth in revenue resulted from business initiatives accelerating new opta via coach conversions , increased opta via client acquisition rates and the transition of clients to higher priced opta via branded products . costs of sales : cost of sales increased $ 55.7 million , or 46.0 % , to $ 176.8 million in 2019 from $ 121.1 million in 2018. this increase in cost of sales was primarily driven by an increase in product sales . gross profit : in 2019 , gross profit increased $ 157.0 million , or 41.3 % , to $ 536.9 million from $ 379.9 million in 2018. as a percentage of sales , gross profit decreased 60 basis points to 75.2 % for 2019 from 75.8 % for 2018. the decrease in gross profit as a percentage of sales was primarily driven by higher shipping expenses and higher product returns related to disruptions to normal business operations during the year .
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on september 3 , 2015 , sandoz announced that they launched zarxio , a biosimilar version of neupogen ® , in the united states . on february 17 , 2015 , apotex announced that the fda accepted for filing its application , under the abbreviated pathway , for its biosimilar version of neupogen ® . for discussion of ongoing litigation , see part iv—note 18 , contingencies and commitments , to the consolidated financial statements . see part 1 , item 1. business—marketing , distribution and selected marketed products—competition and part iv—note 18 , contingencies and commitments , to the consolidated financial statements . future neupogen ® sales will also depend , in part , on the development of new protocols , tests and or treatments for cancer and or new chemotherapy treatments or alternatives to chemotherapy that may have reduced and may continue to reduce the use of chemotherapy in some patients . other products other product sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_15_th * change in excess of 100 % 45 operating expenses operating expenses were as follows ( dollar amounts in millions ) : replace_table_token_16_th * change in excess of 100 % transformation and process improvement during the second half of 2014 , we announced process improvement and transformation initiatives that are enabling us to invest in continuing innovation , expand into new countries and launch new products , while improving our cost structure . this plan includes a restructuring , which is delivering cost savings and funding investments . the restructuring includes reducing our geographic footprint , as well as reducing our staff by 3,500 to 4,000 , both of which allow us to reinvest and hire in our strategic areas of focus . we estimate that this restructuring plan will result in pre-tax accounting charges in the range of $ 800 million to $ 900 million , which is less than originally expected due to better than anticipated results from the exit of two of our closed facilities . restructuring costs to date of $ 672 million were incurred as of december 31 , 2015. during the years ended december 31 , 2015 and 2014 , we incurred restructuring costs of $ 114 million and $ 558 million , respectively . we expect that we will incur most of the remaining estimated costs in 2016 and 2017 in order to support our ongoing transformation and process improvement efforts . net savings were not significant in 2015 and 2014 due to the investments in new product launch preparations , later stage clinical programs and external business development . additional information required for our restructuring plan is incorporated herein by reference to part iv—note 2 , restructuring and other cost savings initiatives , to the consolidated financial statements . cost of sales cost of sales decreased to 19.5 % of total revenues for 2015 , driven primarily by lower royalties , higher net selling prices , manufacturing efficiencies and lower costs related to our restructuring plan . the year ended december 31 , 2014 , also had a $ 99-million charge related to the termination of the supply contract with roche as a result of acquiring the licenses to filgrastim and pegfilgrastim effective january 1 , 2014. cost of sales increased to 22.0 % of total revenues for 2014 , driven by acquisition-related expenses that included an increase of $ 642 million of non-cash amortization of intangible assets acquired in the onyx acquisition . the year ended december 31 , 2014 , also included impairment and accelerated depreciation charges pursuant to our restructuring initiative of $ 104 million as well as the aforementioned $ 99-million charge related to the termination of the supply contract with roche . the excise tax imposed by puerto rico on the gross intercompany purchase price of goods and services from our manufacturer in puerto rico ( puerto rico excise tax ) is recorded as a cost of sales expense . excluding the impact of the puerto rico excise tax , cost of sales would have been 17.8 % , 20.1 % and 16.0 % of total revenues for 2015 , 2014 and 2013 , respectively . see part iv—note 5 , income taxes , to the consolidated financial statements for further discussion of the puerto rico excise tax . 46 research and development the company groups all of its r & d activities and related expenditures into three categories : ( 1 ) discovery research and translational sciences ( drts ) , ( 2 ) later stage clinical programs and ( 3 ) marketed products . these categories include the company 's r & d activities as set forth in the following table : category description drts r & d expenses incurred in activities substantially in support of early research through the completion of phase 1 clinical trials . these activities encompass our drts functions , including drug discovery , toxicology , pharmacokinetics and drug metabolism , and process development . later stage clinical programs r & d expenses incurred in or related to phase 2 and phase 3 clinical programs intended to result in registration of a new product or a new indication for an existing product in the united states or the eu . marketed products r & d expenses incurred in support of the company 's marketed products that are authorized to be sold in the united states or the eu . story_separator_special_tag includes clinical trials designed to gather information on product safety ( certain of which may be required by regulatory authorities ) and their product characteristics after regulatory approval has been obtained , as well as the costs of obtaining regulatory approval of a product in a new market after approval in either the united states or the eu has been obtained . r & d expense by category was as follows ( in millions ) : replace_table_token_17_th the decrease in r & d expense for 2015 was driven by decreased costs associated with later stage clinical programs support of $ 411 million and drts of $ 215 million , offset partially by increased costs associated with marketed products support of $ 399 million . all categories of r & d spend benefited from savings from transformation and process improvement efforts under our restructuring plan , which were offset partially by increased launch related spend in marketed products , primarily repatha ® . prior to approval , costs related to our launch products were largely categorized as later stage clinical programs . the 2015 drts expenses also included up-front milestone payments related to our collaborations with xencor , inc. and novartis . the increase in r & d expense for 2014 was driven primarily by increased costs of $ 326 million associated with onyx across all categories of r & d spend , as well as increased costs associated with other later stage clinical program support . overall , costs associated with later stage clinical programs support increased $ 337 million , offset partially by reduced expenses associated with marketed products support of $ 102 million and drts activities of $ 21 million . the 2014 drts expenses also included a $ 60 million upfront payment related to our cancer immunotherapy collaboration with kite pharma , inc. selling , general and administrative the increase in selling , general and administrative ( sg & a ) expense for 2015 was driven primarily by new product launches offset partially by savings from transformation and process improvement efforts under our restructuring plan . 2014 also included an additional $ 129 million accrual for the bpd fee as the final regulations accelerated the expense recognition criteria for the fee obligation by one year . the decrease in sg & a expense for 2014 was driven primarily by the expiration of the enbrel profit share in october 2013 , which reduced expenses by $ 818 million . that decline was offset partially by the addition of $ 183 million as a result of the onyx acquisition , the aforementioned additional accrual for the bpd fee and increased commercial expenses of $ 109 million in preparation for new product launches . historically , under our enbrel collaboration agreement , we paid pfizer a percentage of annual gross profits on our enbrel sales in the united states and canada on a scale that increased with gross profits . the enbrel co-promotion term expired on october 31 , 2013 , and we are required to pay pfizer residual royalties on a declining percentage of net enbrel sales in the united states and canada . the royalty percentage was 12 % through october 31 , 2014 , declining to 11 % through october 31 , 2015 , and 10 % through october 31 , 2016. effective november 1 , 2016 , there will be no further royalty payments . 47 other other operating expenses for 2015 included $ 91 million of charges related to legal proceedings , certain charges related to our restructuring initiatives , primarily separation costs of $ 49 million , $ 31 million of write-offs of non-key assets acquired in a prior year business combination , and $ 111 million of gains from the sale of assets related to our site closures . other operating expenses for 2014 included certain charges related to our restructuring plan , primarily separation costs of $ 377 million . it also included a $ 46 million write-off of a non-key ipr & d program acquired in a prior year business combination . other operating expenses for 2013 included $ 113 million of adjustments to our estimated contingent consideration liability related to the biovex group , inc. ( biovex ) business combination , certain charges related to our other cost savings initiatives of $ 71 million , which included severance expenses , and $ 12 million of other charges related primarily to legal proceedings . non-operating expenses/income and provision for income taxes non-operating expenses/income and provision for income taxes were as follows ( dollar amounts in millions ) : replace_table_token_18_th interest expense , net the increase in interest expense , net in 2015 compared with 2014 was due primarily to a higher average amount of fixed rate debt outstanding , offset partially by the impacts of repayment of variable rate debt . the increase in interest expense , net in 2014 compared with 2013 was due primarily to a higher average balance of debt outstanding , offset partially by lower average borrowing rates . interest and other income , net the increase in interest and other income , net for 2015 compared with 2014 was due primarily to higher interest income as a result of higher average cash and investment balances with a modestly higher portfolio yield , offset partially by net losses on sales of interest bearing securities in 2015. the increase in interest and other income , net for 2014 compared with 2013 was due primarily to interest earned as a result of a higher average balance of cash and investments offset partially by a reduction in income realized from the sale of investments in 2014. income taxes the increase in our effective tax rate for 2015 compared with 2014 was due primarily to the unfavorable tax impact of changes in the jurisdictional mix of income and expenses and lower domestic restructuring costs in 2015. the increase in our effective tax rate for 2014 compared with 2013 is due primarily
| results of operations product sales worldwide product sales were as follows ( dollar amounts in millions ) : replace_table_token_6_th future sales of our products will depend , in part , on the factors discussed in the overview , part 1—item 1. business—marketing , distribution and selected marketed products—competition , part 1—item 1a . risk factors and any additional factors discussed in the individual product sections below . in addition , for a list of our products ' significant competitors , see part 1—item 1. business—marketing , distribution and selected marketed products—competition . enbrel total enbrel sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_7_th the increase in enbrel sales for 2015 was driven primarily by an increase in net selling price offset partially by the impact of competition . the increase in enbrel sales for 2014 was driven primarily by an increase in net selling price offset partially by unfavorable changes in wholesaler and , based on prescription data , end-user inventories . neulasta ® total neulasta ® sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_8_th 42 the increase in global neulasta ® sales for 2015 was driven primarily by an increase in net selling price in the united states , offset partially by unfavorable changes in foreign currency exchange rates . as of the end of december 2015 , the neulasta ® onpro kit represents approximately one fourth of our u.s. neulasta ® business . in december 2014 , the fda granted approval of the neulasta ® onpro kit which enables the healthcare provider to initiate administration of neulasta ® on the same day as chemotherapy—with delivery of the patient 's full dose of neulasta ® the day following chemotherapy administration , consistent with the neulasta ® prescribing information . the increase in global neulasta ® sales for 2014 was driven primarily by an increase in net selling price in the united states .
| 6,007 |
covid-19 may impact the timing of regulatory approval of the inds for clinical trials , the enrollment of any clinical trials that are approved , the availability of clinical trial materials and regulatory approval and commercialization of our products . covid-19 may also impact the company 's ability to access capital , which could negatively impact short-term and long-term liquidity . cash and cash equivalents the company considers all highly liquid investments purchased with maturities of three months or less from the purchase date to be cash equivalents . as of december 31 , 2020 and 2019 , cash and cash equivalents consist of cash deposited with banks and investments in money market funds with maturities of three months or less from the date of purchase . marketable debt securities marketable debt securities are investments in marketable debt securities with maturities greater than three months at the time of purchase . the company determines the appropriate classification of its investments in marketable debt securities at the time of purchase and reevaluates such designation at each balance sheet date . the company has classified and accounted for its marketable debt securities as available-for-sale . the company classifies highly story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this annual report on form 10-k contain forward-looking statements that involve risks and uncertainties , such as our plans , objectives , expectations , intentions and beliefs . 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 identified below and those discussed in the section entitled “ risk factors ” included elsewhere in this annual report on form 10-k. overview we are a biotechnology company discovering and developing allogeneic gamma delta t cell therapies for cancer and other diseases . we are advancing a pipeline of “ off-the-shelf ” gamma delta t cells , engineered with cars and t cell receptor-like antibodies to enhance selective tumor targeting , facilitate innate and adaptive anti-tumor immune response , and improve persistence for durable activity in patients . we believe our approach has potentially significant advantages over alpha beta t cells , which are the basis of standard car-t cell therapies . we are developing proprietary processes for engineering and manufacturing product candidates based on gamma delta t cells from the blood of healthy donors , resulting in high yields of cells with efficacious tumor-killing activity in preclinical studies . the potential to administer product candidates based on gamma delta t cells to patients without inducing a graft versus host immune response could mean that our products can potentially be produced as “ off-the-shelf ” therapies . this is in contrast to products based on alpha beta t cells , which either must be manufactured for each patient from his or her own t cells , or require significant gene editing to manufacture if the t cells are derived from donors that are unrelated to the patient . based on what we believe is the unique potential of these cells and associated modifications , we are initially developing product candidates in oncology , both for hematological malignancies and for solid tumors . due to certain unique properties of gamma delta t cells , we believe that our product candidates can be developed to have an inherent capacity to recognize and kill circulating tumor cells and to infiltrate and kill solid tumors . in october 2020 , the fda cleared our investigational new drug ( ind ) application for adi-001 , our lead product candidate , for the treatment of non-hodgkin 's lymphoma ( nhl ) . the active ind enables us to initiate the first-in-human clinical trial to assess safety and efficacy of adi-001 in nhl patients in march 2021. the phase 1 study for adi-001 will enroll up to 80 late-stage non-hodgkin 's lymphoma patients at a number of cancer centers across the u.s. the study includes a dose finding portion followed by dose expansion cohorts to explore the activity of adi-001 in multiple subtypes of nhl . site initiation activities are underway and interim clinical data from this study are expected in 2021. we intend to file an ind with the fda in late 2021 for adi-002 , our first solid tumor product candidate . recent developments reverse merger on april 28 , 2020 , adicet bio , inc. ( former adicet ) entered into an agreement and plan of merger with restorbio , inc. , a delaware corporation ( restorbio ) , and project oasis merger sub , inc. , a delaware corporation and a direct , wholly owned subsidiary of restorbio ( merger sub ) , pursuant to which , subject to the satisfaction or waiver of the conditions therein , merger sub agreed to merge with and into former adicet , with former adicet surviving as a wholly owned subsidiary of restorbio and changing the name to adicet therapeutics , inc. , ( such transactions , the merger ) . the merger was subject to certain conditions , including the approval of restorbio stockholders . on september 15 , 2020 , we completed the merger . in connection with the completion of the merger , restorbio was renamed adicet bio , inc. ( adicet bio ) . immediately prior to the effective time of the merger , restorbio effected a reverse stock split of its common stock at a ratio of 1-for-7 or the reverse stock split ) . at the effective time of the merger , each outstanding share of former adicet 's capital stock was converted into the right to receive 0.1240 ( the exchange ratio ) shares of restorbio common stock . the business combination has been accounted for as a reverse merger in accordance with the generally accepted accounting principles in the united states of america ( u.s. gaap or gaap ) . story_separator_special_tag while the potential economic impact brought by , and the duration of , covid-19 may be difficult to assess or predict , a widespread pandemic could result in significant disruption of global financial markets , reducing our ability to access capital , which could in the future negatively affect our liquidity . in addition , a recession or market correction resulting from the spread of covid-19 could materially affect our business . possible effects may also include absenteeism in our labor workforce , unavailability of products and supplies used in operations , and a decline in value of assets held by us , including property and equipment , and marketable debt securities . loan agreement on april 28 , 2020 , we entered into a loan and security agreement with pacific western bank for a term loan not exceeding $ 12.0 million ( the loan agreement ) to finance leasehold improvements for our facilities in redwood city , ca and other purposes permitted under the loan agreement , with an interest rate equal to the greater of 0.25 % above the prime rate 86 ( as defined in the loan agreement ) or 5.00 % . in connection with the entrance into the loan agreement , we issued pacific western bank a warrant to purchase shares of our series b redeemable convertible preferred stock ( described below ) at an exercise price of $ 1.4034 per share . such warrant was initially exercisable for 42,753 shares of our series b redeemable convertible preferred stock . upon the closing of the merger , it was exchanged for a warrant to purchase 5,301 shares of common stock at an exercise price of $ 11.32 per share and shall be exercisable for an additional number of shares of common stock equal to 1.00 % of the aggregate original principal amount of all term loans made pursuant to the loan agreement ( up to an aggregate maximum of 15,903 shares of common stock ) . the loan agreement contains a variety of affirmative and negative covenants , including required financial reporting , limitations on certain dispositions of assets , limitations on the incurrence of additional debt and other requirements . as of the date of this annual report on form 10- k , we were in compliance with such covenants and had no indebtedness outstanding under the loan agreement . at-the-market ( atm ) offering on december 1 , 2020 , we entered into a sales agreement ( the 2020 sales agreement ) with evercore group l.l.c . and h.c. wainwright & co. , llc ( collectively , the agents ) , pursuant to which we could sell , from time to time , at our option , up to an aggregate of $ 50.0 million of shares of our common stock , through the agents , as our sales agents . no shares were sold under the 2020 sales agreement before it was terminated in february 2021. financial operations overview revenue we have no products approved for commercial sale and do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for our product candidates , which we expect will not be for at least several years , if ever . our revenues to date are generated from our license and collaboration agreement with regeneron pharmaceuticals , inc. ( regeneron ) and the agreement referred to as the “ regeneron agreement ” . the primary purpose of the regeneron agreement is to establish a strategic relationship to identify and validate appropriate targets and work together to develop a pipeline of engineered immune cell products ( collaboration icps ) for the selected targets . the regeneron agreement provides for the following : ( i ) licenses to our technology , ( ii ) research and development services , ( iii ) services or obligations in connection with participation in the research committee , ( iv ) information sharing , and ( v ) manufacturing services to manufacture of collaboration icps for the research programs . the regeneron agreement provides regeneron an option to obtain an exclusive , royalty-bearing development and commercial license under our intellectual property to develop and commercialize the optioned collaboration icps ready for an ind submission . we received a non-refundable upfront payment of $ 25.0 million from regeneron upon execution of the regeneron agreement on july 29 , 2016 and have received an aggregate of $ 20.0 million of additional payments for research funding from regeneron as of december 31 , 2020. in addition , regeneron may have to pay us additional amounts in the future consisting of up to an aggregate of $ 100.0 million of option exercise fees , in each case as specified in the regeneron agreement . regeneron must also pay us high single digit royalties as a percentage of net sales for icps to targets for which it has exclusive rights and low single digit royalties as a percentage of net sales on any non-icp product comprising a target generated by us through the use of regeneron 's proprietary mice . we must pay regeneron mid-single to low double digit royalties as a percentage of net sales of icps to targets for which we have exercised exclusive rights , and low to mid-single digit royalties as a percentage of net sales of targeting moieties generated from our license to use regeneron 's proprietary mice . royalties are payable until the longer of the expiration or invalidity of the licensed patent rights or 12 years from first commercial sale . we use a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize under the regeneron agreement . in applying the cost-based input method of revenue recognition , we use actual costs incurred relative to budgeted costs to fulfill the combined performance obligation . revenue is recognized based on actual costs incurred as a percentage of total budgeted costs as we complete our performance obligations over the research term of five years .
| summary statement of cash flows the following table sets forth the primary sources and uses of our cash , cash equivalents , and restricted cash for each of the periods presented below ( in thousands ) : replace_table_token_6_th cash flows from operating activities net cash used in operating activities was $ 41.6 million for the year ended december 31 , 2020. cash used in operating activities was primarily due to the use of funds in our operations to develop our product candidates resulting in a net loss of $ 36.7 million , adjusted for non-cash activities of $ 8.6 million . the non-cash activities are composed of depreciation expense of $ 1.2 million , a non-cash lease expense of $ 0.7 million , stock-based compensation expense of $ 5.3 million , a non-cash change in fair value of the redeemable convertible preferred stock warrant liability of $ 0.9 million , a non-cash expense for impairment of ipr & d of $ 2.3 million , a gain on the remeasurement of contingent consideration liability of $ 1.9 million , and amortization of the deferred debt issuance cost of $ 0.1 million . changes in operating assets and liabilities were composed of an increase in prepaid expenses and other current assets of $ 3.2 million , an increase in other non-current assets of $ 1.3 million , a decrease in contract liabilities of $ 7.9 million , a decrease in deferred tax liability of $ 0.2 million , a decrease in lease liabilities of $ 0.9 million , and a decrease in accounts payable of $ 0.8 million , partially offset by an increase in accrued and other current liabilities of $ 0.8 million .
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118 , which provides for a measurement period of one year from the enactment date to finalize the accounting for effects of the tcja , the company provisionally recorded income tax expense of $ 7.8 million related to the tcja in 2017. in accordance with sec guidance , provisional amounts may be refined as a result of additional guidance from , and interpretations by , u.s. regulatory and story_separator_special_tag this discussion and other items in this annual report on form 10-k contain forward-looking statements and information that are based on management 's beliefs , as well as assumptions made by , and information currently available to , management . when used 47 in this document , the words “ believe , ” “ anticipate , ” “ estimate , ” “ expect , ” “ intend , ” “ may , ” “ will , ” “ project , ” “ forecast , ” “ plan , ” and similar expressions are intended to identify forward-looking statements . although management believes that the expectations reflected in these forward-looking statements are reasonable , it can give no assurance that these expectations will prove to have been correct . these statements are subject to numerous risks , uncertainties and assumptions . see cautionary statement concerning forward-looking statements in this report . certain of these risks are summarized in this report under item 1a . risk factors , which you should read carefully in connection with our forward-looking statements . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those anticipated . we undertake no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events . overview we are a growth-oriented independent oil and gas company engaged in the acquisition and development of oil and gas reserves through activities that include the acquisition , drilling and development of undeveloped leases , asset and corporate acquisitions and mergers . our operations are all in the upstream segment of the oil and natural gas industry and all our properties are onshore in the united states . at present , our assets are located in the midland basin of west texas and the eagle ford trend of south texas . earthstone is the sole managing member of earthstone energy holdings , llc , a delaware limited liability company ( together with its wholly-owned consolidated subsidiaries , “ eeh ” ) , with a controlling interest in eeh . earthstone , together with its wholly-owned subsidiary , lynden corp , and lynden corp 's wholly-owned consolidated subsidiary , lynden us and also a member of eeh , consolidates the financial results of eeh and records a noncontrolling interest in the consolidated financial statements representing the economic interests of eeh 's members other than earthstone and lynden us ( collectively , the “ company ” “ our , ” “ we , ” “ us , ” or similar terms ) . areas of operation our primary focus is concentrated in the midland basin of west texas , a high oil and liquids rich resource which provides us with multiple horizontal target horizons , extensive production histories , long-lived reserves and historically high drilling success rates . midland basin we believe that the midland basin continues to have attractive economics and we expect to continue to focus our attention on growing our footprint through development drilling , acreage trades , asset acquisitions , and corporate merger and acquisition opportunities . we have been operating a one drilling rig program in the midland basin and plan to maintain a one rig program throughout 2019. in january 2019 , we concluded drilling the second well on a two-well pad in upton county and moved the rig to midland county to drill five wells in our mid-states unit . we began completing three wells in february 2019 and expect to begin completing the five mid-states wells in june 2019. we continue to be active in acreage trades and acquisitions in the midland basin which generally allow for longer laterals , increased operated inventory and greater operating efficiency . eagle ford trend we drilled five wells in southern gonzales county , texas in 2018 and completed 11 wells in the area during the year . we expect to drill seven wells in this area during 2019 and may consider additional drilling based on improvement in the commodity prices . terminated contribution agreement as previously disclosed in our current report on form 8-k filed on october 17 , 2018 with the sec , on october 17 , 2018 , earthstone , eeh and sabalo holdings entered into the contribution agreement which provided for the sabalo acquisition . on december 21 , 2018 , earthstone , eeh and sabalo holdings entered into the termination agreement , pursuant to which the parties mutually agreed to terminate the contribution agreement . in connection with the termination agreement , earthstone , eeh and sabalo holdings also agreed to release each other from certain claims and liabilities arising out of or related to the contribution agreement and the transactions contemplated therein or thereby . in addition , we estimated total transaction costs to be approximately $ 13.4 million , including payment to sabalo holdings of $ 1.6 million for reimbursement of expenses . all other related agreements were also terminated in conjunction with the termination of the contribution agreement . midland basin acreage trade 48 on october 5 , 2018 , we closed the exchange . under the terms of the exchange , we acquired 3,899 net operated acres in reagan county with virtually a 100 % working interest , in exchange for 1,222 net non-operated acres in glasscock county with an average working interest of 39 % and $ 27.8 million in cash , plus customary closing adjustments . story_separator_special_tag consolidated statement of equity , and ( 3 ) income tax expense of $ 12.6 million related to the reduction of the amount in its deferred tax asset resulting from the federal corporate income tax rate reduction to 21 % which was fully offset by the reduction in its valuation allowance for that amount because the future realization of such loss can not be reasonably assured and is subject to a full valuation allowance . lynden corp incurred no material income or loss , or related income tax expense or benefit , for the year ended december 31 , 2017 . liquidity and capital resources 52 we have significant undeveloped acreage and future drilling locations . drilling horizontal wells , generally consisting of 7,500 to 12,000-foot lateral lengths , in the midland basin is capital intensive . at december 31 , 2018 , we had approximately $ 0.4 million in cash and approximately $ 196.2 million in unused borrowing capacity under the eeh credit agreement ( discussed below ) for a total of approximately $ 196.5 million in funds available for operational and capital funding . we currently estimate 2019 capital expenditures will be approximately $ 190 million , which assumes a 16-well program running one rig for our operated acreage in the midland basin and a seven-well program for our operated eagle ford acreage as well as estimated expenditures for our non-operated midland basin properties and land and infrastructure activities . we likely will continue to outspend our cash flows provided by operating activities over at least the next 12 months from the date of this report based on current assumptions . however , we believe we will have sufficient liquidity with cash flows from operations and borrowings under the eeh credit agreement for the next 12 months in order to meet our cash requirements . we may consider various financial arrangements or other techniques or transactions , including but not limited to promoted drilling arrangements . working capital , defined as total current assets less total current liabilities as set forth in our consolidated balance sheets , was a deficit of $ 18.3 million as of december 31 , 2018 compared to a deficit of $ 21.8 million as of december 31 , 2017 . we used $ 150.0 million to fund our capital program , in addition to $ 32.6 million to acquire additional oil and natural gas properties , offset by $ 6.0 in cash proceeds from the disposition of certain non-core oil and natural gas properties in the eagle ford trend , that was facilitated by $ 102.4 million of net cash provided by our operating activities resulting from increased oil prices as well as increased production resulting from our 2018 drilling and development program , net borrowings of $ 53.8 million under the eeh credit agreement and a reduction of our cash on hand by $ 22.6 million . due to the costs incurred related to our drilling program , we may incur additional working capital deficits in the future . we expect that our pace of development , production volumes , commodity prices and differentials to nymex prices for our oil and natural gas production will continue to be the largest variables affecting our working capital . we expect to finance future acquisition and development activities through available working capital , cash flows from operating activities , borrowings under the eeh credit agreement and , various means of corporate and project financing , assuming we can effectively access debt and equity markets . in addition , as indicated above , we may continue to partially finance our drilling activities through the sale of participating rights to financial institutions or industry participants , and we could structure such arrangements on a promoted basis , whereby we may earn working interests in reserves and production greater than our proportionate share of capital costs . capital expenditures we have set our 2019 capital budget , which assumes a one-rig operated program and non-operated activities as currently proposed by operators , for our acreage in the midland basin as well as a seven-well program on our operated eagle ford acreage . our anticipated capital expenditures for 2019 are currently estimated at $ 190 million . our accrual basis capital expenditures for the years ended december 31 , 2018 and 2017 were as follows : replace_table_token_13_th in addition to the capital expenditures described above , on october 5 , 2018 , we closed the exchange . under the terms of the exchange , we acquired 3,899 net operated acres in reagan county with virtually a 100 % working interest , including producing assets representing a net production increase of approximately 350 boe/d , in exchange for 1,222 net non-operated acres in glasscock county with an average working interest of 39 % and $ 27.8 million in cash , plus customary closing adjustments . for further discussion , see note 3. acquisitions and divestitures to the notes to consolidated financial statements included in this report . credit agreement on november 6 , 2018 , in connection with a regularly scheduled borrowing base redetermination , the borrowing base under the eeh credit agreement was increased from $ 225.0 million to $ 275.0 million . as of december 31 , 2018 , we had $ 78.8 million of borrowings outstanding , bearing annual interest of 4.479 % , resulting in a remaining $ 196.2 million of borrowing base available under the eeh credit agreement . impairments to oil and natural gas properties 53 during 2018 , we recognized $ 4.6 million of non-cash asset impairments related to certain acreage expirations at our properties located in the eagle ford trend of south texas . see note 7. oil and natural gas properties in the notes to consolidated financial statements for a discussion of how impairments are measured . hedging activities the following table sets forth our outstanding derivative contracts at december 31 , 2018 . when aggregating multiple contracts , the weighted average contract price is disclosed . replace_table_token_14_th ( 1 ) the basis differential price is between lls argus crude and the wti nymex .
| results of operations year ended december 31 , 2018 compared to the year ended december 31 , 2017 replace_table_token_12_th ( 1 ) barrels of oil equivalent have been calculated on the basis of six thousand cubic feet ( mcf ) of natural gas equals one barrel of oil equivalent ( boe ) . ( 2 ) prices presented exclude any effects of oil and natural gas derivatives . nm – not meaningful oil revenues for the year ended december 31 , 2018 , oil revenues increased by approximately $ 52.2 million or 59 % relative to the comparable period in 2017 . of the increase , approximately $ 20.0 million was attributable to an increase in our realized price and $ 32.2 million was attributable to increased volume . our average realized price per bbl increased from $ 48.43 for the year ended december 31 , 50 2017 to $ 59.40 or 23 % for the year ended december 31 , 2018 . we had a net increase in the volume of oil sold of 542 mbbls or 30 % , primarily due to the bold properties acquired on may 9 , 2017 representing a partial prior year , partially offset by the impact of non-core asset divestitures that took place in the third and fourth quarters of 2017. natural gas revenues for the year ended december 31 , 2018 , natural gas revenues decreased by $ 1.4 million or 16 % relative to the comparable period in 2017 . of the decrease , approximately $ 2.1 million was attributable to a decrease in our realized price , partially offset by an increase of $ 0.7 million attributable to increased volume . our average realized price per mcf decreased from $ 2.69 for the year ended december 31 , 2017 to $ 2.05 or 24 % for the year ended december 31 , 2018 .
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such assets and liabilities can be classified as level 2 or level 3. we identified the valuation of certain level 2 and level 3 financial assets and liabilities as a critical audit matter because of the unobservable inputs , complexity of models and methodologies used by management and third-party specialists to estimate fair value . the valuations involve a high degree of auditor judgment and an increased extent of effort , including the need to involve f-1 our fair value specialist who possess significant quantitative and modeling experience , to audit and evaluate the appropriateness of the models and inputs . how the critical audit matter was addressed in the audit our audit procedures for certain level 2 and level 3 financial assets and liabilities included the following procedures , among others : we tested the operating effectiveness of the company 's valuation controls , including the : ◦ independent price verification controls . ◦ third-party specialist valuation model story_separator_special_tag . the purpose of this section is to discuss and analyze our consolidated financial condition , liquidity and capital resources and results of operations for the twelve months ended november 30 , 2019 and eleven months ended november 30 , 2018. for a discussion of our results of operations and liquidity and capital resources for the twelve months ended december 31 , 2017 , see `` management 's discussion and analysis of financial condition and results of operations '' in part ii , item 7 of our transition report on form 10-k for the fiscal year ended november 30 , 2018 , which was filed with the sec on january 29 , 2019. this analysis should be read in conjunction with the consolidated financial statements and related footnote disclosures contained in this report and the following `` cautionary statement for forward-looking information . '' cautionary statement for forward-looking information statements included in this report may contain forward-looking statements . such statements may relate , but are not limited , to projections of revenues , income or loss , development expenditures , plans for growth and future operations , competition and regulation , as well as assumptions relating to the foregoing . such forward-looking statements are made pursuant to the safe-harbor provisions of the private securities litigation reform act of 1995. forward-looking statements are inherently subject to risks and uncertainties , many of which can not be predicted or quantified . when used in this report , the words `` will , '' `` could , '' `` estimates , '' `` expects , '' `` anticipates , '' `` believes , '' `` plans , '' `` intends '' and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties . future events and actual results could differ materially from those set forth in , contemplated by or underlying the forward-looking statements . factors that could cause actual results to differ materially from any results projected , forecasted , estimated or budgeted or may materially and adversely affect our actual results include , but are not limited to , those set forth in item 1a . risk factors and elsewhere in this report and in our other public filings with the sec . undue reliance should not be placed on these forward-looking statements , which are applicable only as of the date hereof . except as may be required by law , we undertake no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report or to reflect the occurrence of unanticipated events . story_separator_special_tag includes net interest revenues ( expenses ) of $ 74.0 million , $ 8.5 million and $ ( 58.6 ) million for 2019 , 2018 and 2017 , respectively . ( 2 ) allocated net interest is not separately disaggregated in presenting our investment banking and capital markets results within net revenues by source . this presentation is aligned to our investment banking and capital markets internal performance measurement . ( 3 ) the amount for 2019 includes revenues of $ 3.1 million from our share of fees received by third party asset management companies with which we have revenue and profit share arrangements . ( 4 ) beginning with the first quarter of 2019 , net revenues attributed to the investment return in our asset management results have been disaggregated to separately present investment return and allocated net interest ( see footnotes 5 and 6 below ) . this disaggregation is intended to increase transparency and to make clearer actual investment return . we offer third-party investors the opportunity to co-invest in our asset management funds and separately managed accounts alongside us . we believe that aggregating investment return and allocated net interest would obscure the investment return by including an amount that is unique to our credit spreads , debt maturity profile , capital structure , liquidity risks and allocation methods , none of which are pertinent to the investment returns generated by the performance of the portfolio . ( 5 ) includes net interest expense of $ 8.9 million , $ 8.4 million and $ 4.8 million for 2019 , 2018 and 2017 , respectively . ( 6 ) allocated net interest represents the allocation of long-term debt interest expense to asset management , net of interest income on cash and cash equivalents and other sources of liquidity . for discussion of sources of liquidity , refer to the `` liquidity and capital resources '' section herein . equities net revenues equities are comprised of net revenues from : services provided to our clients from which we earn commissions or spread revenue by executing , settling and clearing transactions for clients ; advisory services offered to clients ; financing , securities lending and other prime brokerage services offered to clients ; and wealth management services , which includes providing clients access to all of our institutional execution capabilities . in 2019 , certain of our equities businesses achieved high rankings by greenwich associates . story_separator_special_tag million , down $ 320.9 million , or 29.4 % , from 2018. during 2019 , advisory transactions revenues totaled $ 767.4 million , including revenues from 179 merger and acquisition transactions and 16 restructuring and recapitalization transactions with an aggregate transaction value of $ 241.6 billion . from equity and debt underwriting activities , we generated $ 362.0 million and $ 407.3 million in revenues , respectively , for 2019 . during 2019 , we completed 779 public and private debt financings that raised $ 190.7 billion in aggregate and we completed 166 public and private equity and convertible offerings that raised $ 45.3 billion ( 139 of which we acted as sole or joint bookrunner ) . during 2018 , advisory transaction revenues totaled $ 820.0 million , including revenues from 180 merger and acquisition transactions and 15 restructuring and recapitalization transactions with an aggregate transaction value of $ 193.9 billion . from equity and debt underwriting activities , we generated $ 454.6 million and $ 635.6 million in revenues , respectively , for 2018. during 2018 , we completed 969 public and private debt financings that raised $ 270.1 billion in aggregate and we completed 193 public and private equity and convertible offerings that raised $ 43.3 billion ( 179 of which we acted as sole or joint bookrunner ) . other investment banking revenues were a loss of $ 14.6 million for 2019 , compared with revenues of $ 3.6 million for 2018. the results for 2019 include net revenues of $ 22.3 million from our share of the profits of the jefferies finance joint venture , compared to net revenues of $ 98.6 million for 2018. the decline in 2019 reflects volatility experienced in the leveraged loan markets throughout most of the year , which resulted in lower transaction volume as compared to 2018. the results for jefferies finance for 2019 also include $ 12.5 million in costs from refinancing its debt . results in both years also include the amortization of costs and allocated interest expense related to the investment in the jefferies finance business . other other is comprised of revenues from : berkadia and other strategic investments ( other than jefferies finance ) ; principal investments in private equity and hedge funds managed by third parties or related parties and that are not part of our lam platform ; and investments held as part of employee benefit plans , including deferred compensation plans ( for which we incur an equal and offsetting amount of compensation expenses ) . net revenues from our investment banking , capital markets and asset management segment 's other business category totaled $ 58.5 million for 2019 , an increase of $ 13.2 million compared with $ 45.3 million for 2018. the results in 2019 include net revenues of $ 88.2 million due to jefferies group 's share of income from berkadia , compared with net revenues of $ 20.0 million for 2018 , reflecting two months of revenues , as jefferies transferred its 50 % interest in berkadia to jefferies group on october 1 , 2018. the results in both periods also include interest expenses in receipt of allocated long-term debt and mark-to-market decreases related to other strategic investments . results in 2018 also included foreign currency gains . asset management asset management revenues include the following : management and performance fees from funds and accounts managed by us ; arrangements with strategic partners , which entitle us to portions of our partners ' revenues and or profits ; and investment income from capital invested in and managed by our asset management business and other asset managers . the key components of asset management revenues are the level of assets under management and the performance return , whether on an absolute basis or relative to a benchmark or hurdle . these components can be affected by financial markets , profits and losses in the applicable investment portfolios and client capital activity . further , asset management fees vary with the nature of investment management services . the terms under which clients may terminate our investment management authority , and the requisite notice period for such termination , varies depending on the nature of the investment vehicle and the liquidity of the portfolio assets . performance fees during 2019 and 2018 are generally recognized once a year , typically in december , at the end of the performance period to the extent that the benchmark return has been met . performance fees during 2017 were accrued ( or reversed ) on a monthly basis based on measuring performance to date versus any relevant benchmark return hurdles stated in the investment management agreement . 28 the following summarizes the results of our asset management businesses by asset class ( dollars in thousands ) : replace_table_token_8_th ( 1 ) the amount for 2019 includes our share of fees received by third party asset management companies with which we have revenue and profit share arrangements . asset management net revenues for 2019 were $ 76.5 million , compared with a net loss of $ 1.1 million in 2018. the increase was primarily due to higher investment returns , as a result of an improved performance in certain of our investments in separately managed accounts and funds and an increase in our investments in certain of these investments . compensation and benefits compensation and benefits expense consists of salaries , benefits , commissions , annual cash compensation awards and the amortization of share-based and cash compensation awards to employees . cash and historical share-based awards and a portion of cash awards granted to employees as part of year end compensation generally contain provisions such that employees who terminate their employment or are terminated without cause may continue to vest in their awards , so long as those awards are not forfeited as a result of other forfeiture provisions ( primarily non-compete clauses ) of those awards .
| results of operations we are a diversified financial services company engaged in investment banking and capital markets , asset management and direct investing . jefferies group , our largest subsidiary , is the largest independent full-service global investment banking firm headquartered in the u.s. in the fourth quarter of 2018 , we changed our fiscal year end from a calendar year basis to a fiscal year ending on november 30. our 2018 fiscal year consists of the eleven month transition period beginning january 1 , 2018 through november 30 , 2018 . 21 financial statements for 2017 continue to be presented on the basis of our previous calendar year end . jefferies group has a november 30 year end . prior to the fourth quarter of 2018 , because our fiscal year end was december 31 , we reflected jefferies group in our consolidated financial statements utilizing a one month lag . in connection with our change in fiscal year end to november 30 , we eliminated the one month lag utilized to reflect jefferies group results beginning with the fourth quarter of 2018. therefore , our results for the eleven months ended november 30 , 2018 , include twelve month results for jefferies group and eleven months for the remainder of our results . the following tables present a summary of our financial results . a summary of results of operations for the twelve months ended november 30 , 2019 is as follows ( in thousands ) : replace_table_token_3_th ( 1 ) includes floor brokerage and clearing fees . 22 a summary of results of operations for the eleven months ended november 30 , 2018 is as follows ( in thousands ) : replace_table_token_4_th ( 1 ) includes floor brokerage and clearing fees . 23 a summary of results of operations for the twelve months ended december 31 , 2017 is as follows ( in thousands ) : replace_table_token_5_th ( 1 ) includes floor brokerage and clearing fees .
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we had no agreement with dr. o'brien requiring him to conduct any research and development activities for us . dr. o'brien did not receive any salary or royalties from us for any research and development activities . dr. o'brien passed away on march 23 , 2015 and was the father of our chief executive officer , daniel b. o'brien . item 14. principal accountant fees and services . mnp , llp , chartered accountants , examined our financial statements for the year ended december 31 , 2014 and 2013. audit fees mnp was paid $ 72,243 and $ 74,767 for the fiscal years ended december 31 , 2014 and 2013 , respectively , for professional services rendered in the audit of our annual financial statements and for the reviews of the financial statements included in our quarterly reports on form 10-q during these fiscal years . tax fees mnp was paid $ 4,527 and $ 2,573 for the fiscal years ended december 31 , 2014 and 2013 , respectively , for professional services rendered for the preparation and filing of our income tax returns for the fiscal years ended december 31 , 2013 and 2012. f-27 all other fees mnp was not paid any other fees for professional services during the fiscal years ended december 31 , 2014 and 2013. audit committee pre-approval policies rules adopted by the sec in order to implement requirements of the sarbanes-oxley act of 2002 require public company audit committees to pre-approve audit and non-audit services . our audit committee has adopted a policy for the pre-approval of all audit , audit-related and tax services , and permissible non-audit services provided by our independent auditors . the policy provides for an annual review of an audit plan and budget for the upcoming annual financial statement audit , and entering into an engagement letter with the independent auditors covering the scope of the audit and the fees to be paid . our audit committee may also from time-to-time review and approve in advance other specific audit , audit-related , tax or permissible non-audit services . in addition , our audit committee may from time-to-time give pre-approval for audit services , audit-related services , tax services or other non-audit services by setting forth such pre-approved services on a schedule containing a description of , budget for , and time period for such pre-approved services . 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 , 2014 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 , 2014 , 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 §302 of the sarbanes-oxley act of 2002 . 31.2 certification of principal financial officer pursuant to §302 of the sarbanes-oxley act of 2002 . 32.1 certification of principal executive and financial officer pursuant to 18 u.s.c . §1350 and §906 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 . f-28 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 . flexible solutions international , inc. march 31 , 2015 by : daniel b. o'brien daniel b. o'brien 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 president , principal executive officer , principal financial and accounting officer and a director march 31 , 2015 daniel b. o'brien john h. bientjes director march 31 , 2015 john h. bientjes dale friend director march 31 , 2015 dale friend robert t. helina director march 31 , 2015 robert t. helina thomas fyles director march 31 , 2015 thomas fyles story_separator_special_tag story_separator_special_tag align= '' justify '' style= '' text-indent : 0pt ; display : block ; margin-left : 0pt ; margin-right : 0pt '' > commitments in the next year is as follows : 2015 $ 93,466 other than as disclosed above , we do not anticipate any material capital requirements for the twelve months ending december 31 , 2015. 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 . story_separator_special_tag we had no agreement with dr. o'brien requiring him to conduct any research and development activities for us . dr. o'brien did not receive any salary or royalties from us for any research and development activities . dr. o'brien passed away on march 23 , 2015 and was the father of our chief executive officer , daniel b. o'brien . item 14. principal accountant fees and services . mnp , llp , chartered accountants , examined our financial statements for the year ended december 31 , 2014 and 2013. audit fees mnp was paid $ 72,243 and $ 74,767 for the fiscal years ended december 31 , 2014 and 2013 , respectively , for professional services rendered in the audit of our annual financial statements and for the reviews of the financial statements included in our quarterly reports on form 10-q during these fiscal years . tax fees mnp was paid $ 4,527 and $ 2,573 for the fiscal years ended december 31 , 2014 and 2013 , respectively , for professional services rendered for the preparation and filing of our income tax returns for the fiscal years ended december 31 , 2013 and 2012. f-27 all other fees mnp was not paid any other fees for professional services during the fiscal years ended december 31 , 2014 and 2013. audit committee pre-approval policies rules adopted by the sec in order to implement requirements of the sarbanes-oxley act of 2002 require public company audit committees to pre-approve audit and non-audit services . our audit committee has adopted a policy for the pre-approval of all audit , audit-related and tax services , and permissible non-audit services provided by our independent auditors . the policy provides for an annual review of an audit plan and budget for the upcoming annual financial statement audit , and entering into an engagement letter with the independent auditors covering the scope of the audit and the fees to be paid . our audit committee may also from time-to-time review and approve in advance other specific audit , audit-related , tax or permissible non-audit services . in addition , our audit committee may from time-to-time give pre-approval for audit services , audit-related services , tax services or other non-audit services by setting forth such pre-approved services on a schedule containing a description of , budget for , and time period for such pre-approved services . 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 , 2014 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 , 2014 , 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 §302 of the sarbanes-oxley act of 2002 . 31.2 certification of principal financial officer pursuant to §302 of the sarbanes-oxley act of 2002 . 32.1 certification of principal executive and financial officer pursuant to 18 u.s.c . §1350 and §906 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 . f-28 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 . flexible solutions international , inc. march 31 , 2015 by : daniel b. o'brien daniel b. o'brien 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 president , principal executive officer , principal financial and accounting officer and a director march 31 , 2015 daniel b. o'brien john h. bientjes director march 31 , 2015 john h. bientjes dale friend director march 31 , 2015 dale friend robert t. helina director march 31 , 2015 robert t. helina thomas fyles director march 31 , 2015 thomas fyles story_separator_special_tag story_separator_special_tag align= '' justify '' style= '' text-indent : 0pt ; display : block ; margin-left : 0pt ; margin-right : 0pt '' > commitments in the next year is as follows : 2015 $ 93,466 other than as disclosed above , we do not anticipate any material capital requirements for the twelve months ending december 31 , 2015. 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 .
| results of operations we have two product lines . the first is a chemical ( “ ewcp ” ) 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 ( “ tpas ” ) , 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 , 2014 as compared to the same period last year , are discussed below : item increase ( i ) or decrease ( d ) reason sales ewcp products i the addition of a new customer . gross profit , as a % of sales i lower oil prices reduced aspartic acid costs . wages d reduced since the taber plant is not in operation . office and miscellaneous d reduced since the taber plant is not in operation . consulting d reduced since the taber plant is not in operation . professional fess d reduced litigation resulted in reduced professional fees . utilites d reduced since the taber plant is not in operation . 16 the factors that will most significantly affect future operating results will be : ● the sale price of crude oil which is used in the manufacture of aspartic acid we import from china .
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the following table sets forth the total compensation paid to each of our directors for the fiscal year ended december 31 , 2017. replace_table_token_13_th ( 1 ) the amounts reported in the table above represents the aggregate grant date fair value of the award , computed in accordance with fasb asc topic 718. assumptions used in the calculation of these amounts are included in note 4 of the consolidated financial statements included in this annual report on form 10-k. ( 2 ) on may 1 , 2017 , upon their re-election at our 2017 annual meeting , messrs. fry , parker and spiegel were each awarded an story_separator_special_tag the following discussion and analysis should be read in conjunction with “ selected financial data ” and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements based upon current beliefs , plans and expectations that involve risks , uncertainties and assumptions , such as statements regarding our plans , objectives , expectations , intentions and projections . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth in part i , item 1a , “ risk factors ” in this annual report on form 10-k. see the sections entitled “ risk factors ” and “ cautionary note regarding forward-looking statements. ” 69 company overview we are a clinical-stage biopharmaceutical company engaged in the discovery and development of orally administered small molecule drug candidates to fill significant unmet medical needs . we have a powerful pipeline of clinical drug candidates , led by our programs for the treatment of mild alzheimer 's disease ( “ ad ” ) and diabetes . our drug candidate for the treatment of mild ad , azeliragon ( ttp488 ) , is an orally administered , small molecule antagonist targeting the receptor for advanced glycation endproducts ( “ rage ” ) , for which we have completed enrollment of both sub-studies for a phase 3 clinical trial ( the “ steadfast study ” ) under a food and drug administration ( “ fda ” ) agreed special protocol assessment ( “ spa ” ) . our diabetes drug candidates include ttp399 , an orally administered , liver-selective glucokinase activator ( “ gka ” ) , for which we have completed our phase 2b clinical trial in type 2 diabetes ( the “ agata study ” ) , and ttp273 , an orally administered , non-peptide agonist that targets the glucagon-like peptide-1 receptor ( “ glp-1r ” ) , for which we have completed a phase 2 clinical trial in type 2 diabetes ( the “ logra study ” ) in december 2016. in august 2017 , we entered into a research , development and commercialization agreement with jdrf international ( “ jdrf ” ) ( the “ jdrf agreement ” ) to support the funding of the simplici-t1 study , an adaptive phase 1b/2 study to explore the effects of ttp399 in type 1 diabetics . this trial was initiated in the fourth quarter of 2017. according to the terms of the jdrf agreement , jdrf will provide research funding of up to $ 3.0 million based on the achievement of research and development milestones , with the total funding provided by jdrf not to exceed approximately one-half of the total cost of the project . additionally , we have the obligation to make certain milestone payments to jdrf upon the commercialization , licensing , sale or transfer of ttp399 as a treatment for type 1 diabetes . in december 2017 , we entered into a license agreement with hangzhou zhongmei huadong pharmaceutical co. , ltd. ( “ huadong ” ) ( the “ huadong license agreement ” ) , under which huadong obtained an exclusive and sublicensable license to develop and commercialize our glucagon-like peptide-1 receptor agonist ( “ glp-1r ” ) program , including the compound ttp273 , in china and certain other pacific rim countries , including australia and south korea . we also entered into a license agreement with reneo pharmaceuticals , inc. ( “ reneo ” ) ( the “ reneo license agreement ” ) in december 2017 , under which reneo obtained an exclusive , worldwide , sublicensable license to develop and commercialize our peroxisome proliferation activated receptor delta agonist program , including the compound hpp593 . for more information regarding the jdrf agreement , the huadong license agreement and reneo license agreement , see item 1 – “ business – intellectual property – license and research agreements ” . in addition to the above , we also have two additional programs in various stages of preclinical and clinical development for the treatment of inflammatory disorders . subsequent to our initial public offering ( the “ ipo ” ) and the related reorganization transactions ( the “ reorganization transactions ” ) , vtv therapeutics inc. ( the “ company ” , the “ registrant ” , “ we ” or “ us ” ) is a holding company , and its principal asset is a controlling equity interest in vtv therapeutics llc ( “ vtv llc ” ) , the company 's principal operating subsidiary . the company has determined that vtv llc is a variable-interest entity ( “ vie ” ) for accounting purposes and that vtv therapeutics inc. is the primary beneficiary of vtv llc because ( through its managing member interest in vtv llc and the fact that the senior management of vtv therapeutics inc. is also the senior management of vtv llc ) it has the power to direct all of the activities of vtv llc , which include those that most significantly impact vtv llc 's economic performance . vtv therapeutics inc. has therefore consolidated vtv llc 's results under the vie accounting model in its consolidated financial statements . story_separator_special_tag if we fail to complete the development of our drug candidates in a timely manner or obtain regulatory approval for them , our ability to generate future revenue and our results of operations and financial position will be materially adversely affected . 71 research and development expenses since our inception , we have focused our resources on our research and development activities , including conducting preclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings for our drug candidates . we recognize research and development expenses as they are incurred . our direct research and development expenses consist primarily of external costs such as fees paid to investigators , consultants , central laboratories and clinical research organizations ( “ cro ( s ) ” ) , in connection with our clinical trials , and costs related to acquiring and manufacturing clinical trial materials . our indirect research and development costs consist primarily of salaries , benefits and related overhead expenses for personnel in research and development functions and depreciation of leasehold improvements , laboratory equipment and computers . since we typically use our employee and infrastructure resources across multiple research and development programs such costs are not allocated to the individual projects . from the inception of our predecessors , through december 31 , 2017 , we have incurred approximately $ 541.9 million in research and development expenses . our research and development expenses by project for the years ended december 31 , 2017 , 2016 and 2015 were as follows ( in thousands ) : replace_table_token_5_th we plan to increase our research and development expenses for the foreseeable future as we continue the development of azeliragon and to further advance the development of our other drug candidates , subject to the availability of additional funding . the successful development of our clinical and preclinical drug candidates is highly uncertain . at this time , we can not reasonably estimate the nature , timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical drug candidates or the period , if any , in which material net cash inflows from these drug candidates may commence . this is due to the numerous risks and uncertainties associated with the development of our drug candidates , including : the uncertainty of the scope , rate of progress and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; the potential benefits of our candidates over other therapies ; our ability to market , commercialize and achieve market acceptance for any of our drug candidates that we are developing or may develop in the future ; future clinical trial results ; our ability to enroll patients in our clinical trials ; the timing and receipt of any regulatory approvals ; and the filing , prosecuting , defending and enforcing of patent claims and other intellectual property rights , and the expense of doing so . a change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a drug candidate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time with respect to the development of that drug candidate . general and administrative expenses general and administrative expenses consist primarily of salaries , benefits and related costs for employees in executive , finance , corporate development , human resources and administrative support functions . other significant general and administrative expenses 72 include accounting and legal services , expenses associated with obtaining and maintaining patents , cost of various consultants , occupancy costs and information systems . our general and administrative expenses have increased and will continue to increase as we operate as a public company and commercialize our drug candidates . such increases have been driven by higher costs for director and officer liability insurance , costs related to the hiring of additional personnel and increased fees for outside consultants , lawyers and accountants . interest expense , net for periods prior to the ipo and reorganization transactions , interest expense , net primarily consists of interest expense attributable to certain obligations that were not assumed by vtv therapeutics inc. through the reorganization transactions . beginning in october 2016 , interest expense , net primarily consists of our cash and non-cash interest expense related to our loan agreement . cash interest on the loan agreement is recognized at a floating interest rate equal to 10.5 % plus the amount by which the one-month london interbank offer rate ( “ libor ” ) exceeds 0.5 % . non-cash interest expense represents the amortization of the costs incurred in connection with the loan agreement , the allocated fair value of the warrants to purchase shares of our class a common stock issued in connection with the loan agreement ( the “ warrants ” ) and the accretion of the final interest payment ( which will be paid in cash upon loan maturity ) , all of which are recognized in our consolidated statement of operations using the effective interest method . other income ( expense ) , net other income ( expense ) , net primarily consists of expenses related to our capital structure prior to the ipo and reorganization transactions , such as expense related to interest expense on related party debt obligations and the change in the fair value of an obligation to make distributions to a former officer in exchange for the repurchase of the officer 's predecessor company units ( the “ contingent distributions ” ) .
| results of operations comparison of the year ended december 31 , 2017 and 2016 the following table sets forth certain information concerning our results of operations for the periods shown : replace_table_token_6_th revenues revenues were $ 0.3 million and $ 0.6 million for the years ended december 31 , 2017 and 2016 , respectively . the revenue earned during the year ended december 31 , 2017 primarily relates to the huadong and reneo license agreements , which were entered into in december 2017. the revenue earned during the year ended december 31 , 2016 was primarily attributable to the global license agreement that we entered into with calithera in march 2015. we recognize the portion of the consideration received allocated to the license deliverable for each of these agreements over the requisite knowledge transfer or research service periods . the portion of revenue allocated to the other deliverables under the license agreements will be recognized as performance occurs . 73 research and development expenses research and development expenses were $ 39.6 million and $ 45.7 million for the years ended december 31 , 2017 and 2016 , respectively . the decrease in research and development expenses during the period of $ 6.1 million , or 13.4 % , was primarily due to : a decrease in clinical trial costs of $ 1.2 million for azeliragon from 2016 , which was mainly driven by decreases of $ 2.6 million related to the timing of drug-drug interaction and other supporting studies . these studies were conducted primarily in 2016 and were completed in early 2017. additionally , we saw decreases of $ 0.9 million in compound manufacturing costs for drug product from 2016 as drug product was manufactured in 2016 for the support of the steadfast study and the open-label extension ( “ ole ” ) trial .
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the value of repricing the options for mr. chilcott and ms. cherevka totaled $ 1,400 and $ 22,400 , respectively , and these amounts were recognized in the period ended december 31 , 2018 . ( 5 ) mr. chilcott was appointed interim chief financial officer , effective june 2017 and chief financial officer , effective august 2017 . ( 6 ) mr. chilcott received a $ 50,000 bonus based on his employment agreement for the october 2017 securities purchase agreement . ( 7 ) ms. cherevka was appointed chief operating officer , effective september 2017 . ( 8 ) ms. cherevka received a $ 40,000 bonus related to her performance during 2016 , which was paid out during 2017. our executive officers are reimbursed by us for any out-of-pocket expenses incurred in connection with activities conducted on our behalf . employment agreements we entered into an employment agreement with mr. michael macaluso , our chief executive officer , effective january 9 , 2012. this agreement provided for an annual salary of $ 195,000 , with an initial term ending january 9 , 2015. on october 1 , 2013 , we increased mr. macaluso 's annual salary from $ 195,000 to $ 300,000 . on december 20 , 2014 , we extended the employment agreement of mr. macaluso for three additional years , expiring january 9 , 2017. on march 9 , 2017 , we extended his employment agreement for another three years until january 9 , 2020. in connection with his 2017 amendment , mr. macaluso was awarded 400,000 options to purchase our common stock at an exercise price of $ 0.81 vesting annually over three years beginning on march 9 , 2018. in august 2010 , we entered into an employment agreement with dr. david bar-or , our former chief scientific officer , or cso . the employment agreement with dr. bar-or superseded his prior agreement with life sciences . the agreement had an initial term ending july 31 , 2013. the agreement provided for an annual salary of $ 300,000 . on july 15 , 2013 , we extended the employment agreement of dr. david bar-or for one additional year , expiring july 31 , 2014. in connection with this amendment , dr. bar-or was awarded 300,000 options to purchase our common stock at an exercise price of $ 6.15 with 50 % vesting upon grant and 50 % after one year . on august 11 , 2014 , we extended the employment agreement of dr. bar-or for one additional year , expiring july 31 , 2015. in connection with this amendment , dr. bar-or was awarded 300,000 options to purchase our common stock at an exercise price of $ 6.48 with 50 % vesting upon grant and 50 % after one year . on august 3 , 2015 , we extended the employment agreement of dr. bar-or for one additional year , expiring july 31 , 2016. in connection with this amendment , dr. bar-or was awarded 300,000 options to purchase our common stock at an exercise price of $ 2.60 with such options vesting on the date that we meet all endpoints in connection with the ampion clinical trial as determined in the sole discretion of our compensation committee . we did not meet the primary end point on the ampion trial , so the options granted to dr. bar-or in july 2015 expired unvested on june 30 , 2016. on august 1 , 2016 , we extended the employment agreement of dr. bar-or for one additional year , which expired on july 31 , 2017. on june 30 , 2017 , we extended the employment agreement of dr. bar-or for one additional year , expiring july 1 , 2018. in connection with this agreement , dr. bar-or was awarded 133,000 options to purchase our common stock at an exercise price of $ 0.50 with 100 % vesting immediately . in july 2018 , we extended the employment agreement of dr. bar-or for an additional month . on august 29 , 2018 , dr. bar-or notified us of his decision to retire from his role as cso , effective september 30 , 2018. dr. bar-or will continue to serve as a member of the board of directors and the scientific advisory board . we entered into an employment agreement with mr. thomas chilcott , our chief financial officer , on august 23 , 2017 , which provided for an annual salary of $ 200,000 and a term ending august 16 , 2019. in connection with this employment agreement , mr. chilcott was awarded 200,000 options to purchase common stock at an exercise price of 50 $ 0.48 , with 50 % vesting upon grant and 50 % after one year . on december 29 , 2017 , the compensation committee approved a salary increase for mr. chilcott of $ 25,000 , effective january 1 , 2018. we entered into an employment agreement with ms. holli cherevka , our chief operating officer , on september 19 , 2017 , which provided for an annual salary of $ 200,000 and a term ending september 19 , 2019. in connection with this employment agreement , ms. cherevka was awarded 200,000 options to purchase common stock at an exercise price of $ 0.55 , with 50 % vesting upon grant and 50 % after one year . each officer is eligible to receive a discretionary annual bonus each year that will be determined by the compensation committee of the board story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this report . story_separator_special_tag occupancy , travel and other expense decreased due to the termination of a contractual agreement that was intended to assist us with potential partnerships , as well as a decrease in insurance premiums from the 2018 period compared to the 2017 period . occupancy , travel and other expense also decreased as we did not incur costs related to media outreach during the 2018 period compared to the 2017 period . in addition , we incurred less travel costs during the 2018 period compared to the 2017 period . as noted in the research and development section above , labor costs decreased for the 2018 period compared to the 2017 period primarily due to the elimination of the bonus accrual related to the option repricing , further discussed in notes 2 and 8 of our financial statements . the elimination of the pto carryover also decreased the 2018 period labor costs . the decrease in stock-based compensation is a result of fewer options being granted at lower stock prices and previously awarded high priced options becoming fully vested during 2018. with high priced options becoming fully vested during 2018 , we did not recognized a full year of stock-based compensation expense for those options during the 2018 period , whereas we did recognize a full year of stock-based compensation expense for those options during the 2017 period . director fees also decreased as there were fewer board meetings during the 2018 period . there was an increase in professional fees due to an increase in legal fees related to litigation and an increase in accounting fees , as well as the amortization of a retainer related to a debt financing deal that did not occur . net cash used in operating activities during 2018 , our operating activities from continuing operations used $ 12.1 million in cash , which was less than the net income of $ 34.0 million primarily due to the $ 45.3 million non-cash gain from the warrant derivative , a decrease of $ 2.5 million in accounts payable and accrued compensation and $ 180,000 increase in prepaid expenses . these amounts were offset by stock-based compensation , depreciation and amortization , loss from disposal of fixed assets and common stock issued for services . during 2017 , our operating activities from continuing operations used $ 11.4 million in cash , which was less than the net loss of $ 51.9 million primarily due to the $ 36.2 million non-cash loss from the warrant derivative , as well as the stock-based compensation , depreciation and amortization and amortization of the prepaid research and development . cash used in operating activities also included a $ 332,000 decrease in accrued compensation , which was offset by a $ 2.1 million increase in accounts payable and accrued expenses and a decrease in prepaid expenses . net cash used in investing activities during 2018 , cash was used to purchase $ 564,000 of equipment . during 2017 , cash was used to purchase $ 72,000 of equipment . net cash from financing activities during 2018 , we received $ 4.9 million from option and warrant exercises . we also received gross proceeds from the sale of common stock in a confidentially marketed public offering of $ 8.0 million , which was offset by offering costs of $ 844,000. during 2017 , we received gross proceeds from the sale of common stock in registered direct offerings of $ 13.3 million , which was offset by offering costs of $ 1.3 million . we also received $ 2.8 million from option and warrant exercises . contractual obligations and commitments information regarding contractual obligations and commitments is contained in note 6 to the financial statements . liquidity and capital resources we have not generated revenue or profits . our primary activities are focused on research and development , advancing ampion and raising capital . as of december 31 , 2018 , we had $ 7.6 million of cash which we expect will fund our 34 operation into the second quarter of 2019. to operate as planned in fiscal 2019 and into 2020 we will need to raise at least $ 16.0 million through equity offerings , debt or other financing tools . this projection is based on many assumptions that may prove to be wrong , and we could exhaust our available cash and cash equivalents earlier than presently anticipated . we will be required to seek additional capital to expand our clinical and commercial development activities for ampion . we intend to evaluate the capital markets from time to time to determine whether to raise additional capital in the form of equity , convertible debt or otherwise , depending on market conditions relative to our need for funds at such time . we have prepared a budget for 2019 which reflects cash requirements for fixed , on-going expenses such as payroll , legal and accounting , patents and overhead at an average cash burn rate of approximately $ 700,000 per month . additional funds are planned for regulatory approvals , clinical trials , outsourced research and development and commercialization consulting . accordingly , it will be necessary to raise additional capital and or enter into licensing or collaboration agreements . at this time , we expect to satisfy our future cash needs through private or public sales of our securities , debt financings or our controlled equity offering sales agreement that we agreed to in february 2016 with respect to our atm . we can not be certain that financing will be available to us on acceptable terms , or at all . volatility in the financial markets has adversely affected the market capitalizations of many pharmaceutical companies , particularly small capitalization companies , and generally made equity and debt financing more difficult to obtain . this volatility , coupled with other factors , may limit our access to additional financing . if we can not raise adequate additional capital in the future
| executive summary we are a development stage biopharmaceutical company focused on the development of ampion , our product candidate , to treat prevalent inflammatory conditions for which there are limited treatment options . the pharmaceutical market is a competitive industry with strict regulations that are time intensive and costly . however , we are committed to offer a compelling therapeutic option for the patients most in need of new treatment options , and we operate every day to advance ampion . since we are in the research and development phase , we have not generated revenue to date . our operations are funded through equity raises , which occur from time to time . to proceed with our operations , we will need to raise additional funds to support the advancement of ampion . moving forward , we plan to maintain a lean and efficient operating model by streamlining our operations and continuing to allocate all our resources towards commercializing ampion . discussion regarding our business is contained in part i , item 1. business . recent financing activities information regarding our recent financing activities is contained in note 7 to the financial statements . known trends or future events ; outlook we are a clinical stage company that has not generated revenues and have therefore incurred significant net losses totaling $ 171.0 million since our inception in december 2008. we expect to generate operating losses for the foreseeable future as we continue the development of , and seek regulatory approval for ampion . however , we intend to try to limit the extent of these losses by entering into co-development or collaboration agreements with one or more strategic partners .
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our unitholders : say-on-pay at their 2015 tri-annual story_separator_special_tag financial condition and results of operations the following is a discussion of our financial condition and results of operations , which should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this annual report . executive overview the following are factors that regularly affect our operating results and financial condition . in addition , our business is subject to the risks and uncertainties described in item 1a of this annual report . product costs and supply the level of profitability in the retail propane , fuel oil , natural gas and electricity businesses is largely dependent on the difference between retail sales price and our costs to acquire and transport products . the unit cost of our products , particularly propane , fuel oil and natural gas , is subject to volatility as a result of supply and demand dynamics or other market conditions , including , but not limited to , economic and political factors impacting crude oil and natural gas supply or pricing . we enter into product supply contracts that are generally one-year agreements subject to annual renewal , and also purchase product on the open market . we attempt to reduce price risk by pricing product on a short-term basis . our propane supply contracts typically provide for pricing based upon index formulas using the posted prices established at major supply points such as mont belvieu , texas , or conway , kansas ( plus transportation costs ) at the time of delivery . to supplement our annual purchase requirements , we may utilize forward fixed price purchase contracts to acquire a portion of the propane that we resell to our customers , which allows us to manage our exposure to unfavorable changes in commodity prices and to assure adequate physical supply . the percentage of contract purchases , and the amount of supply contracted for under forward contracts at fixed prices , will vary from year to year based on market conditions . changes in our costs to acquire and transport products can occur rapidly over a short period of time and can impact profitability . there is no assurance that we will be able to pass on product acquisition and transportation cost increases fully or immediately , particularly when such costs increase rapidly . therefore , average retail sales prices can vary significantly from year to year as our costs fluctuate with the propane , fuel oil , crude oil and natural gas commodity markets and infrastructure conditions . in addition , periods of sustained higher commodity and or transportation prices can lead to customer conservation , resulting in reduced demand for our product . seasonality the retail propane and fuel oil distribution businesses , as well as the natural gas marketing business , are seasonal because these fuels are primarily used for heating in residential and commercial buildings . historically , approximately two‑thirds of our retail propane volume is sold during the six-month peak heating season from october through march . the fuel oil business tends to experience greater seasonality given its more limited use for space heating and approximately three-fourths of our fuel oil volumes are sold between october and march . consequently , sales and operating profits are concentrated in our first and second fiscal quarters . cash flows from operations , therefore , are greatest during the second and third fiscal quarters when customers pay for product purchased during the winter heating season . we expect lower operating profits and either net losses or lower net income during the period from april through september ( our third and fourth fiscal quarters ) . to the extent necessary , we will reserve cash from the second and third quarters for distribution to holders of our common units in the fourth quarter and the following fiscal year first quarter . weather weather conditions have a significant impact on the demand for our products , in particular propane , fuel oil and natural gas , for both heating and agricultural purposes . many of our customers rely heavily on propane , fuel oil or natural gas as a heating source . accordingly , the volume sold is directly affected by the severity of the winter weather in our service areas , which can vary substantially from year to year . in any given area , sustained warmer than normal temperatures will tend to result in reduced propane , fuel oil and natural gas consumption , while sustained colder than normal temperatures will tend to result in greater consumption . 24 hedging and risk management activities we engage in hedging and risk management activities to reduce the effect of price volatility on our product costs and to ensure the availability of product during periods of short supply . we enter into propane forward , options and swap agreements with third parties , and use futures and options contracts traded on the new york mercantile exchange ( “ nymex ” ) to purchase and sell propane , fuel oil and crude oil at fixed prices in the future . the majority of the futures , forward and options agreements are used to hedge price risk associated with propane and fuel oil physical inventory , as well as , in certain instances , forecasted purchases of propane or fuel oil . in addition , we sell propane and fuel oil to customers at fixed prices , and enter into derivative instruments to hedge a portion of our exposure to fluctuations in commodity prices as a result of selling the fixed price contracts . forward contracts are generally settled physically at the expiration of the contract whereas futures , options and swap contracts are generally settled at the expiration of the contract through a net settlement mechanism . although we use derivative instruments to reduce the effect of price volatility associated with priced physical inventory and forecasted transactions , we do not use derivative instruments for speculative trading purposes . story_separator_special_tag in the normal course of business , we are involved in various claims and legal proceedings . we record a liability for such matters when it is probable that a loss has been incurred and the amounts can be reasonably estimated . the liability includes probable and estimable legal costs to the point in the legal matter where we believe a conclusion to the matter will be reached . when only a range of possible loss can be established , the most probable amount in the range is accrued . if no amount within this range is a better estimate than any other amount within the range , the minimum amount in the range is accrued . we contribute to multi-employer pension plans ( “ mepps ” ) in accordance with various collective bargaining agreements covering union employees . as one of the many participating employers in these mepps , we are responsible with the other participating employers for any plan underfunding . due to the uncertainty regarding future factors that could impact the withdrawal liability , the partnership is unable to determine the timing of the payment of the future withdrawal liability , or additional future withdrawal liability , if any . fair values of acquired assets and liabilities . from time to time , we enter into material business combinations . in accordance with accounting guidance associated with business combinations , the assets acquired and liabilities assumed are recorded at their estimated fair value as of the acquisition date . fair values of assets acquired and liabilities assumed are based upon available information and may involve us engaging an independent third party to perform an appraisal . estimating fair values can be complex and subject to significant business judgment . estimates most commonly impact property , plant and equipment and intangible assets , including goodwill . generally , we have , if necessary , up to one year from the acquisition date to finalize our estimates of acquisition date fair values . story_separator_special_tag style= '' text-align : justify ; margin-top:6pt ; margin-bottom:0pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; font-size:10pt ; '' > · we successfully refinanced our previous 7.375 % senior notes due 2020 with new 5.75 % senior notes due 2025 , which effectively extended maturities on this portion of our debt by five years and reduced our cash interest requirements by more than $ 4 million annually ; · we made enhancements to our technology platform to drive further operating efficiencies and to enhance our customers ' ability to interact with us ; and · we announced a shift in organizational responsibilities within our senior leadership ranks , including the creation of a new role of chief development officer to strengthen our focus on growth initiatives . as we look ahead to fiscal 2016 , our anticipated cash requirements include : ( i ) maintenance and growth capital expenditures of approximately $ 35.0 million ; ( ii ) approximately $ 74.9 million of interest and income tax payments ; and ( iii ) approximately $ 215.7 million of distributions to unitholders , assuming distributions remain at the current annualized rate of $ 3.55 per common unit . based on our current cash position of $ 152.3 million as of september 26 , 2015 , availability of funds under the revolving credit facility ( unused borrowing capacity of $ 253.8 million at september 26 , 2015 ) and expected cash flow from operating activities , we expect to have sufficient funds to meet our current and future obligations . 27 fiscal year 2015 compared to fiscal year 2014 revenues replace_table_token_3_th total revenues decreased $ 521.3 million , or 26.9 % , to $ 1,417.0 million for fiscal 2015 compared to $ 1,938.3 million for the prior year due to lower average propane , fuel oil and refined fuels and natural gas selling prices and , to a lesser extent , lower volumes sold . as discussed above , average temperatures ( as measured in heating degree days ) across all of our service territories for fiscal 2015 were 2 % warmer than normal and 5 % warmer than the prior year . the weather pattern during the fiscal 2015 heating season was characterized by warmer than normal temperatures for the first quarter of fiscal 2015 , particularly during the month of december 2014 ( december 2014 was 15 % warmer than normal and 21 % warmer than december 2013 ) , followed by inconsistent temperatures in our eastern and midwestern territories during the latter half of the heating season . we also experienced sustained warmer than normal temperatures in our western territories throughout fiscal 2015 as average temperatures were 23 % warmer than normal and 9 % warmer than the comparable prior year period . revenues from the distribution of propane and related activities of $ 1,177.0 million for fiscal 2015 decreased $ 429.9 million , or 26.8 % , compared to $ 1,606.8 million for the prior year , primarily due to lower average retail selling prices associated with lower wholesale propane costs and , to a lesser extent , lower volumes sold . average propane selling prices for fiscal 2015 decreased 20.3 % compared to the prior year , resulting in a $ 281.0 million decrease in revenues year-over-year . retail propane gallons sold in fiscal 2015 decreased 50.4 million gallons , or 9.5 % , resulting in a decrease in revenues of $ 145.0 million . volumes sold during fiscal 2015 were adversely affected by the unseasonably warm weather during key parts of the winter heating season discussed above . included within the propane segment are revenues from other propane activities of $ 75.3 million for fiscal 2015 , which decreased $ 3.9 million compared to the prior year .
| results of operations and financial condition net income for fiscal 2015 was $ 84.4 million , or $ 1.39 per common unit , compared to $ 94.5 million , or $ 1.56 per common unit , in fiscal 2014. net income and ebitda ( as defined and reconciled below ) for fiscal 2015 included : ( i ) a loss on debt extinguishment of $ 15.1 million ; ( ii ) $ 11.5 million in expenses related to the integration of inergy propane ; ( iii ) an $ 11.3 million charge related to the partnership 's voluntary partial withdrawal from a multi-employer pension plan covering certain employees acquired in the inergy propane acquisition ; and ( iv ) a pension settlement charge of $ 2.0 million . net income and ebitda for fiscal 2014 included : ( i ) a loss on debt extinguishment of $ 11.6 million ; and ( ii ) $ 12.3 million in expenses related to the integration of inergy propane . excluding the effects of the foregoing items and unrealized ( non-cash ) mark-to-market adjustments on derivative instruments in both years , adjusted ebitda ( as defined and reconciled below ) amounted to $ 334.0 million in fiscal 2015 , compared to adjusted ebitda of $ 338.5 million in fiscal 2014. retail propane gallons sold in fiscal 2015 decreased 50.4 million gallons , or 9.5 % , to 480.4 million gallons from 530.7 million gallons in fiscal 2014. sales of fuel oil and other refined fuels decreased 7.2 million gallons , or 14.7 % , to 41.9 million gallons from 49.1 million gallons in fiscal 2014. according to the national oceanic and atmospheric administration , average temperatures ( as measured by heating degree days ) across all of the partnership 's service territories for fiscal 2015 were 2 % warmer than normal and 5 % warmer than the prior year .
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when ineffectiveness exists , the ineffective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recognized in earnings in the period affected . hedge ineffectiveness did not impact earnings in 2014 , 2013 or 2012 , and we do not anticipate it will have a significant effect in the future . see note 8 for additional disclosures relating to our two existing interest rate swap agreements . mortgage notes receivable we have made certain mortgage loans that , because of their nature , qualify as loan receivables . at the time the loans were made , we did not intend for the arrangement to be anything other than a financing and did not contemplate a real estate investment . we evaluate each investment to determine whether the loan arrangement qualifies as a loan , joint venture or real estate investment and the appropriate accounting thereon . such determination affects our story_separator_special_tag forward-looking statements certain statements in this section or elsewhere in this report may be deemed “ forward-looking statements ” . see “ item 1a . risk factors ” in this report for important information regarding these forward-looking statements and certain risk and uncertainties that may affect us . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing in “ item 8. financial statements and supplementary data ” of this report . 29 overview we are an equity real estate investment trust ( “ reit ” ) specializing in the ownership , management , and redevelopment of high quality retail and mixed-use properties located primarily in densely populated and affluent communities in strategically selected metropolitan markets in the northeast and mid-atlantic regions of the united states , as well as in california . as of december 31 , 2014 , we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 89 predominantly retail real estate projects comprising approximately 20.2 million square feet . in total , the real estate projects were 95.6 % leased and 94.7 % occupied at december 31 , 2014 . a joint venture in which we own a 30 % interest owned six retail real estate projects totaling approximately 0.8 million square feet as of december 31 , 2014 . in total , the joint venture properties in which we own a 30 % interest were 86.1 % leased and 82.8 % occupied at december 31 , 2014 . we have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our dividends per common share for 47 consecutive years . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america , referred to as “ gaap ” , requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and revenues and expenses . these estimates are prepared using management 's best judgment , after considering past and current events and economic conditions . in addition , information relied upon by management in preparing such estimates includes internally generated financial and operating information , external market information , when available , and when necessary , information obtained from consultations with third party experts . actual results could differ from these estimates . a discussion of possible risks which may affect these estimates is included in “ item 1a . risk factors ” of this report . management considers an accounting estimate to be critical if changes in the estimate could have a material impact on our consolidated results of operations or financial condition . our significant accounting policies are more fully described in note 2 to the consolidated financial statements ; however , the most critical accounting policies , which involve the use of estimates and assumptions as to future uncertainties and , therefore , may result in actual amounts that differ from estimates , are as follows : revenue recognition and accounts receivable our leases with tenants are classified as operating leases . substantially all such leases contain fixed escalations which occur at specified times during the term of the lease . base rents are recognized on a straight-line basis from when the tenant controls the space through the term of the related lease , net of valuation adjustments , based on management 's assessment of credit , collection and other business risk . percentage rents , which represent additional rents based upon the level of sales achieved by certain tenants , are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved and the percentage rents are collectible . real estate tax and other cost reimbursements are recognized on an accrual basis over the periods in which the related expenditures are incurred . for a tenant to terminate its lease agreement prior to the end of the agreed term , we may require that they pay a fee to cancel the lease agreement . lease fees for which the tenant has relinquished control of the space are generally recognized on the termination date . when a lease is terminated early but the tenant continues to control the space under a modified lease agreement , the lease termination fee is generally recognized evenly over the remaining term of the modified lease agreement . current accounts receivable from tenants primarily relate to contractual minimum rent and percentage rent as well as real estate tax and other cost reimbursements . accounts receivable from straight-line rent is typically longer term in nature and relates to the cumulative amount by which straight-line rental income recorded to date exceeds cash rents billed to date under the contractual lease agreement . we make estimates of the collectability of our current accounts receivable and straight-line rents receivable which requires significant judgment by management . story_separator_special_tag generally , rental property is considered substantially complete and ready for its intended use upon completion of tenant improvements , but no later than one year from completion of major construction activity . we make judgments as to the time period over which to capitalize such costs and these assumptions have a direct impact on net income because capitalized costs are not subtracted in calculating net income . if the time period for capitalizing interest is extended , more interest is capitalized , thereby decreasing interest expense and increasing net income during that period . certain external and internal costs directly related to the development , redevelopment and leasing of real estate , including pre-construction costs , real estate taxes , insurance , construction costs and salaries and related costs of personnel directly involved , are capitalized . we capitalized external and internal costs related to both development and redevelopment activities of $ 277 million and $ 7 million , respectively , for 2014 and $ 275 million and $ 6 million , respectively , for 2013 . we capitalized external and internal costs related to other property improvements of $ 45 million and $ 2 million , respectively , for 2014 and $ 48 million and $ 1 million , respectively , for 2013 . we capitalized external and internal costs related to leasing activities of $ 29 million and $ 7 million , respectively , for 2014 and $ 9 million and $ 6 million , respectively , for 2013 . the amount of capitalized internal costs 31 for salaries and related benefits for development and redevelopment activities , other property improvements , and leasing activities were $ 7 million , $ 1 million , and $ 6 million , respectively , for 2014 and $ 6 million , $ 1 million , and $ 5 million , respectively , for 2013 . total capitalized costs were $ 367 million and $ 345 million for 2014 and 2013 , respectively . when applicable , as lessee , we classify our leases of land and building as operating or capital leases . we are required to use judgment and make estimates in determining the lease term , the estimated economic life of the property and the interest rate to be used in determining whether or not the lease meets the qualification of a capital lease and is recorded as an asset . real estate acquisitions upon acquisition of operating real estate properties , we estimate the fair value of assets and liabilities acquired including land , building , improvements , leasing costs , intangibles such as in-place leases , assumed debt , and current assets and liabilities , if any . based on these estimates , we allocate the purchase price to the applicable assets and liabilities . we utilize methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities . the value allocated to in-place leases is amortized over the related lease term and reflected as rental income in the statement of operations . we consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and include such renewal options in the calculation of in-place lease value when we consider these to be bargain renewal options . if the value of below market lease intangibles includes renewal option periods , we include such renewal periods in the amortization period utilized . if a tenant vacates its space prior to contractual termination of its lease , the unamortized balance of any in-place lease value is written off to rental income . long-lived assets and impairment there are estimates and assumptions made by management in preparing the consolidated financial statements for which the actual results will be determined over long periods of time . this includes the recoverability of long-lived assets , including our properties that have been acquired or redeveloped and our investment in certain joint ventures . management 's evaluation of impairment includes review for possible indicators of impairment as well as , in certain circumstances , undiscounted and discounted cash flow analysis . since most of our investments in real estate are wholly-owned or controlled assets which are held for use , a property with impairment indicators is first tested for impairment by comparing the undiscounted cash flows , including residual value , to the current net book value of the property . if the undiscounted cash flows are less than the net book value , the property is written down to expected fair value . the calculation of both discounted and undiscounted cash flows requires management to make estimates of future cash flows including revenues , operating expenses , required maintenance and development expenditures , market conditions , demand for space by tenants and rental rates over long periods . because our properties typically have a long life , the assumptions used to estimate the future recoverability of book value requires significant management judgment . actual results could be significantly different from the estimates . these estimates have a direct impact on net income , because recording an impairment charge results in a negative adjustment to net income . contingencies we are sometimes involved in lawsuits , warranty claims , and environmental matters arising in the ordinary course of business . management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters . we accrue a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated . if an unfavorable outcome is probable and a reasonable estimate of the loss is a range , we accrue the best estimate within the range ; however , if no amount within the range is a better estimate than any other amount , the minimum within the range is accrued . any difference between our estimate of a potential loss and the actual outcome would result in an increase or decrease to net income .
| summary of cash flows replace_table_token_20_th net cash provided by operating activities increased $ 31.6 million to $ 346.1 million during 2014 from $ 314.5 million during 2013 . the increase was primarily attributable to higher net income before certain non-cash items . net cash used in investing activities increased $ 51.0 million to $ 396.2 million during 2014 from $ 345.2 million during 2013 . the increase was primarily attributable to : $ 93.7 million increase in capital investments and leasing costs in 2014 primarily related to our development projects at assembly row and pike & rose , $ 42.9 million in proceeds from the sale of real estate in 2013 , and $ 6.7 million contribution to our real estate partnership to repay the mortgage loans of two of its properties , partially offset by $ 78.1 million decrease in acquisitions of real estate , $ 10.4 million in distributions from our real estate partnership from the sale of pleasant shops in july 2014 , and $ 3.6 million received from the payoff of a mortgage loan receivable in july 2014 . 43 net cash provided by financing activities decreased $ 73.6 million to $ 9.0 million during 2014 from $ 82.6 million in 2013 . the decrease was primarily attributable to : $ 319.8 million decrease from net proceeds on senior note issuances due to $ 244.6 million from our 4.50 % senior notes issued in november 2014 as compared to $ 564.4 million from the issuance of our 2.75 % senior notes in may 2013 and our 3.95 % senior notes in december 2013 , and $ 22.2 million increase in dividends paid to shareholders due to an increase in the dividend rate and increased number of shares outstanding , partially offset by $ 159.1 million decrease due to the redemption of $ 125.0 million of senior notes in 2014 , as compared to the redemption of $ 285.0
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this report , particularly under the headings item 1a risk factors and forward-looking statements. general we report our results through five segments : assurant solutions , assurant specialty property , assurant health , assurant employee benefits , and corporate and other . the corporate and other segment includes activities of the holding company , financing and interest expenses , net realized gains ( losses ) on investments and investment income earned from short-term investments held . the corporate and other segment also includes the amortization of deferred gains associated with the sales of ffg and ltc , through reinsurance agreements as described below . the following discussion covers the twelve months ended december 31 , 2014 ( twelve months 2014 ) , twelve months ended december 31 , 2013 ( twelve months 2013 ) and twelve months ended december 31 , 2012 ( twelve months 2012 ) . please see the discussion that follows , for each of these segments , for a more detailed analysis of the fluctuations . executive summary consolidated net income decreased $ 18,000 , or 4 % , to $ 470,907 for twelve months 2014 from $ 488,907 for twelve months 2013. the decrease was primarily related to lower net income at assurant specialty property , a net loss at assurant health and a $ 19,400 ( after-tax ) loss associated with a divested business . please see note 4 to the consolidated financial statements for further information . these items were partially offset by improved results in our assurant solutions and assurant employee benefits segments , lower expenses in the corporate and other segment , an increase in net realized gains on investments and a favorable change in tax liabilities . assurant solutions net income increased $ 93,796 , or 75 % , to $ 218,948 for twelve months 2014 from $ 125,152 for twelve months 2013. the increase was primarily due to continued growth in covered mobile devices and favorable domestic loss experience . results also benefited from operational efficiencies achieved from restructuring efforts that began in 2013. net earned premiums and fees increased 19.2 % primarily reflecting continued growth in mobile subscribers and mobile client marketing programs . in addition , net earned premiums grew due to contributions from a large service contract client , as well as from increased sales of vehicle service contracts . these items were partially offset by the unfavorable impact of changes in foreign exchange rates in latin america and canada . overall , we expect assurant solutions 2015 net income and net earned premiums and fees to approximate twelve months 2014 amounts . continued growth from our mobile and vehicle service contract businesses will be offset by the loss of a domestic mobile tablet program , reduced mobile carrier marketing programs and declines at certain domestic retailers . foreign currency exchange rate volatility will also impact results . 43 assurant specialty property net income decreased $ 81,829 , or 19 % , to $ 341,757 for twelve months 2014 from $ 423,586 for twelve months 2013. the decrease was primarily due to lower placement and premium rates and higher non-catastrophe losses in our lender-placed insurance business . net earned premiums and fees increased in twelve months 2014 compared with twelve months 2013. the increase was mainly attributable to the residual benefit of the previously disclosed discontinuation of a client quota share reinsurance agreement and recent acquisitions . these items were partially offset by lower placement and premium rates . the twelve months 2014 expense ratio increased 400 basis points compared with twelve months 2013. the increase was primarily due to growth in fee-based businesses , which have higher expense ratios than our insurance products , and lower lender placed premiums . for 2015 , we expect assurant specialty property net income and net earned premiums to decrease compared with twelve months 2014 , reflecting continued normalization of lender-placed insurance business , the previously announced loss of client business and the sale of aric . contributions from multi-family housing and mortgage solutions businesses to partially offset the decline . overall results may be affected by catastrophe losses . assurant health results decreased $ 69,605 , or 1,188 % , to a net loss of $ 63,748 for twelve months 2014 from net income of $ 5,857 for twelve months 2013. the loss was primarily attributable to increased claims from new affordable care act qualified policies , reflecting the guaranteed issue requirements and the health profiles of many first-time buyers , as well as higher non-deductible expenses and reform fees related to the affordable care act . 2014 pricing assumptions were made prior to last year 's open enrollment period regarding the risk pool of consumers buying policies in a guaranteed issue environment . at that time , we believed that existing policyholders who were required to transition to affordable care act plans would be healthier than new enrollees . however , rule changes announced in november 2013 and march 2014 allowed policyholders to extend their existing coverage through 2016. this resulted in affordable care act business having worse morbidity characteristics than we had assumed and 2014 policy pricing could not be modified . increased claims were partially offset by estimated recoveries from the affordable care act risk mitigation programs . estimated recoveries from the risk adjuster program are based on each carrier 's risk relative to that of the overall market . the expense ratio for twelve months 2014 declined 200 basis points compared with twelve months 2013 primarily due to continued operational discipline . twelve months 2014 includes a $ 19,937 annual insurer fee related to the affordable care act . in 2015 we expect assurant health 's results to vary based on claims development on affordable care act policies and estimated recoveries under affordable care act risk mitigation programs . story_separator_special_tag health insurance premium rebate liability the affordable care act was signed into law in march 2010. one provision of the affordable care act , effective january 1 , 2011 , established a minimum medical loss ratio ( mlr ) designed to ensure that a minimum percentage of premiums is paid for clinical services or health care quality improvement activities . the affordable care act established an mlr of 80 % for individual and small group business and 85 % for large group business . if the actual loss ratios , calculated in a manner prescribed by the department of health and human services ( hhs ) , are less than the required mlr , premium rebates are payable to the policyholders by august 1 of the subsequent year . the assurant health loss ratio reported in results of operations below ( the gaap loss ratio ) differs from the loss ratio calculated under the mlr rules . the most significant differences include : the fact that the mlr is calculated separately by state , legal entity and type of coverage ( individual or group ) ; the mlr calculation includes credibility adjustments for each state/entity/coverage cell , which are not applicable to the gaap loss ratio ; the mlr calculation applies only to some of our health insurance products , while the gaap loss ratio applies to the entire portfolio , including products not governed by the affordable care act ; the mlr includes quality improvement expenses , taxes and fees ; changes in reserves and affordable care act risk mitigation program amounts are treated differently in the mlr calculation ; the mlr premium rebate amounts are considered adjustments to premiums for gaap reporting whereas they are reported as additions to incurred claims in the mlr rebate estimate calculations ; and the mlr is calculated using a rolling three years of experience while the gaap loss ratio represents the current year only . assurant health has estimated the 2014 impact of this regulation based on definitions and calculation methodologies outlined in the hhs regulations and guidance . the estimate was based on separate projection models for individual medical and small group business using projections of expected premiums , claims , and enrollment by state , legal entity and market for medical businesses subject to mlr requirements for the mlr reporting year . in addition , the projection models include quality improvement expenses , state assessments , taxes , and estimated impacts of the affordable care act risk mitigation programs ( commonly referred to as the 3r's ) . the premium rebate is presented as a reduction of net earned premiums in the consolidated statement of operations and included in unearned premiums in the consolidated balance sheet . affordable care act risk mitigation programs beginning in 2014 , the affordable care act introduced new and significant premium stabilization programs . these programs , discussed in further detail below , are meant to mitigate the potential adverse impact to individual health insurers as a result of affordable care act provisions that became effective january 1 , 2014 . 46 a three-year ( 2014-2016 ) reinsurance program provides reimbursement to insurers for high cost individual business sold on or off the public marketplaces . the reinsurance entity established by hhs is funded by a per-member reinsurance fee assessed on all commercial medical plans , including self-insured group health plans . only affordable care act individual plans are eligible for recoveries if claims exceed a specified threshold , up to a reinsurance cap . reinsurance contributions associated with affordable care act individual plans are reported as a reduction in net earned premiums in the consolidated statements of operations , and estimated reinsurance recoveries are established as reinsurance recoverables in the consolidated balance sheets with an offsetting reduction in policyholder benefits in the consolidated statement of operations . reinsurance fee contributions for non-affordable care act business are reported in underwriting , general and administrative expenses in the consolidated statement of operations . a permanent risk adjustment program transfers funds from insurers with lower risk populations to insurers with higher risk populations based on the relative risk scores of participants in affordable care act plans in the individual and small group markets , both on and off the public marketplaces . based on the risk of its members compared to the total risk of all members in the same state and market , considering data obtained from industry studies , the company estimates its year-to-date risk adjustment transfer amount . the company records a risk adjustment transfer receivable ( payable ) in premiums and accounts receivable ( unearned premium ) in the consolidated balance sheets , with an offsetting adjustment to net earned premiums in the consolidated statements of operations when the amounts are reasonably estimable and collection is reasonably assured . a three-year ( 2014-2016 ) risk corridor program limits insurer gains and losses by comparing allowable medical costs to a target amount as defined by hhs . this program applies to a subset of affordable care act eligible individual and small group products certified as qualified health plans . the public marketplace can only sell qualified health plans . in addition , carriers who sell qualified health plans on the public marketplace can also sell them off the public marketplace . variances from the target amount exceeding certain thresholds may result in amounts due to or due from hhs . during 2014 , the company did not participate in any insurance public marketplaces so the risk corridor program had no impact on the company 's 2014 operations . reserves reserves are established in accordance with gaap using generally accepted actuarial methods and reflect judgments about expected future claim payments . calculations incorporate assumptions about inflation rates , the incidence of incurred claims , the extent to which all claims have been reported , future claims processing , lags and expenses and future investment earnings , and numerous other factors .
| results of operations assurant consolidated overview the table below presents information regarding our consolidated results of operations : replace_table_token_14_th ( 1 ) includes amortization of dac and voba and underwriting , general and administrative expenses . year ended december 31 , 2014 compared to the year ended december 31 , 2013 net income decreased $ 18,000 , or 4 % , to $ 470,907 for twelve months 2014 from $ 488,907 for twelve months 2013. the decrease was primarily related to lower net income at assurant specialty property , a net loss at assurant health and a $ 19,400 ( after-tax ) loss associated with a divested business . please see note 4 to the consolidated financial statements for further information . these items were partially offset by improved results in our assurant solutions and assurant employee benefits segments , lower expenses in the corporate and other segment , an increase in net realized gains on investments and a favorable change in tax liabilities , including a $ 20,753 one-time tax benefit related to the conversion of the canadian branch operations of certain u.s. subsidiaries to foreign corporate entities . please see note 8 to the consolidated financial statements for further information . year ended december 31 , 2013 compared to the year ended december 31 , 2012 net income increased $ 5,202 , or 1 % , to $ 488,907 for twelve months 2013 from $ 483,705 for twelve months 2012. the increase was primarily related to a $ 143,457 ( after-tax ) decrease in reportable catastrophe losses in our assurant specialty property segment . partially offsetting this item was lower net income in our assurant health and assurant employee benefits segments . in addition , the corporate and other net loss increased as net realized gains on investments decreased $ 19,388 ( after-tax ) and interest expense increased $ 11,329 ( after-tax ) due to the march 2013 issuance of senior notes with an aggregate principal amount of $ 700,000 .
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in the year ended december 31 , 2018 , non-cash impairment charges related to software were in connection with the company 's evolving future information systems strategy , including the implementation of a global erp system , and the impact on currently deployed software as well as rationalization of applications used within each reportable segment . 2020 10-k annual report stericycle , inc. 72 part ii note 5 – property , plant and equipment property , plant and equipment story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes in part ii , item 8. financial statements and supplementary data of this 2020 form 10-k. for further discussion regarding operating and financial data for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , refer to item 7 , management 's discussion and analysis of financial condition and results of operations , in our annual report on form 10-k for the fiscal year ended december 31 , 2019. in 2020 , we updated the presentation of the company 's segment reporting see , part ii , item 8. financial statements and supplementary data ; note 18 segment reporting in the consolidated financial statements for further information . as a result of these changes in segment reporting , all applicable historical segment information has been recast to conform to the new presentation . we are also presenting amounts for the year ended december 31 , 2018 in the results of operations revenues and segment profitability tables below , but not the comparative discussion as mentioned above . in addition , we updated service lines to reflect the remaining hazardous waste solutions services and manufacturing and industrial services in rwcs . this reclassification is driven by the divestiture of the environmental solutions business , discussed in part ii , item 8. financial statements and supplementary data ; note 4 restructuring , divestitures , and impairments , and service line information has been recast to conform to the new presentation . overview incorporated in 1989 , stericycle is a u.s. based business-to-business services company and leading provider of compliance-based solutions that protects people , promotes health and safeguards the environment . stericycle serves customers in the u.s. and 17 other countries worldwide with solutions for regulated waste and compliance services , secure information destruction and patient engagement . to our customers , team members and the communities we serve , stericycle is a company that protects what matters . our offering of services appeals to a wide range of business customers . the majority of our customers are healthcare businesses ( hospitals , physician and dental practices , outpatient clinics , long-term care facilities , etc. ) . we also provide services to retailers , manufacturers , financial services providers , professional services providers , governmental entities and other businesses . while we manage large volumes of waste and other materials , the volume per customer site on average is small . highlights for the year ended december 31 , 2020 compared to the prior year include : revenues for the year ended december 31 , 2020 were $ 2.68 billion , compared to $ 3.31 billion in 2019. of the $ 633.4 million decline , the impact of divestitures was $ 483.7 million and lower sid revenues , excluding sop pricing , was $ 157.1 million , primarily reflecting pandemic-related business disruption . this was partially offset by growth in regulated waste and compliance services of $ 36.5 million . income from operations for the year ended december 31 , 2020 was $ 31.9 million , compared to a loss from operations of $ 211.9 million in 2019. the change was primarily due to no goodwill impairment in 2020 compared to goodwill impairment of $ 228.3 million in 2019 , offset by net divestiture losses of $ 123.6 million in 2020 compared to net divestiture losses of $ 103.0 million in 2019 for a net divestiture difference of $ 20.6 million . in addition , we continue to see lower charges associated with our key priorities and other significant matters discussed below . net loss for the year ended december 31 , 2020 was $ 57.3 million , or $ 0.63 diluted loss per share , compared with $ 346.8 million , or $ 3.81 diluted loss per share , in 2019. the difference was related to higher income from operations of $ 243.8 million , lower interest expense of $ 36.4 million and lower loss on early extinguishment of debt of $ 23.1 million , which were partially offset by a higher income tax expense of $ 16.7 million . cash flow from operations for the year ended december 31 , 2020 was $ 530.2 million , compared to $ 248.0 million in 2019 , representing a $ 282.2 million year-over-year improvement . cash paid for capital expenditures for the year ended december 31 , 2020 was $ 119.5 million compared to $ 194.2 million for the year ended december 31 , 2019 , primarily driven by the timing of 2019 investments in the erp and disciplined capital management throughout 2020 . 2020 10-k annual report stericycle , inc. 35 part ii during 2020 , we completed the following debt related transactions : a ) on november 9 , 2020 , we issued $ 500.0 million at par of aggregate principal senior notes , due january 2029 , which are unsecured and bear interest at 3.875 % per annum , payable on january 15 and july 15 of each year . b ) on february 25 , 2020 , we executed the fifth amendment which amended the credit agreement to , among other things : increase the maximum allowable consolidated leverage ratio to 5.00 to 1.00 until the end of the first quarter of 2022 and 4.50 to 1.00 thereafter . upon the consummation of the divestiture of the esol disposal group , each of the foregoing maximum permitted consolidated leverage ratio levels were stepped down to 4.75 to 1.00 story_separator_special_tag in north america , sid organic revenues were down 12.9 percent compared to 2019 , which reflects a decrease in service stops . additionally , internationally , sid organic revenues were down 21.3 percent compared to 2019. communication and related services appointment reminders , secure messaging , event registration and other communications specifically for hospitals and idn 's at the end of the first quarter and through the year ended 2020 , we observed lower demand for services due to the pandemic . when excluding the impact of divestitures and foreign exchange , revenues declined $ 14.4 million . key business priorities quality of revenue – we have been executing against our foundational initiatives we launched to drive revenue quality . these included a formal cross-functional deal review committee , realignment of sales incentive plans , re-organization of our commercial leadership team around our service lines , key customer channels , and implementation of global customer pipeline management processes for both regulated waste and compliance services and secure information destruction . in combination with our quality of revenue initiatives , we continue to develop and deploy innovative solutions to meet unmet customer needs , strengthen customer engagement , and drive long-term organic growth . as an example , during 2020 , regulated waste and compliance services innovated to meet customer needs during the pandemic by 2020 10-k annual report stericycle , inc. 37 part ii rapidly deploying solutions to support temporary covid-19 testing centers and to introduce non-health care ppe disposal options . in secure information destruction services , we deployed express and priority offerings to address unmet customer needs around service speed and predictability during the pandemic . operational efficiencies – as we manage through volatile times , we remain focused on operational efficiencies , modernization and innovation to control variable and discretionary costs and improving performance and efficiencies in our field operations . our engineering and operations teams have and will continue to implement operational process and performance improvements , which have significantly contributed to our gross profit margin expansion of 390 basis points for the year ended december 31 , 2020. we are gaining traction on right sizing and balancing our fleet and equipment ; driving efficiencies in route and long-haul planning ; and optimizing our network and assets . additionally , we have normalized our workforce following the furloughs experienced earlier this year . debt reduction and leverage improvement – we have reduced net debt by approximately $ 900.0 million during the year ended december 31 , 2020. we applied $ 498.9 million in net proceeds from the divestiture of expert solutions , operations in argentina and environmental solutions to the repayment of debt during december , august and april 2020 , respectively . with the divestitures proceeds and our continued focus on operating margin expansion and free cash flow generation , we reduced our adjusted debt to ebitda leverage ratio as defined by our credit agreement to 3.54 times as of december 31 , 2020. we have $ 947.2 million as of december 31 , 2020 available under our senior credit facility , which matures in november 2022. portfolio rationalization – on december 2 , 2020 , stericycle divested expert solutions for approximately $ 78.0 million in cash . on august 3 , 2020 , stericycle divested all of our operations in argentina for approximately $ 3.9 million in cash . on april 6 , 2020 , we also divested the environmental solutions business for $ 462.5 million in cash . we expect to continue to evaluate opportunities to further optimize our portfolio of businesses . erp implementation – we entered 2020 with a schedule to begin the staged deployment of the commercial , operational and financial systems in north america . our first stage included the implementation of a human capital management system which was completed in january 2020. however , guided by our commitment to protect what matters , we concluded that the health and travel risks associated with a field deployment in the covid-19 pandemic environment were substantial , and given our priorities to serve our customers and keep our team members safe , we made the decision to defer the erp deployment to 2021. in the interim , we are making progress mining data from our legacy systems and tools to gain business insights , build scorecards and improve performance . additionally , over the past several months , we accelerated the roll-out of certain technologies associated with our north american erp system , including our new employee travel and expense system and a global tax management system . key priorities and other significant matters the following table identifies key priorities and other significant matters impacting our business ( amounts are stated pre-tax except when noted ) : 2020 10-k annual report stericycle , inc. 38 part ii replace_table_token_5_th the above priorities and other significant matters include the following types of activities : cash charges closure and exit costs ( 1 ) internal ( 2 ) consulting and professional fees other ( 3 ) non-cash charges ( 4 ) business transformation ü ü ü ü ü acquisition and integration ü ü ü ü ü operational optimization ü ü ü ü ü divestitures ü ü ü litigation , settlements and regulatory compliance ü ü other ü ( 1 ) includes employee and contract termination , facility closure and clean-up costs . ( 2 ) includes dedicated resources , including project related incentive compensation and stock-based compensation . 2020 10-k annual report stericycle , inc. 39 part ii ( 3 ) includes other costs related to each priority ( e.g . software maintenance fees , changes in contingent consideration and environmental provisions ) . ( 4 ) includes impairments , accelerated depreciation and or amortization , gain/loss on disposal and changes in deferred consideration .
| results of operations revenues ( including segment revenue ) : our various regulated services share a common infrastructure and customer base . we market our regulated and compliance services by offering various pricing options to meet our customers ' preferences and customers move between these different billing paradigms . for example , our customers may contract with us for regulated waste disposal services that are billed based on the weight of waste collected , processed and disposed during a particular period and in a subsequent period , the same customer could move to our standard service , which packages the same regulated waste services with training and education services for a contracted subscription fee . another example is a customer that purchases our regulated waste disposal and sharps disposal management services which provides the customer with the same regulated services under a different pricing and billing arrangement . we do not track the movement of customers between the various types of regulated services we offer . although we can identify directional trends in our services , because the regulated services are similar in nature and there are inherent inaccuracies in disaggregation , we analyze revenues by revenue service category and operating segment . we analyze our revenue growth by identifying changes related to organic growth , acquisitions , divestitures and changes due to currency exchange fluctuations . organic growth excludes the effect of foreign exchange and acquisitions and divestitures with less than a full year of revenues in the comparative period . 2020 compared to 2019 year over year movements in revenues by service category and segment were as follows : replace_table_token_10_th ( 1 ) growth is a change in revenues excluding the impact of sop pricing , divestitures and foreign exchange . ( 2 ) the comparisons at constant currency rates ( foreign exchange ) reflect comparative local currency balances at prior period 's foreign exchange rates .
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an increase of 2 % in highway salt deicing average selling prices and lower per-unit shipping and handling costs compared to the prior year partially offset the decline in product sales . salt segment operating earnings were $ 215.2 million , a decrease of 26 % from 2014 , primarily due to a gain of approximately $ 83 million recognized in 2014 related to the tornado . combined plant nutrition results ( north america and south america ) replace_table_token_42_th compass minerals international , inc. 2016 form 10-k replace_table_token_43_th combined plant nutrition results commentary : 2015 – 2016 combined plant nutrition sales were $ 316.5 million , an increase of 33 % from 2015 , primarily due to the inclusion of produquímica 's results since the october 2016 acquisition date . combined plant nutrition operating earnings were $ 28.5 million , a decrease of 51 % from 2015 , primarily due to lower average selling prices in north america partially offset by the inclusion of produquímica results since the acquisition in october 2016. combined plant nutrition volumes increased 63 % from 2015 driven by produquímica sales volumes . combined plant nutrition results commentary : 2014 – 2015 plant nutrition results in 2014 and 2015 only include plant nutrition north america . see below for further discussion . plant nutrition north america results replace_table_token_44_th compass minerals international , inc. 2016 form 10-k replace_table_token_45_th plant nutrition north america results commentary : 2015 – 2016 plant nutrition north america sales were $ 203.0 million , a decrease of 15 % from 2015 , primarily due to lower average sales prices . plant nutrition north america average sales price decreased by 15 % from 2015 and contributed approximately $ 37 million to the decrease in plant nutrition north america sales . average sales prices were lower than 2015 due to the depressed agriculture market . plant nutrition north america volumes increased 1 % from 2015 which partially offset the decrease in sales by approximately $ 1 million . plant nutrition north america operating earnings were $ 21.1 million , a decrease of 64 % from 2015 , primarily due to a 15 % reduction in average selling prices and an 11 % increase in per-unit shipping and handling costs related to higher warehousing costs and an unfavorable geographic sales mix . plant nutrition north america results commentary : 2014 – 2015 plant nutrition north america sales were $ 238.4 million , a decrease of 12 % from 2014 , primarily due to weakness in the agriculture market . plant nutrition north america average selling price increased by 12 % from 2014. plant nutrition north america volumes decreased 21 % from 2014 driven by weakness in the agriculture market . per-unit costs were unfavorably impacted in 2015 by purchased kcl used to supplement the raw mineral feedstock produced through solar-evaporation at our ogden , utah , facility . replace_table_token_46_th compass minerals international , inc. 2016 form 10-k plant nutrition north america sales volumes declined 85,000 tons or 21 % and contributed approximately $ 49 million to the decrease in plant nutrition product sales . the 12 % increase in plant nutrition north america average selling price partially offset the decrease in plant nutrition north america product sales by approximately $ 23 million . plant nutrition north america operating earnings were $ 57.9 million , a decrease of 23 % from 2014 , primarily due to lower sales volumes and higher per unit costs . plant nutrition south america results the following financial results represent consolidated financial information with respect to our new plant nutrition south america segment from october 3 , 2016 , the produquímica acquisition date , through december 31 , 2016. replace_table_token_47_th plant nutrition south america results commentary plant nutrition south america sales were $ 113.5 million for the fourth quarter . plant nutrition south america 's operating results are impacted by seasonality . sales volumes are usually higher in the third and fourth quarter and lower in the first and second quarters . see “ —seasonality ” for more information . plant nutrition south america average sales price was $ 587 per ton . outlook improving market dynamics for the deicing market is expected to result in increased salt sales volumes in 2017 from the prior year , assuming average winter weather for the year . we expect salt sales volumes to range from 11.8 million to 12.6 million tons in 2017. despite the expected increase in salt sales volumes , we expect salt operating margins to be pressured by lower average sales prices and higher per-unit costs in the first half of 2017. we believe the north american specialty plant nutrient market has stabilized at current pricing levels . we anticipate limited volume and average selling price growth for sop products in north america in 2017. we expect plant nutrition north america sales volumes to range from 300,000 to 330,000 tons in 2017. the brazilian plant nutrient market is expected to remain strong in 2017 , which continues to benefit from robust farm incomes due to the strong u.s. dollar and demand for brazilian commodities . we expect plant nutrition south america sales volumes to range from 800,000 to 1.1 million tons . due to the seasonality of the plant nutrition south america segment , we expect operating earnings for this segment to be minimal in the first half of 2017. investments , liquidity and capital resources overview over the last several years , we have made significant investments in order to strengthen our operational capabilities . we continue to invest in our goderich mine to increase our annual available salt production capability to nine million tons as demand warrants . replace_table_token_48_th compass minerals international , inc. 2016 form 10-k we continue to invest in our continuous mining project at goderich . story_separator_special_tag this project is expected to be completed in the fourth quarter of 2017 and should generate annual cost savings of approximately $ 30 million once the project is fully implemented beginning in 2018. we invested in our ogden facility to strengthen our solar-pond-based sop production through upgrades to our processing plant and our solar evaporation ponds . this included modifying our existing solar evaporation ponds to increase the annual solar harvest and increasing the extraction yield and processing capacity of our sop plant . these improvements have increased our current annual solar-pond-based sop production capacity to approximately 320,000 tons . we are nearing completion of a project to further expand our sop production capacity at our ogden facility . after the completion of this additional expansion , we expect our sop production capacity to be approximately 550,000 tons produced with supplemental kcl feedstock . in addition , we are expanding our ability to compact product into various product grades . in 2012 , we acquired the mining rights to approximately 100 million tons of salt reserves in the chilean atacama desert . this reserve estimate is based upon an initial report . we will need to complete a feasibility study before we proceed with the development of this project to ensure our salt reserves are probable . the development of this project will require significant infrastructure to establish extraction and logistics capabilities . in the event that production begins , we will be required to pay the seller royalties on any tons produced . in 2014 , we completed the acquisition of wolf trax , inc. , a privately held canadian corporation . the acquisition enhanced our position as a key resource for premium plant nutrition products by adding innovative plant nutrient products based upon proprietary and patented technologies . in october 2016 , we acquired the remaining 65 % of the issued and outstanding capital stock of produquímica ( see note 3 to our consolidated financial statements for more information ) . as a holding company , cmi 's investments in its operating subsidiaries constitute substantially all of its assets . consequently , our subsidiaries conduct all of our consolidated operations and own substantially all of our operating assets . the principal source of cash needed to pay our obligations is the cash generated from our subsidiaries ' operations and their borrowings . our subsidiaries are not obligated to make funds available to cmi . furthermore , we must remain in compliance with the terms of the credit agreement governing our credit facilities , including the total leverage ratio and interest coverage ratio , in order to pay dividends to our stockholders . we must also comply with the terms of our indenture governing our 4.875 % notes , which limits the amount of dividends we can pay to our stockholders . we are in compliance with our debt covenants as of december 31 , 2016. see note 10 to our consolidated financial statements for a discussion of our outstanding debt . historically , our cash flows from operating activities have generally been adequate to fund our basic operating requirements , ongoing debt service and sustaining investment in property , plant and equipment . we have also used cash generated from operations to fund capital expenditures which strengthen our operational position , pay dividends , fund smaller acquisitions and repay our debt . we have been able to manage our cash flows generated and used across compass minerals to permanently reinvest earnings in our foreign jurisdictions or efficiently repatriate those funds to the u.s. as of december 31 , 2016 , we had $ 70.8 million of cash and cash equivalents ( in the consolidated balance sheets ) that was either held directly or indirectly by foreign subsidiaries . due in large part to the seasonality of our deicing salt business , we have experienced large changes in our working capital requirements from quarter to quarter . historically , our working capital requirements have been the highest in the fourth quarter and lowest in the second quarter . with the addition of our plant nutrition south america segment , we expect a less seasonal distribution of working capital requirements . when needed , we fund short-term working capital requirements by accessing our $ 300 million revolving credit facility . due to our ability to generate adequate levels of domestic cash flow on an annual basis , it is our current intention to permanently reinvest our foreign earnings outside of the u.s. however , if we were to repatriate our foreign earnings to the u.s. , we may be required to accrue and pay u.s. taxes in accordance with the applicable u.s. tax rules and regulations as a result of the repatriation . we review our tax circumstances on a regular basis with the intent of optimizing cash accessibility and minimizing tax expense . in addition , the amount of permanently reinvested earnings is influenced by , among other things , the profits generated by our foreign subsidiaries and the amount of investment in those same subsidiaries . the profits generated by our domestic and foreign subsidiaries are impacted by the transfer price charged on the transfer of our products between them . as discussed in note 8 to our consolidated financial statements , our calculated transfer price on certain products between one of our foreign subsidiaries and a domestic subsidiary has been challenged by canadian federal and provincial governments . the final resolution of these challenges may not occur for several years . we currently expect the outcome of these matters will not have a material impact on our results of operations . however , it is possible the resolution could materially impact the amount of earnings attributable to our domestic and foreign subsidiaries , which could impact the amount of permanently reinvested foreign earnings as well as future cash flows from our domestic operations . see note 8 to our consolidated financial statements for a discussion regarding our
| consolidated results of operations replace_table_token_36_th compass minerals international , inc. 2016 form 10-k * refer to “ —sensitivity analysis related to ebitda and adjusted ebitda ” for a reconciliation to the most directly comparable gaap financial measure and the reasons we use this non-gaap measure . consolidated results commentary : 2015 – 2016 completed the acquisition of produquímica , a leading brazilian specialty plant nutrition company , in october 2016. total sales for 2016 were $ 1,138.0 million , an increase of 4 % from 2015 , due to the contribution from the recent acquisition of produquímica , which was partially offset by continued weakness in the north american agriculture market and lower salt segment selling prices . operating earnings of $ 174.6 million decreased 21 % from 2015 results due to lower operating earnings in salt and plant nutrition north america segments . net earnings were $ 162.7 million in 2016 , a 2 % increase from 2015. net earnings in 2016 were positively impacted by a $ 59.3 million gain on the remeasurement of our previously held equity investment in produquímica , which was mostly offset by lower earnings in our salt and plant nutrition north america segments . ebitda adjusted for items management believes are not indicative of our ongoing operating performance ( “ adjusted ebitda ” ) was $ 275.0 million , an 8 % decrease from 2015 adjusted ebitda of $ 299.7 million . diluted earnings per share of $ 4.79 increased by 2 % from 2015 diluted earnings per share . diluted earnings per share in 2016 was positively impacted by the $ 59.3 million remeasurement gain . consolidated results commentary : 2014 – 2015 total sales for 2015 were $ 1,098.7 million , a decrease of 14 % from 2014 , largely due to mild winter weather in the fourth quarter of 2015 and the weak agriculture market .
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this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those identified below and those discussed in the section titled “ risk factors ” and in other parts of this annual report . overview we are a clinical-stage biopharmaceutical company applying a precision medicine approach to acquiring , developing and commercializing life-changing medicines for underserved patient populations suffering from devastating rare diseases and cancer . we have a differentiated portfolio of small molecule targeted oncology product candidates and are advancing two potentially registrational clinical trials in rare tumor types , as well as several other programs addressing highly prevalent , genetically defined cancers . our strategic approach and operational excellence in clinical development have enabled us to rapidly advance our two lead product candidates into late-stage clinical trials while simultaneously entering into multiple shared-value partnerships with industry leaders to expand our portfolio . from this foundation , we are continuing to build a differentiated , global biopharmaceutical company intensely focused on understanding patients and their diseases in order to develop transformative targeted medicines . as described in part i , item 1 . `` business , '' we currently have three product candidates in clinical development . refer to part i , item 1 . `` business '' for a summary of our clinical programs . on september 12 , 2019 , we completed the initial public offering , or ipo , of our common stock . in connection with the ipo , we issued and sold 10,350,000 shares of our common stock at a price to the public of $ 18.00 per share . the net proceeds from the ipo were approximately $ 169.7 million after deducting underwriting discounts and commissions of $ 13.0 million and offering expenses of approximately $ 3.5 million . at the closing of the ipo , 196,076,779 shares of outstanding convertible preferred stock were automatically converted into 29,794,359 shares of common stock at a conversion rate of one-for-6.5810 . following the ipo , there were no shares of preferred stock outstanding . we were originally formed as springworks therapeutics , llc , a delaware limited liability company in august 2017. concurrent with our formation , we acquired exclusive worldwide licenses to nirogacestat and mirdametinib from pfizer . in september 2018 , we announced that we entered into a global clinical collaboration with beigene to evaluate the combination of mirdametinib with beigene 's raf dimer inhibitor , lifirafenib . from our inception to march 29 , 2019 , we conducted our business through springworks therapeutics , llc and were treated as a partnership for income tax purposes . pursuant to the terms of a corporate reorganization that was completed on march 29 , 2019 , all of the equity interests in springworks therapeutics , llc were exchanged for the same number and class of newly issued securities of springworks therapeutics , inc. , and , as a result , springworks therapeutics , llc became a wholly owned subsidiary of springworks therapeutics , inc. following the reorganization , we now conduct our business as springworks therapeutics , inc. since our inception , our operations have been limited to organizing and staffing our company , business planning , raising capital and performing research and development of our product candidates , including nirogacestat for the treatment of desmoid tumors and mirdametinib for the treatment of nf1‑pn . we do not have any products approved for commercial sale and have not generated any revenues . we had cash and cash equivalents of $ 327.7 million and $ 45.6 million as of december 31 , 2019 and december 31 , 2018 , respectively . since inception , we have funded our operations primarily with net proceeds of $ 102.3 million from the sale of our series a convertible preferred units prior to the reorganization , $ 124.6 million in net proceeds from the sale of our series b convertible preferred stock following the reorganization and net proceeds of $ 169.7 from our ipo in september 2019 . 108 we believe that our cash and cash equivalents will enable us to fund our operational expenses and capital expenditure requirements through 2022. since inception , we have incurred significant operating losses . our net losses were $ 58.3 million , $ 17.8 million and $ 4.6 million for the years ended december 31 , 2019 and december 31 , 2018 , and the period from august 18 , 2017 ( inception ) to december 31 , 2017 , respectively . we had an accumulated deficit of $ 73.0 million and $ 22.5 million as of december 31 , 2019 and december 31 , 2018 , respectively . we expect to continue to incur significant expenses and operating losses for the foreseeable future . in addition , we anticipate that our expenses will increase significantly in connection with our ongoing activities , as we : · advance our product candidates through clinical development , including our ongoing potentially registrational phase 3 clinical trial for nirogacestat and planned potentially registrational phase 2b clinical trial for mirdametinib ; · advance our other preclinical and clinical development programs , including our combination therapies , into and through clinical development ; · seek regulatory approvals for any product candidates that successfully complete clinical trials ; · increase the amount of research and development activities to identify , acquire and develop product candidates ; · hire additional clinical , quality control , medical , scientific and other technical personnel ; · expand our operational , financial and management systems and increase personnel , including personnel to support our clinical development , manufacturing , business development and commercialization efforts and our operations as a public company ; · maintain , expand and protect our intellectual property portfolio ; · complete commercial-scale outsourced manufacturing activities ; · establish sales , marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on story_separator_special_tag these expenses include : · employee-related expenses , which include salaries , benefits and stock-based compensation for our research and development personnel ; · fees paid to consultants for services directly related to our research and development programs ; · expenses incurred under agreements with third-party contract research organizations , investigative clinical trial sites and consultants that conduct research and development activities on our behalf ; · costs associated with preclinical studies and clinical trials ; · costs associated with the manufacture of drug substance and finished drug product for preclinical testing and clinical trials ; · costs associated with technology and intellectual property licenses ; and · an allocated portion of facilities and facility-related costs , which include expenses for rent and other facility-related costs and other supplies . expenditures for clinical development , including upfront licensing fees and milestone payments associated with our product candidates , are charged to research and development expense as incurred . these expenses consist of expenses incurred in performing development activities , including salaries and benefits , materials and supplies , preclinical expenses , clinical trial and related clinical manufacturing expenses , depreciation of equipment , contract services and other outside expenses . costs for certain development activities , such as manufacturing and clinical trials , are recognized based on an evaluation of the progress to completion of specific tasks using either time-based measures or data such as information provided to us by our vendors on their actual costs incurred . we expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in activities related to developing our product candidates and our preclinical programs and as certain product candidates advance into later stages of development , including our ongoing potentially registrational phase 3 clinical trial for nirogacestat and planned potentially registrational phase 2b clinical trial for mirdametinib . the process of conducting the necessary clinical trials to obtain regulatory approval is costly and time-consuming , and the successful development of our product candidates is highly uncertain . as a result , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs , including stock-based compensation , for personnel in executive , finance , corporate and business development and administrative functions . general and administrative expenses also include legal fees relating to patent and corporate matters ; professional fees for accounting , auditing , tax and administrative consulting services ; insurance costs ; administrative travel expenses ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued development of our product candidates . we also anticipate that we will incur increased accounting , audit , legal , regulatory , compliance and director and officer insurance costs as well as investor and public relations expenses associated with being a public company . 111 other income ( expense ) other income consists primarily of interest income . interest income consists of interest earned on our cash equivalents , which consist of money market funds . we expect our interest income to increase due to our investment of cash received from the final closing of our last tranche of series a convertible preferred units in march 2019 , the sale of series b convertible preferred stock in march 2019 , as well as the net proceeds from our ipo . income taxes income taxes are accounted for using the asset-and-liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date . changes in deferred tax assets and liabilities are recorded in the provision for income taxes . we recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized . in making such a determination , management considers all available positive and negative evidence , including future reversals of existing taxable temporary differences , projected future taxable income , tax-planning strategies and results of recent operations . valuation allowances are provided , if based upon the weight of available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . if management determines that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount , management would make an adjustment to the deferred tax asset valuation allowance , which would reduce the provision for income taxes . we record uncertain tax positions in accordance with asc 740 on the basis of a two-step process in which ( 1 ) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and ( 2 ) for those tax positions that meet the more-likely-than-not recognition threshold , management recognizes the largest amount of tax benefit that is more than 50 % likely to be realized upon ultimate settlement with the related tax authority . we provide reserves for potential payments of tax to various tax authorities related to uncertain tax positions .
| results of operations comparison of the years ended december 31 , 2019 and december 31 , 2018 the following table summarizes our results of operations for the years ended december 31 , 2019 and december 31 , 2018. replace_table_token_6_th research and development expenses the increase in research and development expense was primarily attributable to the following : · an increase of $ 25.2 million in external costs related to trial and drug manufacturing costs . · an increase of $ 6.7 million increase in personnel and related costs due to increased number of employees . a significant portion of our research and development costs have been external costs , which we track on a program-by-program basis after a clinical product candidate has been identified . our internal research and development costs are primarily personnel-related costs , depreciation and other indirect costs . we do not track our internal research and development expenses on a program-by-program basis as they are deployed across multiple projects under development . these external and internal research and development expenses are summarized by program in the table below : replace_table_token_7_th 113 general and administrative expenses general and administrative expenses were $ 16.7 million and $ 8.6 million for the years ended december 31 , 2019 and december 31 , 2018 , respectively , as follows : replace_table_token_8_th the increase in personnel-related costs of $ 2.7 million was primarily due to the hiring of additional personnel in our general and administrative functions as we continued to expand our operations to support the organization . the increase in equity-based compensation expense of $ 1.5 million was primarily due to stock incentive awards granted to employees and directors . the increase in professional and consulting fees of $ 2.8 million was primarily due to consulting fees for market research and commercial planning efforts .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under “ risk factors ” or in other parts of this annual report . unless expressly stated otherwise , for discussion and analysis of results for the year ended december 31 , 2018 and the comparison of 2019 and 2018 results , please refer to item 7 of part ii , “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the year ended december 31 , 2019 , which was filed with the united states securities and exchange commission on february 28 , 2020 and is incorporated herein by reference . business overview we are a leading provider of advanced wireless connectivity solutions and technologies used to enable high performance wireless networking across a broad and increasing range of devices and markets , including consumer , enterprise and automotive . our mission is to connect the world through advanced antenna systems and integrated wireless solutions . our innovative antenna systems are designed to address key challenges with wireless system performance faced by our customers . we provide solutions to complex rf , engineering challenges to help improve wireless services that require higher throughput , broad coverage footprint , and carrier grade quality . we are transitioning from a passive antenna and related services provider to a wireless system solutions provider , targeting higher levels of integration and complexity , and therefore , higher selling prices and margins and in 2020 we announced our new patented airgainconnect ® platform . the first product from this platform is the firstnet ready airgainconnect ac-hpue antenna-modem , targeting vehicles used by first responders . the ac-hpue antenna-modem includes an integrated high-power lte modem supporting the 3gpp band 14 hpue ( or high-power user equipment ) output power functionality and is certified to run on the at & t firstnet network . on january 7 , 2021 we purchased 100 % of the outstanding shares of minnesota-based nimbelink corp. , an iiot company focused on the design , development , and delivery of cellular solutions for enterprise customers . nimbelink provides carrier-certified embedded modems and asset tracking solutions that minimize or often eliminate rf design and certification time from project schedules , significantly reducing costs and time to market . the acquisition of nimbelink supports our transition toward becoming a more system-level company and will play an important role in our overall growth strategy to broaden market diversification , especially within the iiot space . nimbelink 's iiot expertise puts them squarely in one of our targeted enterprise submarkets and extends the breadth and opportunity for our airgainconnect platform . our worldwide salesforce represents a present opportunity to expand nimbelink 's reach and nimbelink will now gain access to design opportunities they were not previously able to win . the result is an increase in the opportunities for airgain in the enterprise market and a more diverse offering of products and expertise for our customers . the consumer market encompasses a large and growing market of consumers using wireless-enabled devices and our antennas are deployed in consumer access points , wireless gateways , wi-fi mesh systems and extenders , smart tvs , smart home devices , and set-top boxes . our antennas support an array of technologies , including wlan , wi-fi , lte , 5g and lpwan . the enterprise market is characterized by devices that provide reliable wireless access for high-density environments such as buildings , campuses , transportation terminals and stadiums . within this market our antennas are deployed across a wide range of systems , devices , and applications that include access points and gateways , fixed wireless access infrastructure , small cells , and remote radio heads . in addition we support an array of technologies , including wifi , lte , 5g and lpwan and nimbelink 's products are well positioned to increase our growth in this market . in the automotive market , our antennas are deployed in a wide range of vehicles to support a variety of wireless connectivity solutions in the fleet and aftermarket segment and support a variety of technologies that include wifi , 3g , lte , satellite and lpwan . the fleet and aftermarket segment of the automotive market consists of applications whereby rugged vehicular wireless routers are paired with external antenna systems to provide connectivity to fixed and mobile assets . within the fleet and aftermarket market segment , there has been a rise in the number of antennas per vehicle . the majority of our revenues are currently derived from fleet and aftermarket sales and going forward , our strategy is to augment our current sales in the automotive aftermarket with design wins and sales into the automotive oems and in 2018 we announced two design wins with automotive oems . our design teams partner with customers from the early stages of antenna prototyping to device throughput testing to facilitate optimal performance and quick time to market . our capabilities include design , custom engineering support , integration , and ota testing . these capabilities have resulted in a strong reputation across the oem , odm and chipset manufacturer ecosystem . our competencies and strengths have helped us secure design wins used in multiple reference designs from leading wi-fi chipset vendors , oems , odms , chipset manufacturers and service providers rely on these reference designs and our engineering skills to deliver superior throughput performance . we view our relationship with oem , odm , chipset manufacturers and service providers as an important attribute to our long-term strategy and success . we believe demand is growing rapidly for our advanced wireless connectivity solutions and technologies and there is a significant market opportunity . as the ability to provide mobile internet access grows , our solutions and expertise become more important to prospects and customers . as a passive component , embedded antennas can be viewed as a commodity . story_separator_special_tag however , the continued spread of covid-19 may adversely affect such rebound and have a negative effect on our operating results in future quarters . the impact of the covid-19 pandemic on the u.s. and world economies generally , and our future results in particular , could be significant and will largely depend on future developments , which are highly uncertain and can not be predicted . this includes new information that may emerge concerning covid-19 , the success of vaccinations and other actions taken to contain or treat covid-19 and additional reactions by consumers , companies , governmental entities and capital markets . seasonality our operating results historically have not been subject to significant seasonal variations . however , our operating results are affected by how customers make purchasing decisions around local holidays in china . for example , a national holiday the first week of october in china may cause customers to purchase product in the third quarter ahead of their holiday season to account for higher volume requirements in the fourth quarter . in addition , although it is difficult to make broad generalizations , our sales tend to be lower in the first quarter of each year compared to other quarters due to the chinese new year . resurfacing of outbreaks of covid-19 in china may also contribute the traditionally slower first quarter sales this year . results for any quarter may not be indicative of the results that may be achieved for the full fiscal year and these patterns may change as a result of general customer demand or product cycles . key components of our results of operations and financial condition sales we primarily generate revenue from the sales of our products . as discussed further in “ critical accounting policies and significant judgments and estimates ” below , we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services . we generally recognize sales at the time of shipment to our customers , provided that all other revenue recognition criteria have been met . although currently insignificant , we also generate service revenue derived from agreements to provide design , engineering , and testing for a customer . cost of goods sold the cost of goods sold reflects the cost of producing antenna products that are shipped for our customers ' devices . this primarily includes manufacturing costs of our products payable to our third-party contract manufacturers , as well as manufacturing costs incurred at our facility in arizona . the cost of goods sold that we generate from services provided to customers primarily includes personnel costs . operating expenses our operating expenses are classified into three categories : research and development , sales and marketing , and general and administrative . for each category , the largest component is personnel costs , which includes salaries , employee benefit costs , bonuses , and stock-based compensation . operating expenses also include allocated overhead costs for depreciation of equipment , facilities and information technology . allocated costs for facilities consist of leasehold improvements and rent . operating expenses are generally recognized as incurred . 40 research and development . research and development expenses primarily consist of personnel and facility-related costs attributable to our engineering research and development personnel . these expenses include work related to the design , engineering and testing of antenna designs , and antenna integration , validation and testing of customer devices . these expenses include salaries , including stock-based compensation , benefits , bonuses , travel , communications , and similar costs , and depreciation and allocated operating expenses such as office supplies , premises expenses and insurance . we may also incur expenses from consultants and for prototyping new antenna solutions . we expect research and development expenses to increase in absolute dollars in future periods as we continue to invest in the development of new solutions and markets and as we invest in improving efficiencies within our supply chain , although our research and development expense may fluctuate as a percentage of total sales . sales and marketing . sales and marketing expenses primarily consist of personnel and facility-related costs for our sales , marketing , and business development personnel , stock-based compensation and bonuses earned by our sales personnel , and commissions earned by our third-party sales representative firms . sales and marketing expenses also includes the costs of trade shows , marketing programs , promotional materials , demonstration equipment , travel , recruiting , and allocated costs for certain facilities . we expect sales and marketing expenses to fluctuate as a percentage of sales . general and administrative . general and administrative expenses primarily consist of personnel and facility- related costs for our executive , finance , and administrative personnel , including stock-based compensation , as well as legal , accounting , and other professional services fees , depreciation , and other corporate expenses . we expect general and administrative expenses to fluctuate as we grow our operations . other income interest income . interest income consists of interest from our cash and cash equivalents and short-term investments . interest expense . interest expense consists of interest charges on credit card charges and certain vendor bills . provision for income taxes provision for income taxes consists of federal and state income taxes . in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . management considers the scheduled reversal of deferred tax liabilities ( including the impact of available carryback and carryforward periods ) , projected future taxable income , and tax-planning strategies in making this assessment .
| results of operations the following tables set forth our operating results for the periods presented as a percentage of our total sales for those periods . the period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods . replace_table_token_1_th comparison of the years ended december 31 , 2020 and 2019 ( all tables—dollars in thousands ) sales for the year ended december 31 , 2020 2019 increase / ( decrease ) % change sales $ 48,502 $ 55,739 $ ( 7,237 ) ( 13.0 ) % sales decreased $ 7.2 million , or 13 % , from $ 55.7 million for the year ended december 31 , 2019 , to $ 48.5 million for the year ended december 31 , 2020 , primarily due to the impacts from covid-19 and a product cycle transition for several large volume embedded antenna products . cost of goods sold for the year ended december 31 , 2020 2019 increase / ( decrease ) % change cost of goods sold $ 25,917 $ 30,415 $ ( 4,498 ) ( 14.8 ) % cost of goods sold decreased $ 4.5 million , or 14.8 % , from $ 30.4 million for the year ended december 31 , 2019 to $ 25.9 million for the year ended december 31 , 2020 as a result of decreased sales volume and product cost reductions in the current year . 42 gross profit replace_table_token_2_th gross profit as a percentage of sales increased 1.2 % for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. the increase in gross profit as a percentage of sales was primarily due to product cost reductions negotiated with our contract manufacturers in asia .
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( 8 ) according to schedule 13g , filed on february 13 , 2018 by manulife financial corporation and manulife asset management limited , the business address of such parties is 200 bloor street east , toronto , ontario , canada , m4w 1e5 . according to such schedule 13g , manulife asset management limited is the indirect , wholly-owned subsidiary of manulife financial corporation . ( 9 ) according to schedule 13g , filed on february 14 , 2018 by fir tree capital management lp , the business address of such party is 55 west 46 th street , 29 th floor , new york , ny 10036. our initial shareholders beneficially own , on an as-converted basis , 20 % of our issued and outstanding ordinary shares and have the right to elect all of our directors prior to our business combination as a result of holding all of the founder shares . holders of our public shares will not have the right to elect any directors to our board of directors prior to our business combination . in addition , because of their ownership block , our initial shareholders may be able to effectively influence the outcome of all other matters requiring approval by our shareholders , including amendments to our amended and restated memorandum and articles of association and approval of significant corporate transactions . on august 15 , 2017 , we issued an aggregate of 8,625,000 shares of class f ordinary shares to our sponsors in exchange for an aggregate capital contribution of $ 25,000 . in october 2017 , our sponsors transferred an aggregate of 30,000 founder shares to one of our independent directors for their original purchase price . 66 our sponsors , together with one of our independent directors , currently own 8,625,000 class f ordinary shares . in connection with the consummation of our ipo , our sponsors purchased an aggregate of 5,933,333 private placement warrants at a price of $ 1.50 per private placement warrant ( or $ 8,900,001 in the aggregate ) in a private placement . each private placement warrant entitles the holder to purchase one class a ordinary share at $ 11.50 per share . our sponsors and our executive officers and directors are deemed to be our promoters as such term is defined under the federal securities laws . see item 13. certain relationships and related transactions , and director independence below for additional information regarding our relationships with our promoters . item 13. certain relationships and related transactions , and director independence . in august 2017 , our sponsors purchased an aggregate of 8,625,000 founder shares for an aggregate purchase price of $ 25,000 , or approximately $ 0.003 per share . in october 2017 , our sponsors transferred an aggregate of 30,000 founder shares to one of our independent director nominees at their original per share purchase price . in addition , in november 2017 and december 2017 , two of our directors purchased an aggregate amount of 30,000 units from the public market . as such , our initial shareholders collectively own approximately 20 % of our issued and outstanding shares and have the right to elect all of our directors prior to our initial business combination and each director will need to receive the vote of two-thirds of the outstanding class f shares in order to be elected . in addition , our sponsors purchased an aggregate of 5,933,334 private placement warrants for a purchase price of $ 1.50 per warrant in a private placement that closed simultaneously with the closing of this ipo . as such , our sponsors ' interest in this transaction is valued at approximately $ 8,900,001 . each private placement warrant entitles the holder to purchase one class a ordinary share at a price of $ 11.50 per share , subject to adjustment . the private placement warrants ( including the class a ordinary shares issuable upon exercise of the private placement warrants ) may not , subject to certain limited exceptions , be transferred , assigned or sold by it until 30 days after the completion of our initial business combination . as more fully discussed in item 10. directors , executive officers and corporate governanceconflicts of interest , if any of our officers or directors becomes aware of a business combination opportunity that falls within the line of business of any entity to which he or she has then-current fiduciary or contractual obligations , he or she may be required to present such business combination opportunity to such entity prior to presenting such business combination opportunity to us . all of our officers and directors currently have certain relevant fiduciary duties or contractual obligations that may take priority over their duties to us . the sponsors had loaned us an aggregate of $ 100,000 to cover expenses related to the ipo pursuant to a promissory note . the loan was non-interest bearing , unsecured and due on the earlier of march 31 , 2018 or the closing of the ipo . we repaid the promissory note on october 23 , 2017. we entered into an agreement with an affiliate of mosaic sponsor , llc , pursuant to which we pay a total of $ 16,875 per month for office space and related support services to such affiliate . upon completion of our initial business combination or our liquidation , we will cease paying these monthly fees . story_separator_special_tag a business combination within 24 months from the closing of the ipo , or 27 months from the closing of the ipo if we have executed a letter of intent , agreement in principle or definitive agreement for an initial business combination within 24 months from the closing of the ipo ( the combination period ) . in order to protect the amounts held in the trust account , the sponsors had agreed to indemnify the trust account if and to the extent any claims by third parties , such as a vendor for services rendered or products sold to us , or a prospective target business with which we have entered into an acquisition agreement , reduce the amount of funds in the trust account below $ 10.00 per share . this liability will not apply with respect to any claims by a third party who executed a waiver of any right , title , interest or claim of any kind in or to any monies held in the trust account or to any claims under our indemnity of the underwriter of the ipo against certain liabilities , including liabilities under the securities act . moreover , in the event that an executed waiver is deemed to be unenforceable against a third party , the sponsors will not be responsible to the extent of any liability for such third-party claims . our management has broad discretion with respect to the specific application of the net proceeds of the ipo , the over-allotment , and the private placement , although substantially all of the net proceeds are intended to be applied toward consummating a business combination . on december 5 , 2017 , we announced that the holders of our units may elect to separately trade the class a ordinary shares and warrants comprising the units commencing on december 8 , 2017. those units not separated will continue to trade on the new york stock exchange under the symbol mosc. , and each of the class a ordinary shares and warrants that are separated will trade on the new york stock exchange under the symbols mosc and mosc.ws , respectively . story_separator_special_tag them . promissory noterelated party the sponsors had loaned us an aggregate of $ 100,000 to cover expenses related to the ipo pursuant to a promissory note . the loan was non-interest bearing , unsecured and due on the earlier of march 31 , 2018 or the closing of the ipo . we repaid the promissory note on october 23 , 2017. related party loans in order to finance transaction costs in connection with a business combination , the sponsors or an affiliate of either sponsor , or certain of our officers and directors may , but are not obligated to , provide working capital loans to us as may be required . if we complete a business combination , we would repay the working capital loans out of the proceeds of the trust account released to us . otherwise , the working capital loans would be repaid only out of funds held outside the trust account . in the event that a business combination does not close , we may use a portion of proceeds held outside the trust account to repay the working capital loans but no proceeds held in the trust account would be used to repay the working capital loans , other than the interest on such proceeds that may be released for working capital purposes . except for the foregoing , the terms of such working capital loans , if any , have not been determined and no written agreements exist with respect to such loans . the working capital loans would either be repaid upon consummation of a business combination , without interest , or , at the lender 's discretion , up to $ 1,500,000 of such working capital loans may be convertible into warrants of the post business combination entity at a price of $ 1.50 per warrant . the warrants would be identical to the private placement warrants . office space and related support services effective october 18 , 2017 , we entered into an agreement with an affiliate of one of our sponsors a monthly fee of $ 16,875 for office space and related support services . on october 18 , 2017 , we agreed to pay a monthly fee of $ 5,000 for our chief financial officer ( cfo ) commencing on the closing of the ipo , plus a deferred cash payment of $ 330 per hour , less cumulative monthly fees paid , payable upon completion of our initial business combination or liquidation , whichever occurs first . we had also agreed to pay our cfo according to the agreement for services performed prior to the closing of the ipo . any deferred cash payment will not be claimed against the trust account . additionally , we will issue class a ordinary shares to him upon completion of our initial business combination ( equity compensation ) . the number of class a ordinary shares to be issued is determined in accordance with an agreed formula , which is estimated to be 3,142 shares as of december 31 , 2017. we are not obligated to issue the equity compensation if no business combination is consummated . we incurred approximately $ 58,000 in expense including an accrual of approximately $ 43,000 in connection with such services as of december 31 , 2017. critical accounting policies and estimates class a ordinary shares subject to possible redemption we account for our class a ordinary shares subject to possible redemption in accordance with the guidance in accounting standards codification ( asc ) topic 480 distinguishing liabilities from equity . class a ordinary shares subject to mandatory redemption ( if any ) are classified as liability instruments and are measured at fair value . conditionally redeemable class a ordinary shares ( including class a ordinary shares that feature
| results of operations our entire activity since inception up to december 31 , 2017 related to our formation , commencement of the initial public offering , forward purchase agreement , and , since the offering , our activity has been limited to the search for a prospective initial business combination , and we will not be generating any operating revenues until the closing and completion of our initial business combination . we expect to incur increased expenses as a result of being a public company ( for legal , financial reporting , accounting and auditing compliance ) , as well as for due diligence expenses . for the period from july 26 , 2017 ( inception ) through december 31 , 2017 , we had a net loss of approximately $ 217,000 , which consist solely of general and administrative costs . liquidity and capital resources as indicated in the accompanying financial statements , at december 31 , 2017 , we had approximately $ 928,000 in our operating bank account and working capital of approximately $ 1.1 million . through december 31 , 2017 , our liquidity needs have been satisfied through receipt of a $ 25,000 capital contribution from our sponsors in exchange for the issuance of the founder shares to our sponsors , $ 100,000 in loans from our sponsors , and the proceeds not held in the trust account resulted from the consummation of the ipo and the sale of private placement warrants to the sponsors . in addition , in order to finance transaction costs in connection with a business combination , the sponsors or an affiliate of the sponsor , or certain of our officers and directors may , but are not obligated to , loan us funds as may be required ( working capital loans ) .
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given that the retention amount is related to a future service requirement , the related expense is being recorded as compensation expense in the merger-related line item in the story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes appearing elsewhere in this annual report on form 10-k. the following discussion contains forward-looking statements that reflect our plans , estimates , and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in risk factors. company overview brightcove is a leading global provider of cloud-based solutions for publishing and distributing professional digital media . brightcove video cloud , or video cloud , our flagship product released in 2006 , is the world 's leading online video platform . as of december 31 , 2012 , we had 6,367 customers in over 60 countries , including many of the world 's leading media , retail , technology and financial services companies , as well as governments , educational institutions and non-profit organizations . in 2012 , our customers used video cloud to deliver an average of approximately 699 million video streams per month , which we believe is more video streams per month than any other professional solution . as of december 31 , 2011 , we had 312 employees and 3,872 customers , of which 2,571 used our volume offerings and 1,301 used our premium offerings . as of december 31 , 2012 , we had 335 employees and 6,367 customers , of which 4,742 used our volume offerings and 1,625 used our premium offerings . we have generated substantially all of our revenue to date by offering our video cloud product to customers on a subscription-based , software as a service , or saas , model . our revenue grew from $ 43.7 million in the year ended december 31 , 2010 to $ 88.0 million in the year ended december 31 , 2012. our consolidated net loss was $ 17.8 million for the year ended december 31 , 2010 , compared with $ 12.5 million for the year ended december 31 , 2012. for the years ended december 31 , 2012 and 2011 , our net revenue derived from customers located outside north america was 36 % and 34 % , respectively . we expect the percentage of total net revenue derived from outside north america to increase in future periods as we continue to expand our international operations . our philosophy for the next few years will continue to be to invest for long term growth . we believe these investments will help us address some of the challenges facing our business such as demand for our products by customers and potential customers , rapid technological change in our industry , increased competition and resulting price sensitivity . these investments include support for the expansion of our infrastructure within our hosting facilities , the hiring of additional technical and sales personnel , and the innovation of new features for video cloud , the zencoder service and the development of new products . we believe these investments will help us retain our existing video cloud customers and lead to the acquisition of new customers for video cloud and the zencoder service . additionally , on february 27 , 2013 , we announced that we plan to discontinue our app cloud platform and to instead focus on development of new native player software development kits for mobile devices . we will continue to operate app cloud for existing customers through june 2014. in addition , we will incur incremental public company expenses related to reporting and compliance . however , we believe these investments will result in increased retention and expansion of our customer base and an increase in the resulting revenue . additionally , we believe this customer growth will enable us to achieve economies of scale which will reduce our cost of goods sold , research and development and general and administrative expenses as a percentage of total revenue . acquisitions on august 14 , 2012 , we acquired zencoder , a cloud-based media processing service and html5 video player technology provider , for total consideration of approximately $ 27.4 million . this transaction was accounted for under the purchase method of accounting . accordingly , the results of operations of zencoder have been included in our consolidated financial statements since the date of acquisition . all of the assets acquired and 32 liabilities assumed in the transaction have been recognized at their acquisition date fair values , which were finalized at december 31 , 2012. the acquisition did not result in the addition of any reportable segments . on january 8 , 2013 , we acquired the remaining 37 % interest of our majority-owned subsidiary , brightcove kabushiki kaisha , or brightcove kk , a japanese joint venture which was formed on july 18 , 2008. the purchase price of the remaining equity interest was approximately $ 1.1 million and was funded by cash on hand . we now own 100 % of brightcove kk . the acquisition will be accounted for as a purchase transaction and , as such , we will continue to consolidate brightcove kk for financial reporting purposes , however , commencing on january 8 , 2013 , we will no longer record a non-controlling interest in the consolidated statements of operations . key metrics we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . number of customers . story_separator_special_tag should a customer 's usage of this service exceed the allowable level , the contract will provide for the rate at which the customer must pay for actual usage above the allowable level . customers of the zencoder service on annual contracts are considered premium customers . customers on month-to-month contracts , pay-as-you-go contracts , or contracts for a period of less than one year , are considered volume customers . professional services and other revenue professional services and other revenue consists of services such as implementation , software customizations and project management for customers who subscribe to our premium editions . these arrangements are typically priced on a fixed fee basis with a portion due upon contract signing and the remainder due when the related services have been completed . 34 our backlog consists of the total future value of our committed customer contracts , whether billed or unbilled . as of december 31 , 2012 , we had backlog of approximately $ 53 million compared to backlog of approximately $ 43 million as of december 31 , 2011. of the approximately $ 53 million in backlog as of december 31 , 2012 , between $ 46 million and $ 48 million is expected to be recognized as revenue during the year ended december 31 , 2013. because revenue for any period is a function of revenue recognized from backlog at the beginning of the period as well as from contract renewals and new customer contracts executed during the period , backlog at the beginning of any period is not necessarily indicative of future performance . our presentation of backlog may differ from that of other companies in our industry . cost of revenue cost of subscription , support and professional services revenue primarily consists of costs related to supporting and hosting our product offerings and delivering our professional services . these costs include salaries , benefits , incentive compensation and stock-based compensation expense related to the management of our data centers , our customer support team and our professional services staff . in addition to these expenses , we incur third-party service provider costs such as data center and content delivery network expenses , allocated overhead , depreciation expense and amortization of capitalized internal-use software development costs and acquired intangible assets . we allocate overhead costs such as rent , utilities and supplies to all departments based on relative headcount . as such , general overhead expenses are reflected in cost of revenue in addition to each operating expense category . the costs associated with providing professional services are significantly higher as a percentage of related revenue than the costs associated with delivering our subscription and support services due to the labor costs of providing professional services . as such , the implementation and professional services costs relating to an arrangement with a new customer are more significant than the costs to renew a customer 's subscription and support arrangement . cost of revenue increased in absolute dollars from 2011 to 2012. in future periods we expect our cost of revenue will increase in absolute dollars as our revenue increases . we also expect that cost of revenue as a percentage of revenue will decrease over time as we are able to achieve economies of scale in our business . however , cost of revenue as a percentage of revenue could fluctuate from period to period depending on the growth of our professional services business and any associated costs relating to the delivery of subscription services and the timing of significant expenditures . to the extent that our customer base grows , we intend to continue to invest additional resources in expanding the delivery capability of our products and other services . the timing of these additional expenses could affect our cost of revenue , both in terms of absolute dollars and as a percentage of revenue , in any particular quarterly or annual period . operating expenses we classify our operating expenses as follows : research and development . research and development expenses consist primarily of personnel and related expenses for our research and development staff , including salaries , benefits , incentive compensation and stock-based compensation , in addition to the costs associated with contractors and allocated overhead . we have focused our research and development efforts on expanding the functionality and scalability of our products and enhancing their ease of use , as well as creating new product offerings . we expect research and development expenses to increase in absolute dollars as we intend to continue to periodically release new features and functionality , expand our product offerings , continue the localization of our products in various languages , upgrade and extend our service offerings , and develop new technologies . over the long term , we believe that research and development expenses as a percentage of revenue will decrease , but will vary depending upon the mix of revenue from new and existing products , features and functionality , as well as changes in the technology that our products must support , such as new operating systems or new internet-connected devices . 35 sales and marketing . sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff , including salaries , benefits , incentive compensation , commissions , stock-based compensation and travel costs , amortization of acquired intangible assets , in addition to costs associated with marketing and promotional events , corporate communications , advertising , other brand building and product marketing expenses and allocated overhead . our sales and marketing expenses have increased in absolute dollars in each of the last three years . the increase in sales and marketing expenses as a percentage of revenue is primarily due to our substantial investments in obtaining and retaining customers . we intend to continue to invest in sales and marketing and increase the number of sales representatives to add new customers and expand the sale of our product offerings within our existing customer base , build brand awareness and sponsor additional marketing events .
| results of operations the following tables set forth our results of operations for the periods presented . the period-to-period comparison of financial results is not necessarily indicative of future results . replace_table_token_7_th replace_table_token_8_th overview of results of operations for the years ended december 31 , 2012 and 2011 total revenue increased by 38 % , or $ 24.4 million , in 2012 compared to 2011 due to both an increase in subscription and support revenue of 40 % , or $ 24.1 million , and an increase in professional services revenue of 9 % , or $ 322,000. the increase in subscription and support revenue resulted primarily from an increase in the number of our premium customers , which was 1,625 as of december 31 , 2012 , an increase of 25 % from 1,301 43 customers as of december 31 , 2011. in addition , our revenues from volume offerings grew by $ 2.7 million , or 48 % , from the prior year as our volume customer base increased by approximately 84 % from the prior year . our ability to continue to provide the product functionality and performance that our customers require will be a major factor in our ability to continue to increase revenue . our gross profit increased by $ 17.2 million , or 40 % , in 2012 compared to 2011 , primarily due to an increase in revenue . with the continued growth in our total revenue , our ability to continue to maintain our overall gross profit will depend on our ability to continue controlling our costs of delivery . loss from operations was $ 15.4 million in 2012 compared to $ 16.1 million in 2011. loss from operations in 2012 and 2011 included $ 5.8 million and $ 4.2 million , respectively , of stock-based compensation expense .
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replace_table_token_9_th nm - not meaningful the company 's wealth management and trust segment reported a net loss attributable to the company of $ 12.2 million in the year ended december 31 , 2016 , compared to a net loss attributable to the company of $ 0.8 million in 2015 and net income attributable to the company $ 3.0 million in 2014 . the 2016 net loss was primarily due to a $ 9.5 million goodwill impairment charge and a $ 7.3 million decrease in wealth management and trust fee revenue due to the decrease in aum . additionally , there were increases in salaries and employee benefits expense and occupancy and equipment expense , partially offset by lower restructuring expense . the year ended december 31 , 2015 was the first full year of the integration of the bank 's wealth management business and banyan . the decrease in net income in 2015 was primarily related to lower revenue as a result of employee turnover and the related loss of clients who followed the departed employees . in addition , there were increased operating expenses for legal fees , employee retention , restructuring expenses , and amortization of intangible assets . also in 2015 , the $ 2.0 million liability for contingent consideration recorded upon acquisition of banyan was reversed and recorded as other income , which was not repeated in 2016. aum decreased $ 1.0 billion , or 12 % , to $ 7.0 billion at december 31 , 2016 from $ 8.0 billion at december 31 , 2015 . in 2016 , the decrease in aum was primarily the result of net outflows of $ 0.7 billion and the disposition of $ 0.4 billion of certain accounts , partially offset by market appreciation of $ 0.1 billion . in 2015 , the decrease in aum was primarily the result of net outflows of $ 1.1 billion and negative market action of $ 0.1 billion . additionally , aum decreased $ 0.1 billion due to the disposition of certain accounts in the fourth quarter of 2015 . 31 investment management the following table presents a summary of selected financial data for the investment management segment for 2016 , 2015 , and 2014 . replace_table_token_10_th the company 's investment management segment reported net income attributable to the company of $ 5.7 million in the year ended december 31 , 2016 , compared to net income attributable to the company of $ 5.8 million in 2015 and $ 5.7 million in 2014 . the $ 0.1 million , or 1 % , decrease in 2016 was primarily due to a decrease in investment management fee revenue , partially offset by a decrease in operating expenses , including in particular salaries and employee benefits expense and intangible amortization . the decrease in investment management fees was due to the timing of changes in aum during the year and when fees are billed . aum increased $ 0.6 billion , or 6 % , to $ 10.6 billion at december 31 , 2016 from $ 10.0 billion at december 31 , 2015 . in 2016 , the increase in aum was primarily the result of market appreciation of $ 1.3 billion , partially offset by net outflows of $ 0.7 billion . in 2015 , the decrease in aum was primarily the result of net outflows of $ 0.7 billion and negative market action of $ 0.1 billion . wealth advisory the following table presents a summary of selected financial data for the wealth advisory segment for 2016 , 2015 , and 2014 . replace_table_token_11_th the company 's wealth advisory segment reported net income attributable to the company of $ 7.7 million in the year ended december 31 , 2016 , compared to net income attributable to the company of $ 7.2 million in 2015 and 2014 . decreases in operating expenses in 2016 , including in particular professional fees and intangible amortization , as well as increased wealth advisory fee revenue led to the 7 % increase net income attributable to the company . 32 aum increased $ 0.3 billion , or 3 % , to $ 10.0 billion at december 31 , 2016 from $ 9.7 billion at december 31 , 2015 . in 2016 , the increase in aum was the result of market appreciation of $ 0.4 billion , partially offset by net outflows of $ 0.1 billion . in 2015 , the decrease in aum was the result of negative market action of $ 0.1 billion and net outflows of $ 0.1 billion . the wealth advisory segment revenue is more resistant to fluctuations in market conditions than investment management segment revenue since financial planning fees are typically less correlated to the equity markets . critical accounting policies critical accounting policies are reflective of significant judgments and uncertainties , and could potentially result in materially different results under different assumptions and conditions . the company believes that its most critical accounting policies upon which its financial condition depends , and which involve the most complex or subjective decisions or assessments , are as follows : allowance for loan and lease losses the allowance for loan losses ( “ allowance ” ) is an estimate of the inherent risk of loss in the loan portfolio as of the consolidated balance sheet dates . management estimates the level of the allowance based on all relevant information available . changes to the required level in the allowance result in either a provision for loan loss expense , if an increase is required , or a credit to the provision , if a decrease is required . loan losses are charged to the allowance when available information confirms that specific loans , or portions thereof , are uncollectible . recoveries on loans previously charged-off are credited to the allowance when received in cash . story_separator_special_tag in addition , all loans which are classified as troubled debt restructurings ( “ tdrs ” ) are considered impaired . in addition to the three primary components of the allowance for loan losses discussed above ( general reserve , allocated reserves on non-impaired special mention and substandard loans , and the specific reserves on impaired loans ) , the bank may also maintain an insignificant amount of additional allowance for loan losses ( the unallocated allowance for loan losses ) . the unallocated reserve reflects the fact that the allowance for loan losses is an estimate and contains a certain amount of imprecision risk . it represents risks identified by management that are not already captured in the qualitative factors discussed above . the unallocated allowance for loan losses is not considered significant by the company and will remain at zero unless additional risk is identified . while this evaluation process utilizes historical and other objective information , the classification of loans and the establishment of the allowance for loan losses rely to a great extent on the judgment and experience of management . while management evaluates currently available information in establishing the allowance for loan losses , future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluations . in addition , various regulatory agencies , as an integral part of their examination process , periodically review a financial institution 's allowance for loan losses as well as loan grades/classifications . such agencies may require the financial institution to recognize additions to the allowance for loan losses or increases to adversely graded loans based on their judgments about information available to them at the time of their examination . valuation of goodwill/intangible assets and analysis for impairment the company allocates the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition . other intangible assets identified in acquisitions generally consist of advisory contracts , trade names , and non-compete agreements . the value attributed to advisory contracts is based on the time period over which they are expected to generate economic benefits . the advisory contracts are generally amortized over 8-15 years , depending on the contract . trade names are not amortized . 34 long-lived intangible assets are subject to the impairment provisions of asc 360-10 , property , plant , and equipment ( “ asc 360 ” ) . long-lived intangible assets are tested for recoverability by comparing the net carrying value of the asset or asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset ( asset group ) when events or changes in circumstances indicate that its carrying amount may not be recoverable . if the carrying amount of the asset exceeds its net undiscounted cash flows , then an impairment loss is recognized for the amount by which the carrying amount exceeds its fair value , determined based upon the discounted value of the expected cash flows generated by the asset . the intangible impairment test is performed at the reporting unit level , and each affiliate with goodwill and or intangible assets is considered a reporting unit for goodwill and intangible impairment testing purposes . the excess of the purchase price for acquisitions over the fair value of the net assets acquired , including other intangible assets , is recorded as goodwill . goodwill is not amortized but is tested for impairment at the reporting unit level , defined as the affiliate level , at least annually in the fourth quarter or more frequently when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred , based on the guidance in asc 350 , intangibles-goodwill and other ( “ asc 350 ” ) . goodwill impairment exists when a reporting unit 's carrying value of goodwill exceeds its implied fair value . in accordance with asc 350 , intangible assets with an indefinite useful economic life are not amortized , but are subject to impairment testing at the reporting unit on an annual basis , or when events or changes in circumstances indicate that the carrying amounts are impaired . an entity may assess qualitative factors to determine whether it is more likely than not ( that is , a likelihood of more than 50 percent ) that the fair value of a reporting unit is less than its carrying amount , including goodwill ( “ step 0 ” ) . in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , an entity assesses relevant events and circumstances , such as the following : macroeconomic conditions such as a deterioration in general economic conditions , limitations on accessing capital , or other developments in equity and credit markets . industry and market considerations such as a deterioration in the environment in which an entity operates , an increased competitive environment , a decline in market-dependent multiples or metrics ( consider in both absolute terms and relative to peers ) , a change in the market for an entity 's products or services , or a regulatory or political development . overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods . other relevant entity-specific events such as changes in management , key personnel , strategy , or customers ; contemplation of bankruptcy ; or litigation .
| executive summary the company offers a wide range of private banking and wealth management services to high net worth individuals , families , businesses and select institutions through its four reportable segments : private banking , wealth management and trust , investment management , and wealth advisory . this executive summary provides an overview of the most significant aspects of our operating segments and the company 's operations in 2016 . details of the matters addressed in this summary are provided elsewhere in this document and , in particular , in the sections immediately following . net income attributable to the company was $ 71.6 million for the year ended december 31 , 2016 , compared to net income attributable to the company of $ 64.9 million in 2015 and $ 68.8 million in 2014 . the company recognized diluted earnings per share of $ 0.81 for the year ended december 31 , 2016 , compared to diluted earnings per share of $ 0.74 in 2015 and $ 0.80 in 2014 . key items that affected the company 's 2016 results include : ▪ net interest income for the year ended december 31 , 2016 was $ 200.4 million , an increase of $ 14.7 million , or 8 % , compared to 2015 . the 2016 increase was due to higher volume in the investment and loan portfolios , lower rates paid on borrowings , and higher yields on investments . this was partially offset by lower average yields on loans and an increase in the average volume of interest-bearing deposits and borrowings . net interest margin ( “ nim ” ) increased one basis point to 2.93 % in 2016 from 2.92 % in 2015 , after decreasing six basis points from 2.98 % in 2014 .
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story_separator_special_tag the discussion and analysis set forth below should be read in conjunction with the information presented in other sections of this annual report on form 10-k , including item 1. business , item 1a . risk factors , and item 8. financial statements and supplementary data. this discussion contains forward-looking statements which are based on our current expectations and industry experience , as well as our perception of historical trends , current market conditions , current economic data , expected future developments and other factors that we believe are appropriate under the circumstances . these statements involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward-looking statements . story_separator_special_tag cost reductions , feature enhancements and customized applications of existing products , and provided product certifications for some of our newer products . we continually improve the quality and manufacturability of our products to retain our competitive advantage in the ahd market . we believe these products provide increased sales opportunities into government and commercial markets and demonstrate our ability to remain the leader in the ahd market . we intend to continue to innovate during fiscal 2013 with consistent levels of research and development expenditures . business outlook we are experiencing positive response and increased acceptance of our products . we believe we have a solid technology and product foundation with our lrad-x product line , and we have expanded our product line to service new markets for greater business growth . we believe that we have strong market opportunities within the worldwide government and military sector , as well as increased commercial applications as a result of continued global threats to governments , commerce and law enforcement , and in wildlife preservation and control applications . our selling network has expanded to include a number of key integrators and sales representatives within the united states and in a number of worldwide locations . however , we may continue to face challenges in fiscal 2013 due to extreme international economic and geopolitical conditions . a further and continued deterioration in financial markets and confidence in major economies could disrupt the operation of our business . we anticipate continued uncertainty with u.s. military spending due to ongoing budget delays and expected spending reductions . we continue to pursue large business opportunities , but it is difficult to anticipate how long it will take to close these opportunities , or if they will ever ultimately come to fruition . critical accounting policies and estimates we have identified the policies below as critical to our business operations and to understanding our results of operations . our accounting policies are more fully described in our financial statements and related notes located in item 8. financial statements and supplementary data. the impact and any associated risks related to these policies on our business operations are discussed in item 1a . risk factors and throughout item 7. management 's discussion and analysis of financial condition and results of operations when such policies affect our reported and expected financial results . the methods , estimates and judgments we use in applying our accounting policies , in conformity with generally accepted accounting principles in the united states , have a significant impact on the results we report 22 in our financial statements . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . these estimates affect the carrying values of assets and liabilities . actual results may differ from these estimates under different assumptions or conditions . revenue recognition . the company derives its revenues primarily from two sources : ( i ) product revenues , and ( ii ) contracts , license fees , other services , and freight . product revenues from customers , including resellers and system integrators , are recognized in the periods that products are shipped ( 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 for the company . most revenues to resellers and system integrators are based on firm commitments from the end user , and as a result , resellers and system integrators carry little or no inventory . revenues from associated engineering and installation contracts are recognized based on milestones or completion of the contracted services . the company 's customers do not have the right to return product unless the product is found to be defective . the company licenses its technology to third parties . revenues from up-front license fees are evaluated for multiple elements , but are generally recognized ratably over the specified term of the particular license or agreement . revenues from ongoing per unit license fees are earned based on units shipped and are recognized in the period when the ultimate customer accepts the product , and collection is reasonably assured . share-based compensation . we account for share-based compensation in accordance with the provisions of financial accounting standards board ( fasb ) accounting standards codification ( asc ) 718 , compensationstock compensation ( asc 718 ) using the modified prospective method which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values . asc 718 requires the use of subjective assumptions , including expected stock price volatility and the estimated term of each award . we estimate the fair value of stock options granted using the black-scholes option-pricing model , which is then amortized on a straight-line basis over the requisite service periods of the awards , which is generally the vesting period . story_separator_special_tag replace_table_token_2_th revenues revenues decreased $ 11,714,483 , or 44 % , in the fiscal year ended september 30 , 2012 to $ 14,792,338 compared to $ 26,506,821 in the fiscal year ended september 30 , 2011. revenues in 2011 included a large order to a foreign government in the amount of $ 12,125,000 , which was not repeated in fiscal 2012. lrad revenues accounted for $ 14,411,374 of the total revenues in fiscal 2012 and $ 26,196,063 in fiscal 2011. gross profit gross profit for the year ended september 30 , 2012 was $ 7,478,576 , or 51 % of total revenues , compared to $ 15,929,451 , or 60 % of total revenues for the year ended september 30 , 2011. the decrease in gross profit is primarily due to decreased revenues , lower fixed cost absorption , and increased amortization of prepaid expenses to support warranty and maintenance required under the large foreign government sale in fiscal 2011. these decreases are partially offset by lower manufacturing overhead spending due to reduced freight and a reduction in bonus expense as a result of not meeting current year performance targets , and lower warranty expense . our products have varying gross margins , so product sales mix materially affects gross profit . in addition , the margins differ based on the channel of trade that we sell through . we continue to implement product updates and changes , including raw material and component changes that may impact product costs . with product updates and changes , we have limited warranty cost experience and estimated future warranty costs can impact 25 our gross margins . we could also have increased competition in our market that could cause pricing pressure for us . we do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins . selling , general and administrative expenses selling , general and administrative expenses for the year ended september 30 , 2012 decreased $ 3,922,248 to $ 4,541,594 , or 31 % of total revenues , compared to $ 8,463,842 , or 32 % of total revenues , for the year ended september 30 , 2011. the decrease is primarily due to $ 3,077,265 for sales commissions , primarily related to the large foreign government sale in fiscal 2011 , and $ 1,255,019 for bonus expense based on not meeting annual performance targets in fiscal 2012 , partially offset by an increase of $ 268,193 for non-cash share-based compensation expense , $ 134,978 for salary and consulting expense primarily related to increased business development staffing and $ 62,561 of legal fees related to the recent lawsuit . we incurred non-cash share-based compensation expenses of $ 603,989 and $ 335,796 in selling , general and administrative expenses in the fiscal years ended september 30 , 2012 and 2011 , respectively . the increase in expenses is due to new options granted to key employees as older grants expired . we may expend additional resources on marketing our products in future periods , which may increase selling , general and administrative expenses . also , commission expense will fluctuate based on the level of commissionable sales incurred . research and development expenses research and development expenses decreased $ 824,265 to $ 1,659,673 , or 11 % of total revenues , for the year ended september 30 , 2012 , compared to $ 2,483,938 , or 9 % of total revenues , for the year ended september 30 , 2011. this decrease was primarily due to $ 651,365 in bonus expense for not meeting annual performance targets , $ 99,612 for lower prototype costs and certification fees and $ 88,423 for staffing . included in research and development expenses for the year ended september 30 , 2012 was $ 58,800 of non-cash share-based compensation expenses , compared to $ 60,919 for the year ended september 30 , 2011. during fiscal years 2012 and 2011 , we reviewed the ongoing value of our capitalized intangible assets and identified some of these assets as being no longer consistent with our business strategy . as a result of this review , we reduced the value of these patents by $ 41,621 and $ 22,551 for the fiscal years ended september 30 , 2012 and 2011 , respectively . research and development expenses vary period to period due to the timing of projects , the availability of funds , and the timing , extent and use of outside consulting , design and development firms . in fiscal 2012 , research and development expenses were primarily for in-house development , but we have , in the past , supplemented our in-house development with third party consulting resulting in higher expenses . based on current plans and engineering staffing , we expect fiscal year 2013 research and development expenses to be comparable to expenditures made in fiscal year 2012. income from operations income from operations was $ 1,277,309 for the year ended september 30 , 2012 , compared to income from operations of $ 4,981,671 for the year ended september 30 , 2011 , primarily from decreased revenue and lower margins , partially offset by lower operating expenses . other income during the year ended september 30 , 2012 , we earned $ 33,895 of interest income on our cash balances compared to $ 32,354 in the year ended september 30 , 2011. we also recorded other income of $ 14,613 in the year ended september 30 , 2011 primarily for proceeds from an insurance claim . 26 net income our net income decreased $ 3,560,882 to $ 1,462,020 , or $ 0.04 per diluted share for the year ended september 30 , 2012 , compared to net income of $ 5,022,902 , or $ 0.15 per diluted share , for the year ended september 30 , 2011 due to decreased revenue and gross margin , partially offset by decreased operating expenses .
| overview we are a pioneer of highly intelligible , high clarity directed sound technologies and products . we aggressively seek to create and expand markets for our products , and we are increasing our focus on and investment in worldwide sales and marketing activities while we continue to innovate . our revenues decreased to $ 14,792,338 in the fiscal year ended september 30 , 2012 , from $ 26,506,821 in the fiscal year ended september 30 , 2011. net income decreased as well from $ 5,022,902 in fiscal year 2011 to $ 1,462,020 in fiscal year 2012. the strong revenue in fiscal 2011 was largely driven by a $ 12,125,000 order from a foreign government , which was not repeated in fiscal 2012. direct and indirect revenues from the u.s. military , which declined by 40 % in fiscal 2011 , showed some improvement in fiscal 2012 , though they still remained $ 2.0 million below the fiscal 2010 level due to ongoing federal budget uncertainty and the november 2012 presidential elections . revenues from municipalities for law enforcement improved during fiscal 2012 due to successful high profile lrad deployments during the occupy movement and g-20 summit demonstrations . we increased our working capital by $ 2.3 million during fiscal 2012. future cash flows from operating activities are expected to fluctuate based on working capital requirements , operating expense levels and other factors . we believe we have adequate financial resources to fund operations for the next twelve months . our latest generation of lrad products called the lrad-x product line uses directionality and focused acoustic output to clearly transmit critical information , instructions and warnings more than 3,500 meters . the lrad-x product line features improved voice intelligibility and is available in a number of packages that meet the military 's stringent environmental requirements in a number of packages and form factors .
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taking into account the shares issued as merger consideration , the non-gaap measure of operating earnings per share decreased by 14 % to $ 2.40 from $ 2.79. adjusted for the $ 0.23 per share impact of the above loan write-off , 2019 operating eps was $ 2.63 , which was 6 % lower than the 2018 result . this was primarily due to a lower net interest margin as a result of lower purchase accounting accretion as well as the impact of lower market interest rates in relation to the company 's asset sensitive balance sheet . gaap earnings per share decreased by 14 % to $ 1.97 from $ 2.29. most measures of financial condition and book value improved during the year , including liquidity and capital metrics . in 2019 , the company adopted a goal of building a 21 st century community bank . its focus had previously been on expanding through acquisition as a regional bank . the company is targeting to position the company in coming decades to meet demand for values based , community focused financial providers . the company adopted a be first values statement and is pursuing a goal to expand through non-traditional product and service offerings in underbanked urban communities . the company received numerous recognitions in 2019 for its social responsibility initiatives . the acquisition of si financial group , which was announced in december 2018 , provided a market extension opportunity for the company , with the acquisition of a 23 branch operation in eastern connecticut and rhode island , with $ 1.7 billion in assets . recognizing the impact of decreasing purchased loan accretion due to the seasoning of purchased loan portfolios from past bank acquisitions and based on its strategic vision . in april 2019 , the company announced a strategic review which resulted in four main initiatives as follows : line of business review . the company completed a line of business review and discontinued the origination of indirect auto loans and aircraft loans . the company decided to attempt to sell its national mortgage banking operations , which continue to operate but which have been reclassified as discontinued operations in the financial statements and which remained held for sale at year-end amid ongoing discussions with potential purchasers . balance sheet restructuring . the company initiated a plan to liquidate up to $ 1.1 billion in non-strategic assets over the medium term through sales and run-off , and to use proceeds to pay down more expensive wholesale funds ( borrowings and brokered deposits ) and improve liquidity . in 2019 , the company reduced total assets by approximately $ 700 million under this plan and paid down wholesale funds by approximately $ 900 million . the company set a goal to limit future growth in earning assets to the rate of organic core deposit growth . efficiency initiative . the company worked with a third-party consultant to review its operations to improve efficiency . the company consolidated eight existing branches ( 7 % ) , continuing the branch consolidation program it has conducted in recent years . stock repurchases . the board approved a one year 2.4 million share buyback program expiring march 31 , 2020. the company 's goal is to return to shareholders the excess capital freed up due to the balance sheet restructuring . at year-end , the company had repurchased 1.7 million shares under its buyback program . 48 the year 2019 was the first year of operations under the leadership of ceo richard marotta , who was appointed to the position in november 2018. in december 2019 , william ryan resigned from his position as board chair , while remaining active as a director . existing director j. williar ( “ bill ” ) dunlaevy was elected to replace mr. ryan as chair . during the year , the company appointed three new directors , broadening the experience , diversity , and geographic representation on its board . after year-end , experience and diversity were expanded with the appointment of an additional two directors . also , after year-end , the company promoted eight existing leaders to the new position of regional president in each of the company 's eight markets , leading its priority efforts around its be first values and commitment to being a 21 st century community bank . the regional presidents are proven berkshire leaders in a variety of disciplines , including commercial , retail and executive management . in this role , they report to sean gray , berkshire bank president , with a goal to drive berkshire 's market positioning , enhance its performance , and maintain active community leadership roles . the company increased its dividend on common shares by a penny to $ 0.23 in january 2019 , and an additional penny increase was announced in january 2020. shortly after year-end , approximately half of the outstanding preferred shares were converted to common shares pursuant to the contracted conversion terms . this change has no impact on earnings per share and is slightly accretive to book value per share metrics . the company owns a $ 16 million participating interest in a secured commercial loan in its market area . in september 2019 , this loan defaulted under circumstances involving alleged borrower fraud . in that same month , the company determined that this loan was uncollectable and charged-off the full balance . the company maintains an asset sensitive profile in its interest rate risk management . the federal reserve bank unexpectedly reduced the fed funds rate in three 25 basis point cuts in 2019. these changes resulted in compression of the company 's net interest margin . the yield curve also flattened during the year , which is generally adverse to the net interest margin . the company 's balance sheet restructuring is intended , in part , to support its margins by reducing dependence on high cost wholesale funding . story_separator_special_tag these costs savings are not included within the pro forma assumptions . comparison of financial condition at december 31 , 2019 and 2018 summary : berkshire reduced its leverage , increased its core funding , and focused its balance sheet more in support of its community banking franchise in 2019. asset management disciplines reflected an emphasis on return , risk management , and relationship development . berkshire 's total assets increased in 2019 due to the si financial acquisition , which was partially offset by the reduction of assets tied to its balance sheet restructuring . total assets increased by $ 1 billion , or 8 % , to $ 13.2 billion , including $ 1.7 billion acquired from si financial and net of a $ 700 million decrease in targeted investments and loans due to the balance sheet restructuring . deposits increased by $ 1.4 billion including $ 1.3 billion acquired from si financial . borrowings decreased by $ 0.7 billion and equity increased by $ 0.2 billion due to stock consideration issued for the merger . many of berkshire 's financial condition metrics improved during the year as a result of its operating strategies . equity/assets improved to 13.3 % from 12.7 % and the non-gaap financial measure of tangible equity/tangible assets improved to 9.2 % from 8.6 % . the liquidity measure of loans/deposits improved to 92 % from 101 % . nonperforming assets remained unchanged at 0.3 % of total assets . book value per common share increased by 4 % to $ 34.65 and the non-gaap financial measure of tangible book value per common share increased by 7 % to $ 22.56. investment securities . the securities portfolio was reduced in 2019 to decrease the use of leveraged investments and return the related capital to shareholders so that the balance sheet is more focused on and funded by its community banking franchise . the investment portfolio decreased by $ 149 million in 2019. the si financial merger added $ 143 million in securities , and all other investments were reduced by a net amount of $ 292 million , which was a 15 % reduction from the starting balance . the portfolio balance stood at $ 1.7 billion at year-end 2019. the company generally maintained the distribution of the portfolio , with a continuing emphasis on agency backed pass through securities and collateralized mortgage obligations which are targeted to manage prepayment risk . portfolio credit risk was reduced with the sale of lower rated corporate obligations . although new corporate and other bonds were added through the merger . the average life of the bond portfolio was 4.2 years at period-end , compared to 5.8 years at the start of the year , reflecting higher prepayment speeds related to lower interest rates that developed during the year . the fair value of investment securities was a 2.0 % premium to book value at period-end , compared to a 1.2 % discount at the start of the period due primarily to higher bond prices resulting from lower long-term rates . at period-end , all debt securities which were rated by public rating agencies had an investment grade rating . a total of $ 89 million in debt securities was not rated by rating agencies . all of these securities were either pre-funded with u.s./agency collateral or rated “ pass ” or higher in the company 's internal ratings system except for $ 4 million in unrated performing local municipal obligations and one substandard $ 8 million economic development bond which was performing in accordance with its terms . during the year , there were no impairments recorded and all securities were performing . the fourth quarter 2019 securities yield was 3.31 % compared to 3.34 % in the same quarter of 2018 . 51 loans . the loan portfolio increased by $ 459 million , or 5 % , in 2019 due to the si financial acquisition , which was substantially offset by the release of balances across most loan categories based on the company 's strategic review to deleverage and focus on its community banking mission . a summary of changes in the loan portfolio is as follows : replace_table_token_22_th the company views si financial 's historic loan origination and management practices as generally conforming with the company 's practices and industry norms and the acquired loans are not viewed as significantly changing the company 's overall credit risk profile . the si financial loans were recorded at a $ 45 million ( or 3.3 % ) discount to gross carrying value . excluding acquired si financial loans , most major loan categories decreased in 2019. the decrease in commercial and industrial loans included reductions in national syndicated and participated loans . the company also discontinued originating commercial aircraft loans and sold a portion of the portfolio balance . residential mortgages declined due primarily to accelerated prepayments when interest rates unexpectedly declined . additionally there were lower net purchases of mortgage pools from community banks in the region . the company discontinued the origination of indirect auto loans in the first quarter of 2019 , which was the primary cause for the decrease in consumer loans . this reflected the company 's decision to exit certain assets with lower profitability and lower relationship potential . the company 's lending teams remain active serving qualifying credit demand in its markets , and following selective criteria with an emphasis on credit quality and overall relationship potential and profitability . the company is expanding its sba lending operations , selling the guaranteed portion of its originations into the secondary market as a fee-oriented business activity . for the longer term , the company 's primary lending focus is on its commercial banking business across its franchise footprint . commercial lending is organized around four major lending activities : commercial real estate , middle market banking , asset-based lending , and business banking .
| summary : revenue and expense in 2019 included the si financial operations acquired on may 17 , 2019. as a result , many categories of revenue and expense increased in 2019 over the same period of 2018. additionally , operations in 2019 included the benefit of restructuring actions in both years , and the benefit of the acquired commerce bank operations which were being fully integrated in the first half of 2018. earnings per share reflected the shares issued as merger consideration for the si financial acquisition . references to revenue and expense in this discussion are generally related to continuing operations unless otherwise noted . in 2019 , the company designated its fcls national mortgage banking operations as discontinued and the financial statements in all periods reflect this designation . the comparison of operating results was previously discussed in the introductory summary of management 's discussion and analysis . year-over-year profitability declined primarily due to the $ 16 million charge related to the write-off of one commercial loan due to alleged fraud . profitability was also adversely impacted by a lower net interest margin due to the decline in purchased loan accretion , which had been anticipated , as well as the impact of lower interest rates on the company 's asset sensitive balance sheet . total purchase accounting accretion decreased to $ 14 million in 2019 from $ 23 million in 2018. the company undertook various initiatives following its strategic review , which has previously been described , to help mitigate these margin impacts . operating results were also lower due to higher merger charges related to the completion and integration of the si financial acquisition . the company measures the non-gaap financial measure of adjusted earnings to focus on earnings related to ongoing operations and excluding items described in the reconciliation of non-gaap financial measures which was set forth in an earlier section of this report .
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in june 2020 , the construction of the new chemical factory commenced and is expected to be completed around june 2021. f- 16 gulf resources , inc. and subsidiaries notes to consolidated financial statements december 31 , 2020 ( expressed in u.s. dollars ) note 4 – property , plant and equipment , net property , plant and equipment , net consist of the following : replace_table_token_19_th the company has certain buildings and salt pans erected on parcels of land located in shouguang , prc , and such parcels of land are collectively owned by local townships or the government authority . the company has not been able to obtain property ownership certificates over these buildings and salt pans . the aggregate carrying values of these properties situated on parcels of the land are $ 19,302,600 and $ 19,894,947 as at december 31 , 2020 and december 31 , 2019 , respectively . during the year ended december 31 , 2020 , depreciation and amortization expense totaled $ 15,982,485 of which $ 5,512,920 , $ 815,605 and $ 9,653,960 were recorded in direct labor and factory overheads incurred during plant shutdown , administrative expenses and cost of net revenue respectively . during the year ended december 31 , 2019 , depreciation and amortization expense totaled $ 13,991,583 of which $ 10,796,085 , $ 848,345 and $ 2,347,153 were recorded in direct labor and factory overheads incurred during plant shutdown , administrative expenses and cost of net revenue respectively . there were no impairment losses recorded in the years ended december 31 , 2020 and 2019. the increase in the impairment of $ 1,206,607 from $ 17,434,989 at december 30 , 2019 was due to currency translation adjustment . note 5 –finance lease right-of-use assets property , plant and equipment under finance leases , net consist of the following : replace_table_token_20_th f- 17 the above buildings erected on parcels of land located in shouguang , prc , are collectively owned by local townships . the company has not been able to obtain property ownership certificates over these buildings as the company could not obtain land use rights certificates on the underlying parcels of land . during the year ended december 31 , 2020 , depreciation and amortization expense totaled $ 5,375 , respectively , which was recorded in direct labor and factory overheads incurred during plant shutdown . during the year ended december 31 , 2019 , depreciation and amortization expense totaled $ 69,344 , respectively , which was recorded in direct labor and factory overheads incurred during plant shutdown . note 6 – operating lease right–of-use assets as of december 31 , 2020 , the total operating lease rou assets was $ 8,868,661 . the total operating lease cost for the years ended december 31 , 2020 story_separator_special_tag overview we are a holding company which conducts operations through our wholly-owned china-based subsidiaries . our business is conducted and reported in four segments , namely , bromine , crude salt , chemical products and natural gas . through our wholly-owned subsidiary , schc , we produce and trade bromine and crude salt . we are one of the largest producers of bromine in china , as measured by production output . elemental bromine is used to manufacture a wide variety of bromine compounds used in industry and agriculture . bromine also is used to form intermediary chemical compounds such as tetramethylbenzidine . bromine is commonly used in brominated flame retardants , fumigants , water purification compounds , dyes , medicines and disinfectants . crude salt is the principal material in alkali production as well as chlorine alkali production and is widely used in the chemical , food and beverage , and other industries . through our wholly-owned subsidiary , syci , we manufacture and sell chemical products used in oil and gas field exploration , oil and gas distribution , oil field drilling , papermaking chemical agents , inorganic chemicals and materials that are used for human and animal antibiotics . our wholly-owned subsidiary , dchc , was established to explore and develop natural gas and brine resources ( including bromine and crude salt ) in sichuan province , china . as disclosed in the company 's current report on form 8-k filed on september 8 , 2017 , the company received , on september 1 , 2017 , letters from the yangkou county , shouguang city government addressed to each of its subsidiaries , schc and syci , which stated that in an effort to improve the safety and environmental protection management level of chemical enterprises , the plants are requested to immediately stop production and perform rectification and improvements in accordance with the country 's new safety and environmental protection requirements . in the company 's press release of august 11 , 2017 and on its conference call of august 14 , 2017 , the company addressed concerns that increased government enforcement of stringent environmental rules that were adopted in early 2017 to insure corporations bring their facilities up to necessary standards so that pollution and other negative environmental issues are limited and remediated , could have an impact on our business in both the short and long-term . the company also expressed that although it believed its facilities were fully compliant at the time , the company did not know how its facilities would fare under the new rules . teams of inspectors from the government were sent to many provinces to inspect all mining and manufacturing facilities . the local government requested that facilities be closed , so that the facilities could undergo the inspection and analysis in the most efficient manner by inspectors ' team . as a result , our facilities were closed on september 1 , 2017. the company believes that this is another step by the government to improve the environment . story_separator_special_tag as a result of our acquisitions of schc and syci , our historical consolidated financial statements and the information presented below reflects the accounts of schc , syci and dchc , the consolidated financial statements and the information presented below as of and for the year ended december 31 , 2020. the following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report . on january 28 , 2020 we completed a 1-for-5 reverse stock split of our common stock , such that for each five shares outstanding prior to the stock split there was one share outstanding after the reverse stock split . all shares of common stock referenced in this report have been adjusted to reflect the stock split figures . 21 story_separator_special_tag 2020 , compared to a loss of $ 23,294,383 in the same period in 2019. replace_table_token_9_th bromine segment income from operations from our bromine segment was $ 1,616,542 for the fiscal year 2020 , compared to a loss of $ 15,609,979 in the same period in 2019. crude salt segment loss from operations from our crude salt segment was $ 3,589,494 for fiscal year 2020 , compared to a loss of $ 4,446,900 in the same period in 2019. chemical products segment loss from operations from our chemical products segment was $ 2,745,297 for the fiscal year 2020 , compared to a loss of $ 2,823,298 in the same period in 2019. natural gas segment loss from operations from our natural gas segment was $ 204,514 for the fiscal year 2020 , compared to a loss of $ 188,949 in the same period in 2019. other income , net . other income , net , which represent bank interest income , net of finance lease interest expense was $ 154,877 for the fiscal year 2020 , a decrease of $ 146,448 ( or approximately 49 % ) as compared to the same period in 2019. net income ( loss ) . net loss was $ 8,420,044 for the fiscal year 2020 , compared to net loss of $ 25,800,045 in the same period in 2019. this decrease in the net loss was mainly attributable to the commencement of production and sales at four plants in 2020 , resulting in less losses than in 2019. effective tax rate . our effective income tax ( expense ) benefit rate for the fiscal years 2020 and 2019 were 12 % and ( 12 % ) respectively . the effective tax rate for the fiscal years 2020 was lower than the prc statutory income tax rate of 25 % mainly due to a non-deductible item in connection with the unrealized exchange loss and an increase in valuation allowance recorded for deferred tax assets arising from net operating losses of the parent company . 26 liquidity and capital resources as of december 31 , 2020 , cash and cash equivalents were $ 94,222,538 as compared to $ 100,301,986 as of december 31 , 2019. the components of this decrease of $ 6,079,448 are reflected below . replace_table_token_10_th for the fiscal years 2020 and 2019 , we met our working capital and capital investment requirements by using cash flows from operations and cash on hand . net cash provided by operating activities during the year ended december 31 , 2020 , cash flows provided by operating activities of approximately $ 8.3 million was mainly due to non-cash adjustments related to depreciation and amortization of property , plant and equipment of $ 16.0 million , unrealized translation loss of $ 1.8 million and stock-based compensation expense of $ 2.4 million reduced by net loss of $ 8.4 million . during the year ended december 31 , 2019 , cash flow used in operating activities of approximately $ 15 million was mainly due to a net loss of $ 25.8 million , an increase in accounts receivable of $ 5.07 million , reduced by a non-cash adjustment related to a decrease in deferred tax assets of $ 2.7 million and to depreciation and amortization of property , plant and equipment . accounts receivable cash collections on our accounts receivable had a major impact on our overall liquidity . the following table presents the aging analysis of our accounts receivable as of december 31 , 2020 and 2019. replace_table_token_11_th the overall accounts receivable balance as of december 31 , 2020 increased by $ 1,644,692 , as compared to those of december 31 , 2019. we have policies in place to ensure that sales are made to customers with an appropriate credit history . we perform ongoing credit evaluation on the financial condition of our customers . all receivables were collected in the january through march in 2021 . 27 inventory our inventory consists of the following : replace_table_token_12_th the net inventory level as of december 31 , 2020 decreased by $ 270,478 , as compared to the net inventory level as of december 31 , 2019. raw materials increased by $ 556 as of december 31 , 2020 as compared to december 31 , 2019. finished goods decreased by $ 271,034 as of december 31 , 2020 as compared to december 31 , 2019. net cash used in investing activities for the fiscal year 2020 , we used approximately $ 22 million to acquire property , plant and equipment for the chemical factory . for the fiscal year 2019 , we used approximately $ 61 million to acquire property , plant and equipment for the bromine and crude salt factories . net cash used in financing activities we have no major financing activities for the year ended december 31 , 2020. we believe that our available funds and cash flows generated from operations will be sufficient to meet our anticipated ongoing operating needs for the next twelve months .
| results of operations . year ended december 31 , 2020 as compared to year ended december 31 , 2019 replace_table_token_3_th net revenue the table below shows the changes in net revenue in the respective segment of the company for the fiscal year 2020 compared to the same period in 2019 : replace_table_token_4_th replace_table_token_5_th 22 year ended percentage natural gas segments product sold in cubic metre december 31 , 2020 december 31 , 2019 change decrease natural gas — 349,900 ( 100 % ) bromine segment net revenue from our bromine segment increased by 151 % to $ 25,184,808 for the year ended december 31 , 2020 compared to $ 10,022,027 for the year ended december 31 , 2019. crude salt segment net revenue from our crude salt segment increased by 478 % to $ 3,022,216 for the year ended december 31 , 2020 compared $ 522,758 for the same period in 2019. this increase is due to the fact that only two plants were restarted in 2019 and were in production for only four months , but three plants were restarted in 2020 and were in production for 10 months . chemical products segment for the year ended december 31 , 2020 and december 31 , 2019 , the net revenue for the chemical products segment was $ 0 due to the closure of our chemical factories since september 1 , 2017. as a result there were no chemical products for sale for the years ended december 31 , 2020 and 2019 .
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such forward-looking statements are intended to be identified in this document by the words , anticipate , believe , estimate , expect , intend , may , objective , outlook , plan , project , possible , potential , should and similar expressions . actual results may vary materially . forward-looking statements speak only as of the date they are made , and the company does not undertake any obligation to update them to reflect changes that occur after that date . factors that could cause actual results to differ materially include the items described in item 1a of this annual report on form 10-k. overview the company produces and sells intermediate chemicals that are used in a wide variety of applications worldwide . the overall business comprises three reportable segments : surfactants surfactants , which accounted for 72 percent of consolidated net sales in 2012 , are principal ingredients in consumer and industrial cleaning products such as detergents for washing clothes , dishes , carpets , floors and walls , as well as shampoos , body washes , toothpastes and fabric softeners . other applications include germicidal quaternary compounds , lubricating ingredients , emulsifiers ( for spreading agricultural products ) , plastics and composites and biodiesel . surfactants are manufactured at six north american sites ( five in the u.s. and one in canada ) , three european sites ( united kingdom , france and germany ) , three latin american sites ( mexico , brazil and colombia ) and two asian sites ( philippines and singapore ) . the company also holds a 50 percent ownership interest in a joint venture , tiorco , llc ( tiorco ) , that markets chemical solutions for increasing the production of crude oil and natural gas from existing fields ( enhanced oil recovery ) . the joint venture is accounted for under the equity method , and its financial results are excluded from surfactant segment operating results . profits on sales of the company 's surfactants to enhanced oil recovery customers are included in surfactants segment results . polymers polymers , which accounted for 24 percent of consolidated net sales in 2012 , include two primary product lines : polyols and phthalic anhydride . polyols are used in the manufacture of rigid laminate insulation board and panels for thermal insulation in the construction industry and are also a base raw material for flexible foams and coatings , adhesives , sealants and elastomers ( collectively case products ) . phthalic anhydride is used in unsaturated polyester resins , alkyd resins and plasticizers for applications in construction materials and components of automotive , boating and other consumer products . in addition , phthalic anhydride is used internally in the production of polyols . in the u.s. , polymer product lines are manufactured at the company 's millsdale , illinois , site . in europe , polyols are manufactured at the company 's subsidiaries in germany and poland . in asia , polyols are produced at the company 's 80-percent owned joint venture in nanjing , china . 22 specialty products specialty products , which accounted for 4 percent of consolidated net sales in 2012 , include flavors , emulsifiers and solubilizers used in the food and pharmaceutical industries . specialty products are primarily manufactured at the company 's maywood , new jersey , site . in the second quarter of 2011 , the company purchased three product lines from lipid nutrition b.v. ( lipid nutrition ) , a part of loders croklaan b.v. the acquired product lines , which are produced at the company 's maywood , new jersey , plant and outside contract manufacturers , provide a portfolio of nutritional fats for the food , supplement and nutrition industries . all three segments have growth strategies that require investment outside of north america . the company 's recent surfactant investments in brazil and singapore , polymer investments in germany and poland and specialty products investment in the netherlands ( lipid nutrition ) have resulted in planned higher costs while facilitating the company 's long-term growth strategies . stock split on october 23 , 2012 , the company 's board of directors declared a two-for-one stock split in the form of a 100 percent stock dividend , which was distributed on december 14 , 2012 , to stockholders of record on november 30 , 2012. all share and per share data presented in this management 's discussion and analysis reflect the effects of the stock split . deferred compensation plans the accounting for the company 's deferred compensation plans can cause year-over-year fluctuations in company profits . compensation expense is recorded when the values of company common stock and mutual funds held for the plans increase , and compensation income is recorded when the values of company common stock and mutual funds held for the plans decrease . the pretax effect of all deferred compensation-related activities ( including realized and unrealized gains and losses on the mutual fund assets held to fund the deferred compensation obligations ) for the years ended december 31 , 2012 , 2011 and 2010 , and the statement of income line items in which the effects of the activities were recorded are displayed in the following tables : replace_table_token_6_th 23 replace_table_token_7_th ( 1 ) see the applicable corporate expenses section of this management 's discussion and analysis for details regarding the period-to-period change in deferred compensation . effects of foreign currency translation the company 's foreign subsidiaries transact business and report financial results in their respective local currencies . as a result , foreign subsidiary income statements are translated into u.s. dollars at average foreign exchange rates appropriate for the reporting period . because foreign exchange rates fluctuate against the u.s. dollar over time , foreign currency translation affects year-to-year comparisons of financial statement items ( i.e. , because foreign exchange rates fluctuate , similar year-to-year local currency results for a foreign subsidiary may translate into different u.s. dollar results ) . story_separator_special_tag gross profit for european operations increased 12 percent , which was principally attributable to improved unit margins and the three percent increase in sales volume . lower raw material costs , which outpaced declining selling prices , and reduced manufacturing expenses led to the improved margins . manufacturing expenses were lower between years as expenses for 2011 included the effects of a planned three-week shutdown for a mandatory inspection at the company 's germany plant . partially offsetting the lower expenses was the impact of foreign currency translation , which lessened the year-over-year increase in gross profit by $ 1.5 million . gross profit for latin american operations improved 61 percent mainly as a result of lower costs , favorable sales mix and higher sales volume . gross profit for 2011 was negatively impacted by significant expenses related to the delayed start-up of the capacity expansion in brazil . the favorable sales mix reflected a greater sales volume of neutralized products . 29 gross profit for asia operations declined 55 percent due to start-up and preproduction expenses related to the new plant in singapore , which offset the effect of the 19 percent increase in sales volume . after delay , the singapore plant produced trial quantities in the fourth quarter . in addition to the impact of the singapore plant , prior year gross profit benefited from a $ 1.4 million recovery of value added tax receivables in the philippines , which were previously reserved for due to recoverability uncertainty . operating expenses for the surfactants segment increased $ 7.1 million , or nine percent , year over year . excluding the effects of foreign currency translation , which reduced the year-over-year change by $ 1.9 million , operating expenses were up $ 9.0 million . selling expenses increased $ 4.6 million , which was primarily attributable to higher salary expenses , due to increased staffing levels and pay increases , and related personnel costs ( fringe benefits , incentive pay and travel ) associated with the company 's growth initiatives . also contributing to the selling expense increase was bad debt expense , which was up $ 0.7 million year over year primarily due to favorable reserve adjustments in 2011. research and development expenses increased $ 3.8 million largely as a result of higher salary expenses and related personnel costs . higher expenses in europe associated with the reach initiative contributed $ 0.8 million of the increase in research and development costs . polymers polymers net sales for 2012 increased $ 2.4 million , or one percent , over net sales for 2011. a three percent rise in sales volume and higher average selling prices accounted for $ 10.6 million and $ 3.1 million , respectively , of the increase . the unfavorable effects of foreign currency translation reduced the net sales increase by $ 11.3 million . increased costs for raw materials , particularly for north american operations , led to the higher average selling prices . europe accounted for the sales volume growth . a year-over-year comparison of net sales by region is displayed below : replace_table_token_13_th net sales for north american operations were up one percent due to a one percent increase in average selling prices , which increased year-over-year net sales by $ 3.8 million . sales volume declined less than one percent , reducing the effect of the increase in average selling prices by $ 1.1 million . higher phthalic anhydride raw material costs led to the increase in average selling prices . polyol selling prices declined between years due to a lower cost for a major raw material . sales volume for phthalic anhydride fell three percent between years primarily due to reduced demand for phthalic anhydride in plasticizer applications . polyol sales volume grew two percent primarily as a result of greater demand for polyol used in rigid board insulation and in case applications , particularly in the fourth quarter . given lower 30 anticipated demand for phthalic anhydride , the company reduced its manufacturing capacity by shutting down its oldest , fully depreciated reactor . management believes that the remaining capacity is adequate to meet projected sales demand as well as the company 's internal needs for the production of polyol . net sales for european operations increased one percent due to a 10 percent improvement in sales volume and a less than one percent rise in average selling prices , which increased year-over-year net sales by $ 12.9 million and $ 0.6 million , respectively . the unfavorable effects of foreign currency translation reduced the net sales change by $ 11.7 million . the improvement in sales volume reflected new uses in metal insulation panels and adhesive polyol . a year-over-year weakening of the european euro and the polish zloty against the u.s. dollar led to the foreign currency translation effect . net sales for asia and other operations declined seven percent between years due to a seven percent decrease in average selling prices and a one percent decrease in sales volume , which accounted for $ 2.0 million and $ 0.4 million , respectively , of the year-over-year reduction in net sales . the effects of foreign currency translation mitigated the net sales decline by $ 0.4 million . the lower selling prices reflected a decline in raw material costs . polymer operating income for 2012 increased $ 7.2 million , or 18 percent , over operating income for 2011. gross profit increased $ 10.3 million , as all three regions reported improvements . the year-over-year increase in gross profit reflected higher margins , a large north american urethane systems sale used to insulate an aircraft carrier and increased sales volume . the impact of a second quarter planned maintenance shutdown at the north american site tempered the gross profit improvement . operating expenses increased $ 3.1 million , or 15 percent .
| results of operations 2012 compared with 2011 summary net income attributable to the company for 2012 increased 10 percent to $ 79.4 million , or $ 3.49 per diluted share , compared to $ 72.0 million , or $ 3.21 per diluted share , for 2011. below is a summary discussion of the major factors leading to the year-over-year changes in net sales , profits and expenses . a detailed discussion of segment operating results for 2012 compared to 2011 follows the summary . consolidated net sales declined $ 39.4 million , or two percent , year over year . lower average selling prices and the unfavorable impact of foreign currency translation accounted for $ 39.7 million and $ 39.6 million , respectively , of the decrease . a two percent increase in sales volume offset the effects of lower prices and foreign currency translation by $ 39.9 million . decreased average raw material costs for surfactants drove the decline in average selling prices . weaker foreign currencies against the u.s. dollar for most countries in which the company transacts business caused the unfavorable currency translation impact . sales volume improved for the surfactants and polymers segments , but was down for specialty products . operating income for 2012 improved $ 10.3 million , or nine percent , over operating income reported for 2011. gross profit increased $ 36.0 million , or 14 percent , due to higher unit profit margins and sales volumes . in addition , polymers gross profit benefited from a large sale of urethane systems used to insulate an aircraft carrier . all three segments contributed to the gross profit improvement . the effects of foreign currency translation reduced the year-over-year gross profit and operating income increases by $ 5.2 million and $ 2.7 million , respectively . operating expenses increased $ 25.7 million , or 19 percent , between years .
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brands , inc. and its subsidiaries ( collectively referred to herein as the `` company '' , “ yum ” , `` we '' , `` us '' or `` our '' ) franchise or operate a system of over 50,000 restaurants in more than 150 countries and territories , primarily under the concepts of kfc , pizza hut , taco bell and the habit burger grill ( collectively , the `` concepts '' ) . the company 's kfc , pizza hut and taco bell brands are global leaders of the chicken , pizza and mexican-style food categories , respectively . the habit burger grill , a concept we acquired on march 18 , 2020 , is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers , sandwiches and more . of the over 50,000 restaurants , 98 % are operated by franchisees . as of december 31 , 2020 , yum consists of four operating segments : the kfc division which includes our worldwide operations of the kfc concept the pizza hut division which includes our worldwide operations of the pizza hut concept the taco bell division which includes our worldwide operations of the taco bell concept the habit burger grill division which includes our worldwide operations of the habit burger grill concept through our recipe for growth and good we intend to unlock the growth potential of our concepts and yum , drive increased collaboration across our concepts and geographies and consistently deliver better customer experiences , improved unit economics and higher rates of growth . key enablers include accelerated use of technology and better leverage of our systemwide scale . our recipe for growth is based on four key drivers : unrivaled culture and talent : leverage our culture and people capability to fuel brand performance and franchise success unmatched operating capability : recruit and equip the best restaurant operators in the world to deliver great customer experiences relevant , easy and distinctive brands : innovate and elevate iconic restaurant brands people trust and champion bold restaurant development : drive market and franchise expansion with strong economics and value our global citizenship and sustainability strategy , called the recipe for good , reflects our priorities for socially responsible growth , risk management and sustainable stewardship of our people , food and planet . on october 11 , 2016 , yum announced our transformation plans to drive global expansion of our kfc , pizza hut and taco bell brands ( “ yum 's strategic transformation initiatives ” ) following the spin-off of our china business into an independent publicly-traded company under the name of yum china holdings , inc. ( “ yum china ” ) . at this time , we established transformation goals to be met by the end of 2019 including becoming : more focused . by focusing on four growth drivers similar to those that make up our recipe for growth above we accelerated system sales growth to 8 % in 2019 ( excluding the impacts of the 53 rd week and foreign currency translation ) . more franchised . the company successfully increased franchise restaurant ownership to 98 % as of the end of 2018. more efficient . the company revamped its financial profile , improving the efficiency of its organization and cost structure globally , by : r educing annual capital expenditures associated with company-operated restaurant maintenance and other projects and funded additional capital for new company units through the refranchising of existing company units . capital spending in 2019 net of refranchising proceeds was $ 86 million . lowering general and administrative expenses ( `` g & a '' ) to 1.7 % of system sales in 2019 ; and 31 maintaining an optimized capital structure of ~5.0x earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) net leverage . from 2017 through 2019 , we returned $ 6.5 billion to shareholders through share repurchases and cash dividends . we funded these shareholder returns through a combination of refranchising proceeds , free cash flow generation and maintenance of our ~5.0x ebitda consolidated net leverage . we generated pre-tax proceeds of $ 2.8 billion through our refranchising initiatives to achieve targeted franchise ownership of 98 % . refer to the liquidity and capital resources section of this md & a for additional details . as a result of the impacts on our business due to the covid-19 pandemic , certain measures we established as part of our transformation goals were negatively impacted in 2020. for the full year 2020 , g & a , excluding the impact of special items , represented 1.9 % of consolidated system sales , primarily due to sales pressures resulting from the covid-19 pandemic . while we took certain austerity measures to reduce g & a spending such as lower travel related costs and a reduction of our chief executive officer 's salary , these reductions were offset by accelerated digital and technology spending to enhance our customer experience and off-premise capabilities . we expect our g & a as a percentage of consolidated system sales to move back toward our historical target of 1.7 % as sustained growth resumes . additionally , during 2020 our ebitda was negatively impacted by the impacts of the covid-19 pandemic , which increased our consolidated leverage , net of available cash . we currently estimate we will grow back into our ~5.0x ebitda consolidated net leverage by second quarter 2021. going forward , we expect to : maintain a capital structure of ~5.0x ebitda consolidated net leverage ; invest capital in a manner consistent with an asset light , franchisor model ; and allocate g & a in an efficient manner that provides leverage to operating profit growth while at the same time opportunistically investing in strategic growth initiatives . we intend for this md & a to provide the reader with information that will assist in understanding our results of operations , including performance metrics that management uses to assess the company 's performance . story_separator_special_tag for 2019 we provided core operating profit excluding the impact of the 53rd week and system sales excluding fx and the impact of the 53rd week to further enhance the comparability given the 53rd week that was part of our fiscal calendar in 2019. results of operations story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % ; padding-left:24.34pt '' > the foreign currency impact on reported operating profit is presented in relation only to the immediately preceding year presented . when determining applicable core operating profit growth percentages , the core operating profit for the current year should be compared to the prior year operating profit , prior to adjustment for the prior year fx impact . items impacting reported results and or expected to impact future results the following items impacted reported results in 2020 and or 2019 and or are expected to impact future results . see also the detail of special items section of this m & da for other items similarly impacting results . covid-19 in late 2019 , a novel strain of coronavirus , covid-19 , was first detected and in march 2020 , the world health organization declared covid-19 a global pandemic . throughout 2020 , covid-19 has spread throughout the u.s. and the rest of the world and governmental authorities have implemented measures to reduce the spread of covid-19 . these measures include restrictions on travel outside the home and other limitations on business and other activities as well as encouraging social distancing . as a result of covid-19 , we and our franchisees have experienced significant store closures and instances of reduced store-level operations , including reduced operating hours and dining-room closures . our results were significantly impacted by the impacts of covid-19 in the year ended december 31 , 2020 , as evidenced by our worldwide same-store sales decline of 6 % . the impact on our sales in each of our markets has been dependent on the timing , severity and duration of the outbreak , measures implemented by government authorities to reduce the spread of covid-19 , as well as our reliance on dine-in sales in the market . overall , our sales declines have been primarily driven by temporary store closures , which peaked in early april at about 11,000 restaurants . from that date , temporarily closed restaurants gradually reopened until , as of the end of our third quarter , we had approximately 1,100 units temporarily closed . we continued to see reopenings through the balance of the fourth-quarter ; however , due to the second-wave impacts of covid-19 , including increased government restrictions , temporary closures climbed back to approximately 1,000 as of february 4 , 2021. as a result , roughly 98 % of our system is currently open in a full or limited capacity . geographies experiencing temporary closures have evolved and we are now seeing more closures in europe , canada and the middle east , offset by some re-openings in latin america and india . assets located in malls , transportation centers , airports and other similar locations continue to be pressured , making up many of the temporary closures . in addition to the loss of sales due to restaurants being temporarily closed , we have also lost sales due to the significant number of our open restaurants subject to dining room closures or other limitations on access . we have been able to mitigate the loss of sales due to dining room closures or other limitations on access through the strength of our off-premise channels , aided by increasing consumer access to our brands via digital channels . our worldwide same-store sales decline of 1 % for the fourth quarter of 2020 represents an improvement from the same-store sales declines of 7 % , 15 % and 2 % in the respective first , second and third quarters of 2020. the covid-19 situation is ongoing , and its dynamic nature makes it difficult to forecast any impacts on the company 's 2021 results . the ultimate pace of recovery will largely depend on the pace of restaurant reopenings and the continuation of current sales trends , although we expect continuing adverse impacts from covid-19 . in addition , for our restaurants that prominently feature drive-thru , carryout and delivery options , covid-19 has in many cases contributed to an increase in sales during 2020. if the impact of covid-19 recedes , in-person dining restrictions are lifted or lessened and the restaurant industry in general returns to more normal operations , the benefits to sales experienced by certain of our restaurants , including our pizza hut delivery restaurants , could wane and our results could be negatively impacted . as 98 % of our restaurants are operated by approximately 2,000 independent franchisees across the world , we are closely monitoring the impact of covid-19 on our franchisees ' financial condition . net new unit growth in addition to the restaurants that have been , or continue to be , temporarily closed during 2020 , the uncertainties associated with covid-19 contributed to fewer new restaurant openings and increased permanent restaurant closures during 2020 versus both our recent history and expectations . in addition to permanent closures due to the impacts of covid-19 , the pizza hut system also experienced increased permanent closures of certain asset types primarily due to business model pressures as discussed in the following paragraph . for the year ended december 31 , 2020 , our concepts collectively opened 2,423 new units while permanently closing 2,516 units . while net new unit growth at each of kfc , taco bell and the habit burger grill was lower than expected in 2020 , each concept realized positive net new unit growth for the year . pizza hut experienced a net new unit decline of 1,064 restaurants in 40 2020 , largely due to 1,745 global closures , including 867 closures in the u.s. , nearly 300 of which were stores operated by npc international , inc. ( `` npc '' ) as discussed in the following paragraph .
| summary all comparisons within this summary are versus the same period a year ago and unless otherwise stated include the impact of a 53rd week in 2019. for discussion of our results of operations for 2019 compared to 2018 , refer to the management 's discussion and analysis of financial condition and results of operations included in part ii , item 7 of our form 10-k for the fiscal year ended december 31 , 2019 , filed with the sec on february 19 , 2020. for 2020 , gaap diluted eps decreased 29 % to $ 2.94 per share , and diluted eps , excluding special items , increased 2 % to $ 3.62 per share . 33 2020 financial highlights : replace_table_token_4_th replace_table_token_5_th additionally : during the year , net units increased by 183 units ( including our acquisition of the habit burger grill in the first quarter of 2020 ) . during the year , we repurchased 2.4 million shares totaling $ 250 million at an average price of $ 103. during the year , we recognized pre-tax investment income of $ 69 million related to the change in fair value of our investment in grubhub , inc. common stock that we sold in the third quarter of 2020 , which added $ 0.17 to diluted eps for the year . when coupled with $ 77 million of pre-tax investment expense in 2019 , which resulted in a negative $ 0.19 impact to diluted eps , our grubhub investment favorably impacted year-over-year diluted eps growth by $ 0.36. foreign currency translation impacted divisional operating profit unfavorably for the year by $ 9 million . 34 worldwide gaap results replace_table_token_6_th ( a ) see note 4 for the number of shares used in this calculation .
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we believe that increases in organic net sales , adjusted operating profit , adjusted earnings per share ( eps ) , free cash flow , and cash return to shareholders are key drivers of financial performance for our business . our long-term growth objectives are to consistently deliver : low single-digit annual growth in organic net sales ; mid single-digit annual growth in adjusted operating profit ; high single-digit annual growth in adjusted diluted eps ; free cash flow conversion averaging above 95 percent of adjusted net earnings after tax ; and cash return to shareholders averaging above 90 percent of free cash flow , including an attractive dividend yield . we continue to pursue our consumer first strategy and execute against our global growth framework : 1 ) competing effectively on all brands and across all geographies through strong innovation , effective consumer marketing , and excellent in-store execution ; 2 ) accelerating growth on our four differential growth platforms , which are häagen-dazs ice cream , snack bars , old el paso mexican food , and our portfolio of natural and organic food brands ; and 3 ) reshaping our portfolio through growth-enhancing acquisitions and divestitures , including the acquisition of blue buffalo . by focusing on this growth framework , we expect to generate financial performance consistent with the long-term growth objectives listed above , which we believe should result in long-term value creation for our shareholders . in fiscal 2019 we executed well and met or exceeded each of our key full-year financial targets , including organic net sales growth and constant-currency growth in net sales , adjusted operating profit , and adjusted diluted eps . relative to fiscal 2018 , we improved our net sales performance in u.s. yogurt and our emerging market businesses , we increased our contributions from innovation , we stabilized our distribution trends in the u.s. , and we generated greater benefits from net price realization and mix through our strategic revenue management capability . these results were partially offset by challenging performance for u.s. snack bars , leaving our organic net sales growth at the low end of the range outlined in our initial annual targets . we successfully transitioned blue buffalo into the general mills portfolio in fiscal 2019 , achieving our goals of double-digit pro forma growth in net sales and segment operating profit excluding the impact of purchase accounting . the combination of record-level holistic margin management ( hmm ) savings , increased benefits from net price realization and mix , and strong cost management drove growth in constant-currency adjusted operating profit and adjusted diluted eps ahead of our initial targets . finally , we continued to maintain a disciplined focus on cash , resulting in another year of strong free cash flow conversion . our consolidated net sales for fiscal 2019 rose 7 percent to $ 16.9 billion . on an organic basis , net sales essentially matched year-ago levels . operating profit of $ 2.5 billion increased 4 percent . adjusted operating profit of $ 2.8 billion increased 9 percent and increased 10 percent on a constant-currency basis . diluted eps of $ 2.90 was down 20 percent compared to fiscal 2018 results . adjusted diluted eps was up 4 percent to $ 3.22 per share and increased 4 percent on a constant-currency basis ( see the non-gaap measures section below for a description of our use of measures not defined by generally accepted accounting principles ( gaap ) ) . 19 net cash provided by operations totaled $ 2.8 billion in fiscal 2019 representing a conversion rate of 157 percent of net earnings , including earnings attributable to redeemable and noncontrolling interests . this cash generation supported capital investments totaling $ 538 million , and our resulting free cash flow was $ 2.3 billion at a conversion rate of 115 percent of adjusted net earnings , including earnings attributable to redeemable and noncontrolling interests . we also returned cash to shareholders through dividends totaling $ 1.2 billion and reduced total debt outstanding by $ 1.3 billion . a detailed review of our fiscal 2019 performance compared to fiscal 2018 appears below in the section titled fiscal 2019 consolidated results of operations. a detailed review of our fiscal 2018 performance compared to our fiscal 2017 performance is set forth in part ii , item 7 of our form 10-k for the fiscal year ended may 27 , 2018 under the caption management 's discussion and analysis of financial condition and results of operations fiscal 2018 results of consolidated operations. in fiscal 2020 , our plans include continued strong innovation and investments in capabilities and brand building to accelerate our topline growth , efficiency initiatives to maintain our strong margins , and a disciplined focus on cash to further reduce our leverage . we remain confident that executing our consumer first strategy and our compete , accelerate , and reshape growth framework will drive sustainable , profitable growth and attractive long-term returns for our shareholders . our key full-year fiscal 2020 targets are summarized below : organic net sales are expected to increase 1 to 2 percent . constant-currency adjusted operating profit is expected to increase 2 to 4 percent from the base of $ 2.8 billion reported in fiscal 2019. benefit of the 53 rd week in fiscal 2020 will be reinvested in capabilities and brand-building initiatives to drive improvement in our organic net sales growth rate in 2020 and beyond . constant-currency adjusted diluted eps are expected to increase 3 to 5 percent from the base of $ 3.22 earned in fiscal 2019. free cash flow conversion is expected to be at least 95 percent of adjusted after-tax earnings . see the non-gaap measures section below for a description of our use of measures not defined by gaap . certain terms used throughout this report are defined in a glossary in item 8 of this report . story_separator_special_tag additional information ) . story_separator_special_tag ( b ) related to the divestiture of north american green giant product lines . north america retail organic net sales decreased 1 percent in fiscal 2019 compared to fiscal 2018 , driven by a decrease in contributions from organic volume growth partially offset by favorable organic net price realization and mix . net sales for our north america retail operating units are shown in the following table : replace_table_token_5_th ( a ) on a constant currency basis , canada operating unit net sales decreased 4 percent in fiscal 2019. see the non-gaap measures section below for our use of this measure not defined by gaap . segment operating profit increased 3 percent to $ 2,277 million in fiscal 2019 , compared to $ 2,217 million in fiscal 2018 , primarily driven by lower sg & a expenses , partially offset by lower contributions from volume growth . segment operating profit increased 3 percent on a constant-currency basis in fiscal 2019 compared to fiscal 2018 ( see the non-gaap measures section below for our use of this measure not defined by gaap ) . convenience stores & foodservice segment our major product categories in our convenience stores & foodservice operating segment are ready-to-eat cereals , snacks , refrigerated yogurt , frozen meals , unbaked and fully baked frozen dough products , and baking mixes . many products we sell are branded to the consumer and nearly all are branded to our customers . we sell to distributors and operators in many customer channels including foodservice , convenience stores , vending , and supermarket bakeries in the united states . convenience stores & foodservice net sales were as follows : replace_table_token_6_th ( a ) measured in tons based on the stated weight of our product shipments . 25 convenience stores & foodservice net sales increased 2 percent in fiscal 2019 , driven by favorable net price realization and mix partially offset by a decrease in contributions from volume growth . the components of convenience stores & foodservice organic net sales growth are shown in the following table : fiscal 2019 vs. 2018 percentage change contributions from organic volume growth ( a ) ( 2 ) pts organic net price realization and mix 4 pts organic net sales growth 2 pts net sales growth 2 pts ( a ) measured in tons based on the stated weight of our product shipments . segment operating profit increased 7 percent to $ 420 million in fiscal 2019 , compared to $ 393 million in fiscal 2018 , primarily driven by favorable net price realization and mix , partially offset by higher input costs . europe & australia segment our europe & australia operating segment reflects retail and foodservice businesses in the greater europe and australia regions . our product categories include refrigerated yogurt , meal kits , super-premium ice cream , refrigerated and frozen dough products , shelf stable vegetables , grain snacks , and dessert and baking mixes . we also sell super-premium ice cream directly to consumers through owned retail shops . revenues from franchise fees are reported in the region or country where the franchisee is located . europe & australia net sales were as follows : replace_table_token_7_th ( a ) measured in tons based on the stated weight of our product shipments . the 5 percent decrease in europe & australia net sales in fiscal 2019 was driven by unfavorable foreign currency exchange and lower contributions from volume growth , partially offset by favorable net price realization and mix . the components of europe & australia organic net sales growth are shown in the following table : fiscal 2019 vs. 2018 percentage change contributions from organic volume growth ( a ) ( 3 ) pts organic net price realization and mix 2 pts organic net sales growth ( 1 ) pt foreign currency exchange ( 4 ) pts net sales growth ( 5 ) pts ( a ) measured in tons based on the stated weight of our product shipments . the 1 percent decrease in europe & australia organic net sales growth in fiscal 2019 was driven by a decrease in contributions from organic volume growth partially offset by favorable organic net price realization and mix . 26 segment operating profit decreased 13 percent to $ 123 million in fiscal 2019 , compared to $ 142 million in the same period of fiscal 2018 primarily driven by lower contributions from volume growth and higher input costs , including currency-driven inflation on imported products in certain markets , partially offset by lower sg & a expenses . segment operating profit decreased 8 percent on a constant-currency basis in fiscal 2019 compared to fiscal 2018 ( see the non-gaap measures section below for our use of this measure not defined by gaap ) . asia & latin america segment our asia & latin america operating segment consists of retail and foodservice businesses in the greater asia and south america regions . our product categories include super-premium ice cream and frozen desserts , refrigerated and frozen dough products , dessert and baking mixes , meal kits , salty and grain snacks , wellness beverages , and refrigerated yogurt . we also sell super-premium ice cream and frozen desserts directly to consumers through owned retail shops . our asia & latin america segment also includes products manufactured in the united states for export , mainly to caribbean and latin american markets , as well as products we manufacture for sale to our international joint ventures . revenues from export activities and franchise fees are reported in the region or country where the end customer or franchisee is located . asia & latin america net sales were as follows : replace_table_token_8_th ( a ) measured in tons based on the stated weight of our product shipments . asia & latin america net sales decreased 3 percent in fiscal 2019 compared to fiscal 2018 , driven by unfavorable foreign currency exchange , partially offset by favorable net price realization and mix and an increase in contributions from volume growth .
| fiscal 2019 consolidated results of operations in fiscal 2018 , we acquired blue buffalo , which became our pet operating segment . we are reporting the pet operating segment results on a one-month lag and , accordingly , our fiscal 2018 results did not include pet segment operating results . in fiscal 2019 , net sales increased 7 percent compared to last year , primarily reflecting the addition of blue buffalo . organic net sales were flat in the fiscal year ended may 26 , 2019. operating profit margin of 14.9 percent was down 50 basis points from year-ago levels primarily driven by impairment charges recorded for certain intangible and manufacturing assets and unfavorable mark-to-market valuation of certain commodity positions . adjusted operating profit margin increased 30 basis points to 16.9 percent , primarily driven by lower selling , general , and administrative expenses in our north america retail segment and the addition of blue buffalo , partially offset by higher input costs . diluted earnings per share of $ 2.90 decreased 20 percent primarily driven by a one-time benefit recorded in fiscal 2018 related to the tax cuts and jobs act ( tcja ) . adjusted diluted earnings per share of $ 3.22 increased 4 percent on a constant-currency basis ( see the non-gaap measures section below for a description of our use of measures not defined by gaap ) .
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gains on sale of real estate are recognized using the full accrual or partial sale methods , story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes appearing elsewhere in this report . historical results and trends which might appear in the consolidated financial statements should not be interpreted as being indicative of future operations . we consider portions of this report to be “ forward-looking ” within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934 , both as amended , with respect to our expectations for future periods . forward-looking statements do not discuss historical fact , but instead include statements related to expectations , projections , intentions , or other items relating to the future ; forward-looking statements are not guarantees of future performance , results , or events . although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions , we can give no assurance our expectations will be achieved . any statements contained herein which are not statements of historical fact should be deemed forward-looking statements . reliance should not be placed on these forward-looking statements as these statements are subject to known and unknown risks , uncertainties , and other factors beyond our control and could differ materially from our actual results and performance . factors which may cause our actual results or performance to differ materially from those contemplated by forward-looking statements include , but are not limited to , the following : volatility in capital and credit markets , or other unfavorable changes in economic conditions , either nationally or regionally in one or more of the markets in which we operate , could adversely impact us ; short-term leases expose us to the effects of declining market rents ; competition could limit our ability to lease apartments or increase or maintain rental income ; we face risks associated with land holdings and related activities ; we could be negatively impacted by the elimination of fannie mae or freddie mac ; development , redevelopment and construction risks could impact our profitability ; investments through joint ventures and discretionary funds involve risks not present in investments in which we are the sole investor ; competition could adversely affect our ability to acquire properties ; our acquisition strategy may not produce the cash flows expected ; tax matters , including failure to qualify as a reit , could have adverse consequences ; losses from catastrophes may exceed our insurance coverage ; a cybersecurity incident and other technology disruptions could negatively impact our business ; we have significant debt , which could have important adverse consequences ; insufficient cash flows could limit our ability to make required payments for debt obligations or pay distributions to shareholders ; issuances of additional debt may adversely impact our financial condition ; we may be unable to renew , repay , or refinance our outstanding debt ; variable rate debt is subject to interest rate risk ; failure to maintain our current credit ratings could adversely affect our cost of funds , related margins , liquidity , and access to capital markets ; share ownership limits and our ability to issue additional equity securities may prevent takeovers beneficial to shareholders ; our share price will fluctuate ; and the form , timing and or amount of dividend distributions in future periods may vary and be impacted by economic and other considerations . these forward-looking statements represent our estimates and assumptions as of the date of this report , and we assume no obligation to update or supplement forward-looking statements because of subsequent events . 19 executive summary we are primarily engaged in the ownership , management , development , redevelopment , acquisition and construction of multifamily apartment communities . as of december 31 , 2014 , we owned interests in , operated , or were developing 181 multifamily properties comprised of 63,163 apartment homes across the united states as detailed in the following property portfolio table . in addition , we own other land holdings which we may develop into multifamily apartment communities in the future . property operations our results for the year ended december 31 , 2014 reflect an increase in same store revenues of 4.5 % as compared to 2013 . we believe this increase was due to the continuation of improving economic conditions , including job growth , favorable demographics , a manageable supply of new multifamily housing and more individuals choosing to rent versus buy as evidenced by the moderating level of homeownership rates , all of which have resulted in higher rental rates and average occupancy levels . we believe u.s. economic and employment growth is likely to continue during the remainder of 2015 and the supply of new multifamily homes , although increasing , will likely remain at manageable levels . if economic conditions were to worsen , our operating results could be adversely affected . construction activity at december 31 , 2014 , we had a total of 13 projects under construction to be comprised of 4,215 apartment homes , including one development project to be comprised of 266 apartment homes owned by one of the discretionary funds ( `` the funds '' ) in which we currently have a 31.3 % interest , with initial occupancy scheduled to occur within the next 28 months . excluding the projects owned by one of the funds , as of december 31 , 2014 , we estimate the additional cost to complete the construction of 12 consolidated projects to be approximately $ 371.2 million . acquisitions during the year ended december 31 , 2014 , we acquired one operating property , comprised of 276 apartment homes , located in atlanta , georgia for approximately $ 62.6 million . we also acquired two land parcels comprised of 10.5 acres of land located in houston , texas and rockville , maryland for approximately $ 39.4 million . story_separator_special_tag 23 completed construction in lease-up at december 31 , 2014 , we had two consolidated completed operating properties in lease-up as follows : replace_table_token_12_th properties under development and land our consolidated balance sheet at december 31 , 2014 included approximately $ 527.6 million related to properties under development and land . of this amount , approximately $ 411.3 million related to our projects currently under construction . in addition , we had approximately $ 116.3 million primarily invested in land held for future development and land holdings , which included approximately $ 105.7 million related to projects we expect to begin constructing during the next three years , and approximately $ 10.6 million invested in land holdings which we may develop in the future . communities under construction . at december 31 , 2014 , we had 12 consolidated properties and one property held by one of the funds , in which we currently own a 31.3 % interest , in various stages of construction as follows : replace_table_token_13_th 24 ( 1 ) property in lease-up and was 64 % leased at january 25 , 2015 . ( 2 ) property in lease-up and was 51 % leased at january 25 , 2015 . ( 3 ) property in lease-up and was 40 % leased at january 25 , 2015 . ( 4 ) property in lease-up and was 24 % leased at january 25 , 2015 . ( 5 ) property in lease-up and was 12 % leased at january 25 , 2015 . ( 6 ) property owned through an unconsolidated joint venture in which we currently own a 31.3 % interest . development pipeline communities . at december 31 , 2014 , we had the following consolidated communities undergoing development activities : replace_table_token_14_th ( 1 ) represents our estimate of total costs we expect to incur on these projects . however , forward-looking statements are not guarantees of future performance , results , or events . although we believe these expectations are based upon reasonable assumptions , future events rarely develop exactly as forecasted , and estimates routinely require adjustment . ( 2 ) the property will be developed in two phases . the estimated units , estimated cost , and cost to date represent both phases . land holdings . at december 31 , 2014 , we had the following land holdings : ( $ in millions ) location acres cost to date las vegas , nv 19.6 $ 4.2 other 4.8 6.4 total 24.4 $ 10.6 25 geographic diversification at december 31 , 2014 and 2013 , our real estate assets by various markets , excluding depreciation , investments in joint ventures and properties held for sale , were as follows : replace_table_token_15_th story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; '' > disposition/other property analysis disposition/other property revenues decreased approximately $ 2.6 million for the year ended december 31 , 2014 as compared to 2013 , and were relatively flat in 2013 as compared to 2012 . the decrease in 2014 was primarily due to a $ 0.9 million decrease in revenue from dispositions due to the timing of completion of the disposition of five operating properties in 2014. the decrease was also due to a lower below market lease amortization of approximately $ 0.9 million due to the timing of completion of the acquisition of operating properties in 2012 and 2013. below market leases are generally amortized over approximately six months upon completion of an acquisition , which reflects the remaining average term of acquired leases . the decrease was also due to a decrease in other income of approximately $ 0.8 million for the year ended december 31 , 2014 resulting from our non-multifamily rental properties . disposition/other property expenses decreased approximately $ 0.7 million for the year ended december 31 , 2014 as compared to 2013 , and were relatively flat in 2013 as compared to 2012 . the decrease in 2014 was primarily due to lower property taxes expensed on land holdings on which we initiated development activities in the fourth quarter of 2013 as we start capitalizing expenses , including property taxes , on development properties at such time . non-property income replace_table_token_20_th * not a meaningful percentage . fee and asset management income , which represents income related to property management of our joint ventures and third-party construction projects , decreased approximately $ 1.9 million for the year ended december 31 , 2014 as compared to 2013 and decreased approximately $ 0.7 million for the year ended december 31 , 2013 as compared to 2012 . the decrease for 2014 as compared to 2013 was primarily due to the sale of 18 operating properties by three of our unconsolidated joint ventures in 2013 and 2014. this decrease was also due to lower construction fees resulting from a reduced level of third-party construction activities and lower development and construction fees earned due to the timing of development communities started and completed by our funds during 2013 and 2014. the decrease for 2013 as compared to 2012 was primarily due to the sale of 23 operating properties by three unconsolidated joint ventures during 2012 and 2013 and our acquisition of a previously unconsolidated joint venture community in december 2012. this decrease was partially offset by higher construction fees due to an increase in third-party construction activities . interest and other income ( loss ) decreased approximately $ 0.4 million for the year ended december 31 , 2014 as compared to 2013 and increased approximately $ 1.9 million for the year ended december 31 , 2013 as compared to 2012 .
| results of operations changes in revenues and expenses related to our operating properties from period to period are due primarily to the performance of stabilized properties in the portfolio , the lease-up of newly constructed properties , acquisitions , and dispositions . where appropriate , comparisons of income and expense for communities included in continuing operations are made on a dollars-per-weighted average apartment home basis in order to adjust for such changes in the number of apartment homes owned during each period . selected weighted averages for the years ended december 31 are as follows : replace_table_token_16_th 26 property-level operating results ( 1 ) the following tables present the property-level revenues and property-level expenses , excluding discontinued operations , for the year ended december 31 , 2014 as compared to 2013 and for the year ended december 31 , 2013 as compared to 2012 : replace_table_token_17_th * not a meaningful percentage . ( 1 ) same store communities are communities we owned and were stabilized since january 1 , 2013 . non-same store communities are stabilized communities not owned or stabilized since january 1 , 2013 . development and lease-up communities are non-stabilized communities we have acquired or developed since january 1 , 2013 . dispositions/other includes operating communities sold subsequent to january 1 , 2014 and also includes results from non-multifamily rental properties , below market lease amortization related to acquired communities , and expenses related to land holdings not under active development . there were no properties held for sale which were considered to be discontinued operations during the years ended december 31 , 2014 or 2013. replace_table_token_18_th ( 1 ) same store communities are communities we owned and were stabilized since january 1 , 2012 . non-same store communities are stabilized communities not owned or stabilized since january 1 , 2012 . development and lease-up communities are non-stabilized communities we have acquired or developed since january 1 , 2012 .
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the liens , the security interests and story_separator_special_tag you should read the following discussion and analysis in conjunction with the information set forth under “ item 6 - selected financial data ” and our consolidated financial statements and the notes thereto included in item 8 in this annual report on form 10-k. the statements in this discussion regarding industry outlook , our long-term strategy , our expectations regarding our future performance , liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements . see “ forward-looking information ” on page ii of this annual report on form 10-k. these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described under “ item 1a - risk factors. ” our actual results may differ materially from those contained in or implied by any forward-looking statements . business overview cvg is a global provider of components and assemblies into two primary end markets – the global vehicle market and the u.s. technology integrator markets . the company provides components and assemblies to global vehicle companies to build original equipment and provides aftermarket products for fleet owners . the company also provides mechanical assemblies to warehouse automation integrators and to u.s. military technology integrators . commercial trends in the north american commercial truck markets demand for our products may be driven by preferences of the end-user of the vehicle , particularly with respect to heavy-duty trucks . heavy-duty truck oems generally afford the end-user the ability to specify many of the component parts that will be used to manufacture the vehicle , including a wide variety of cab interior styles and colors , brand and type of seats , type of seat fabric and color , and interior styling . certain of our products are only utilized in heavy-duty trucks , such as our storage systems , sleeper boxes and privacy curtains . to the extent that demand for higher content vehicles increases or decreases , our revenues and gross profit will be impacted positively or negatively . current trends include future adoption of electric vehicles in the commercial truck segment . commercial truck makers are developing electric models of all classes of trucks and buses in their fleets . this has created an increased number of platform opportunities relative to historical trends of platform changes as well as the aftermarket opportunities . we generally compete for new business at the beginning of the development of a new vehicle platform and upon the redesign of existing programs . new platform development generally begins one to three years before the marketing of such models by our customers . contract durations for commercial vehicle products generally extend for the entire life of the platform . truck oems routinely upgrade their product platforms for aesthetics , electronic improvements , comfort improvements , energy efficiency , safety improvements , and feature enhancements . additionally , there are new entrants to the global truck market that are focused on electric vehicle and low carbon emission product offerings . the company competes to retain its existing positions on platforms that are getting refreshed , competitively win new positions on platforms on which it is not the incumbent supplier , and gain first mover positions on new electric vehicle platforms . the global truck market is evolving to include many offerings aimed at low emissions and less impact on the environment . the company has a targeted growth plan that it is pursuing to grow the company . in general , demand for our heavy-duty ( or `` class 8 '' ) truck products is generally dependent on the number of new heavy-duty trucks manufactured in north america , which in turn is a function of general economic conditions , interest rates , changes in government regulations , consumer spending , fuel costs , freight costs , fleet operators ' financial health and access to capital , used truck prices and our customers ' inventory levels . new heavy-duty truck demand has historically been cyclical and is particularly sensitive to the industrial sector of the economy , which generates a significant portion of the freight tonnage hauled by commercial vehicles . north american heavy-duty truck production was 214,249 units in 2020. according to a february 2021 report by act research , a publisher of industry market research , north american class 8 production levels are expected to increase to 302,000 units in 2021 , steadily increase to 330,000 units in 2023 and then decline to 302,000 units in 2025. act research estimated that the average age of active north american class 8 trucks was 6.1 and 6.4 years in 2020 and 2019 , respectively . as vehicles age , maintenance costs typically increase . act research forecasts that the vehicle age will decline as aging fleets are replaced . north american medium-duty ( or `` class 5-7 '' ) truck production decreased from 281,409 units in 2019 to 223,495 units in 2020. according to a february 2021 report by act research , north american class 5-7 truck production is expected to increase to 246,000 units in 2021 , steadily increase to 279,000 units in 2023 and then decline to 274,000 units in 2025. we primarily participate in the class 6 and 7 portion of the medium-duty truck market . 25 commercial trends in warehouse automation subsystems demand for our warehouse automation subsystems is derived by expansion of supply chain infrastructures to accommodate increased customer orders in e-commerce . as the percentage of products ordered on-line increases , the delivery mechanisms must expand and increase output . additionally , desire for cost reduction , increased throughput volume and sku proliferation , a greater variety of order and package types , more frequent product returns by end consumers , and covid-19-driven social distancing protocols on warehouse floors all have driven increased investment in automated solutions by warehouse operators . cvg assembles the material handling subsystems incorporated into automated warehouses . commercial trends in construction equipment demand for our construction equipment products is dependent on vehicle production . story_separator_special_tag the goal is to strengthen / enhance current positions , enter new markets , develop relationships with new customers , and enhance service to our customers , leading to increased return to our stockholders . consolidated results of operations the table below sets forth certain operating data expressed as a percentage of revenues for the periods indicated ( dollars are in thousands ) : replace_table_token_3_th 27 year ended december 31 , 2020 compared to year ended december 31 , 2019 c onsolidated r esults the table below sets forth certain consolidated operating data for the periods indicated ( dollars are in thousands ) : replace_table_token_4_th 1. not meaningful revenues . consolidated revenues of $ 717.7 million decreased $ 183.5 million compared to 2019 primarily due to north american md/hd truck production volume decreases in 2020 , resulting in decreased sales into that market . consolidated revenues in 2020 compared to 2019 were as follows : a $ 185.3 million , or 42.2 % , decrease in oem north american md/hd truck revenues ; a $ 86.0 million , or 277.4 % , increase in warehouse automation and military revenues primarily attributable to the timing of the fse acquisition which occurred in september 2019 ; a $ 49.4 million , or 29.3 % , decrease in oem construction equipment revenues ; a $ 31.1 million , or 23.9 % , decrease in aftermarket and oes revenues ; and a $ 3.7 million , or 2.8 % , decrease in other revenues . while the end markets cvg serves were anticipated to decline somewhat in 2020 as compared to 2019 , the sharp market declines noted in the twelve months ended december 31 , 2020 were primarily a result of the covid-19 pandemic on the end markets we serve . these sharp market declines were partially offset by increased sales in industrial and military end markets we serve through the fse business acquired in 2019. revenues were adversely impacted by foreign currency exchange translation of $ 0.2 million , which is reflected in the change in revenue above . gross profit . included in gross profit is cost of revenues , which consists primarily of raw materials and purchased components for our products , wages and benefits for our employees and overhead expenses such as manufacturing supplies , facility rent and utilities costs related to our operations . the decrease in gross profit is primarily attributable to the decrease in sales volume . cost of revenues decreased $ 152.5 million , or 19.2 % in line with the sales decrease of 20.4 % . the cost of revenue decrease included a decrease in raw material and purchased component costs of $ 99.0 million , or 19.5 % ; a decrease in wages and benefits of $ 16.2 million , or 22.4 % ; and a decrease in overhead expenses of $ 37.3 million , or 17.3 % . during 2019 , the company began implementing cost reduction and manufacturing capacity rationalization initiatives ( the `` restructuring initiatives '' ) in response to declines in end market volumes . the restructuring initiatives consisted primarily of headcount reductions in each segment and at corporate . cost of revenues benefited from the restructuring initiatives and the temporary actions . the twelve months ended december 31 , 2020 results include charges of $ 4.7 million associated with ongoing restructuring initiatives . as a percentage of revenues , gross profit margin was 10.3 % for the year ended december 31 , 2020 compared to 11.7 % for the year ended december 31 , 2019. selling , general and administrative expenses . selling , general and administrative ( `` sg & a '' ) expenses consist primarily of wages and benefits and other overhead expenses such as marketing , travel , legal , audit , rent and utilities costs , which are not directly or indirectly associated with the manufacturing of our products . sg & a expenses increased $ 2.2 million in the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 due primarily to a $ 5.0 million charge for future milestone payments related to the performance of the fse business , increase in charges of $ 1.4 million associated with ongoing restructuring initiatives , $ 3.1 million increase in incentive compensation costs , 2020 charges of $ 4.0 million associated with the 2018 and quarterly 2019 financial statements restatement investigation and $ 2.3 million in costs a ssociated with the ceo 28 transition . these costs were offset by the restructuring initiatives and the temporary actions taken in response to the covid-19 pandemic . impairment expense . as a result of the company 's market capitalization maintaining a value less than the carrying value of its equity for a period of time , the company determined it had an impairment indicator during the first quarter of 2020. accordingly , we recognized a $ 27.1 million impairment of goodwill for the year ended december 31 , 2020. additionally during the first quarter of 2020 , the company determined it had an impairment indicator of long-lived assets due to market conditions resulting in an impairment of $ 1.9 million for the year ended december 31 , 2020. amortization expense . amortization expense increased $ 1.5 million in the year ended december 31 , 2020 primarily due to a full year of amortization of the intangible assets acquired in september 2019 as part of the fse acquisition . other expense . other expenses decreased $ 1.5 million in the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 due primarily to the prior year $ 2.5 million non-cash charge associated with the early payout of benefits to term vested participants in the u.s. pension plan , which reduced future financial risk associated with the u.s. pension plan and contributed to an improvement in funded status of that plan to approximately 100 % . the offset to this decrease is primarily attributable to an unfavorable change in foreign exchange translation adjustments of $ 1.2 million . interest expense .
| electrical systems segment results the table below sets forth certain electrical systems segment operating data for the periods indicated ( dollars are in thousands ) : replace_table_token_8_th revenues . the increase in electrical systems segment 2019 revenues is primarily a result of : a $ 18.6 million , or 7 % , increase in oem north american md/hd truck revenues ; a $ 10.2 million , or 55 % , increase in military revenues primarily attributable to the fse acquisition ; a $ 2.0 million , or 2 % , decrease in oem construction equipment revenues ; and a $ 8.7 million , or 6 % , decrease in other revenue . electrical systems segment 2019 revenues were adversely impacted by foreign currency exchange translation of $ 3.7 million , which is reflected in the changes in revenue above . gross profit . included in gross profit is cost of revenues , which increased $ 29.2 million , or 6.6 % , as a result of an increase in raw material and purchased component costs of $ 13.8 million , wages and benefits of $ 4.4 million and overhead expenses of $ 11.0 million . inflationary pressures affecting the company 's raw material , purchased component , labor and labor associated costs adversely affected cost of revenues . also adversely impacting 2019 results , was the border minimum wage , approximately $ 2.3 million ; the troubled supplier , approximately $ 3.1 million ; and costs associated with the manufacturing investments , approximately $ 1.8 million . cost control and cost recovery initiatives , including pricing adjustments , reduced the impact of these cost pressures on gross profit . gross profit for the year ended december 31 , 2019 was also adversely impacted by costs of $ 1.8 million associated with the restructuring initiatives . as a percentage of revenues , gross profit for the year ended december 31 , 2019 was 11.3 % compared to 13.9 % for the year ended december 31 , 2018 . 32 selling , general and administrative expenses .
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factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this annual report on form 10-k , particularly in “ special note regarding forward-looking statements and information ” and “ risk factors ” included elsewhere in this annual report on form 10-k. overview siteone landscape supply , inc. ( collectively with all its subsidiaries referred to in this annual report on form 10-k as “ siteone , ” the “ company , ” “ we , ” “ us ” , and “ our ” or individually as “ holdings ” ) indirectly owns 100 % of the membership interest in siteone landscape supply holding , llc ( “ landscape holding ” ) . landscape holding is the parent and sole owner of siteone landscape supply , llc ( “ landscape ” ) . we are the largest and only national wholesale distributor of landscape supplies in the united states and have a growing presence in canada . our customers are primarily residential and commercial landscape professionals who specialize in the design , installation , and maintenance of lawns , gardens , golf courses , and other outdoor spaces . through our expansive north american network of over 550 branch locations in 45 u.s. states and six canadian provinces , we offer a comprehensive selection of more than 120,000 skus , including irrigation supplies , fertilizer and control products ( e.g. , herbicides ) , landscape accessories , nursery goods , hardscapes ( including pavers , natural stone , and blocks ) , outdoor lighting , and ice melt products to green industry professionals . we also provide value-added consultative services to complement our product offerings and to help customers operate and grow their businesses . presentation our financial statements included in this report have been prepared in accordance with generally accepted accounting principles in the united states of america ( “ gaap ” ) . we use a 52/53 week fiscal year with the fiscal year ending on the sunday nearest to december 31 in each year . our fiscal quarters end on the sunday nearest to march 31 , june 30 and september 30 , respectively . this discussion of our financial condition is presented for the 2019 fiscal year , which ended on december 29 , 2019 and included 52 weeks and 252 selling days and the 2018 fiscal year , which ended on december 30 , 2018 and included 52 weeks and 252 selling days . “ selling days ” are defined below within the key business and performance metrics section . we manage our business as a single reportable segment . within our organizational framework , the same operational resources support multiple geographic regions and performance is evaluated at a consolidated level . we also evaluate performance based on discrete financial information on a regional basis . since all of our regions have similar operations and share similar economic characteristics , we aggregate regions into a single operating and reportable segment . these similarities include ( 1 ) long-term financial performance , ( 2 ) the nature of products and services , ( 3 ) the types of customers we sell to , and ( 4 ) the distribution methods utilized . key business and performance metrics we focus on a variety of indicators and key operating and financial metrics to monitor the financial condition and performance of our business . these metrics include : net sales . we generate net sales primarily through the sale of landscape supplies , including irrigation systems , fertilizer and control products , landscape accessories , nursery goods , hardscapes , and outdoor lighting to our customers who are primarily landscape contractors serving the residential and commercial construction sectors . our net sales include billings for freight and handling charges , and commissions on the sale of control products that we sell as an agent . net sales are presented net of any discounts , returns , customer rebates , and sales or other revenue-based taxes . 32 non-gaap organic sales . in managing our business , we consider all growth , including the opening of new greenfield branches , to be organic growth unless it results from an acquisition . when we refer to organic sales growth , we include increases in growth from newly-opened greenfield branches and decreases in growth from closing existing branches , but exclude increases in growth from acquired branches until they have been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period . non-gaap selling days . selling days are defined as business days , excluding saturdays , sundays and holidays , that our branches are open during the year . depending upon the location and the season , our branches may be open on saturdays and sundays ; however for consistency , those days have been excluded from the calculation of selling days . non-gaap organic daily sales . we define organic daily sales as organic sales divided by the number of selling days in the relevant reporting period . we believe organic sales growth and organic daily sales growth are useful measures for evaluating our performance as we may choose to open or close branches in any given market depending upon the needs of our customers or our strategic growth opportunities . refer to “ results of operations—quarterly results of operations data ” for a reconciliation of organic daily sales to net sales . cost of goods sold . our cost of goods sold includes all inventory costs , such as purchase price paid to suppliers , net of any volume-based incentives , as well as inbound freight and handling , and other costs associated with inventory . our cost of goods sold excludes the cost to deliver the products to our customers through our branches , which is included in selling , general and administrative expenses . cost of goods sold is recognized primarily using the first-in , first-out method of accounting for the inventory sold . gross profit and gross margin . story_separator_special_tag in august 2019 , we acquired the assets and assumed the liabilities of trendset concrete products , inc. ( “ trendset ” ) . with one location in the greater seattle , washington market , trendset is a distributor of hardscapes products to landscape professionals . in july 2019 , we acquired the assets and assumed the liabilities of l.h . voss materials dublin and its affiliates , mt . diablo landscape centers and clark 's home & garden ( collectively , “ voss ” ) . with five locations across the east bay in northern california , voss is a distributor of hardscapes and landscape supplies to landscape professionals . in may 2019 , we acquired the assets and assumed the liabilities of stone and soil depot , inc. ( “ stone and soil ” ) . with three locations in the greater san antonio , texas market , stone and soil is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals . in april 2019 , we acquired the assets and assumed the liabilities of fisher 's landscape depot ( “ fisher 's ” ) . with two locations in western ontario , canada , fisher 's is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals . in april 2019 , we acquired the assets and assumed the liabilities of landscape depot , inc. ( “ landscape depot ” ) . with three locations in the greater boston , massachusetts market , landscape depot is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals . in february 2019 , we acquired the assets and assumed the liabilities of all pro horticulture , inc. ( “ all pro ” ) . with one location in long island , new york , all pro is a market leader in the distribution of agronomics and erosion control products to landscape professionals . 34 in january 2019 , we acquired the assets and assumed the liabilities of cutting edge curbing sand & rock ( “ cutting edge ” ) . with one location in phoenix , arizona , cutting edge is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals . in december 2018 , we acquired the assets and assumed the liabilities of all around landscape supply and santa ynez stone & topsoil ( “ all around ” ) . with four locations in santa barbara county , california , all around is a market leader in the distribution of irrigation , hardscapes , and landscape supplies to landscape professionals . in october 2018 , we acquired the assets and assumed the liabilities of c & c sand and stone ( “ c & c ” ) . with four locations in colorado , c & c is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals . in july 2018 , we acquired the assets and assumed the liabilities of central pump & supply , inc. d/b/a centralpro ( “ centralpro ” ) . with 11 locations throughout central florida , centralpro is a market leader in the distribution of irrigation , lighting , and drainage products to landscape professionals . in july 2018 , we acquired the assets and assumed the liabilities of stone center lc ( “ stone center ” ) . with one location in manassas , virginia , stone center is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals . in july 2018 , we acquired the outstanding stock of koppco , inc. and kirkwood material supply , inc. ( collectively “ kirkwood ” ) . with eight locations in the st. louis , missouri metropolitan area , kirkwood is a market leader in the distribution of hardscapes and nursery supplies to landscape professionals . in july 2018 , we acquired the outstanding stock of landscapexpress , inc. ( “ landscape express ” ) . with four locations in the boston , massachusetts metropolitan area , landscape express is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals . in june 2018 , we acquired the assets and assumed the liabilities of southwood valley turf ii , ltd , d/b/a all american stone and turf ( “ all american ” ) . with one location in college station , texas , all american is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals in east texas . in june 2018 , we acquired the outstanding stock of auto-rain supply inc. ( “ auto-rain ” ) . with five locations in washington and idaho , auto-rain is a market leader in the distribution of irrigation and related products to landscape professionals . in may 2018 , we acquired the assets and assumed the liabilities of landscaper 's choice wholesale nursery and supply ( “ landscaper 's choice ” ) . with two locations in naples and bonita springs , florida , landscaper 's choice is a market leader in wholesale nursery distribution . in april 2018 , we acquired the assets and assumed the liabilities of northwest marble & terrazzo co. ( “ terrazzo ” ) . with two locations in bellevue and marysville , washington , terrazzo is a market leader in the distribution of natural stone and hardscapes material to landscape professionals . in march 2018 , we acquired the assets and assumed the liabilities of the distribution locations of village nurseries landscape centers ( “ village ” ) . with three locations in orange , huntington beach , and sacramento , california , village is a market leader in wholesale nursery distribution . in february 2018 , we acquired the outstanding stock of atlantic irrigation specialties , inc. and the limited liability company interests of atlantic irrigation south , llc ( collectively , “ atlantic ” ) .
| results of operations in the following discussion of our results of operations , we make comparisons among the 2019 fiscal year and the 2018 fiscal year . replace_table_token_4_th comparison of the 2019 fiscal year to the 2018 fiscal year net sales net sales for the 2019 fiscal year increased 12 % to $ 2,357.5 million as compared to $ 2,112.3 million for the 2018 fiscal year . organic daily sales for the 2019 fiscal year grew 5 % as we benefited from demand growth in our end markets and price increases in response to cost inflation . organic daily sales for landscaping products ( irrigation , nursery , hardscapes , outdoor lighting , and landscape accessories ) grew 5 % reflecting strength in both the new construction and the repair and upgrade end markets . organic daily sales for agronomic products ( fertilizer , control products , ice melt , equipment , and other products ) grew 4 % reflecting steady growth in the maintenance end market . acquisitions contributed 7 % , or $ 151.5 million , to net sales growth . cost of goods sold cost of goods sold for the 2019 fiscal year increased 10 % to $ 1,584.3 million from $ 1,434.2 million for the 2018 fiscal year . the increase in cost of goods sold was primarily driven by the increased net sales growth , including growth from acquisitions . gross profit and gross margin gross profit for the 2019 fiscal year increased 14 % to $ 773.2 million as compared to $ 678.1 million for the 2018 fiscal year . gross profit growth was primarily driven by the net sales increase . gross margin increased 70 basis points to 32.8 % in the 2019 fiscal year as compared to 32.1 % in the 2018 fiscal year . the improvement in gross margin reflected the contributions from acquisitions and strategic inventory purchases ahead of price increases .
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we have one reportable segment with businesses that include our newspaper , websites , mobile applications and related businesses . we generate revenues principally from subscriptions and advertising . other revenues primarily consist of revenues from news services/syndication , digital archive licensing , building rental income , affiliate referrals , nyt live ( our live events business ) and retail commerce . our main operating costs are employee-related costs . in the accompanying analysis of financial information , we present certain information derived from consolidated financial information but not presented in our financial statements prepared in accordance with generally accepted accounting principles in the united states of america ( “ gaap ” ) . we are presenting in this report supplemental non-gaap financial performance measures that exclude depreciation , amortization , severance , non-operating retirement costs and certain identified special items , as applicable . these non-gaap financial measures should not be considered in isolation from or as a substitute for the related gaap measures , and should be read in conjunction with financial information presented on a gaap basis . for further information and reconciliations of these non-gaap measures to the most directly comparable gaap measures , see “ —results of operations—non-gaap financial measures. ” fiscal year 2017 comprised 53 weeks , while all other fiscal years presented in this item 7 comprised 52 weeks . 2017 financial highlights in 2017 , diluted earnings per share from continuing operations were $ 0.03 , compared with $ 0.19 for 2016 . diluted earnings per share from continuing operations excluding severance , non-operating retirement costs and special items discussed below ( or “ adjusted diluted earnings per share , ” a non-gaap measure ) were $ 0.80 for 2017 , compared with $ 0.57 for 2016 . operating profit in 2017 was $ 112.4 million , compared with $ 101.6 million for 2016 . the increase was mainly driven by higher subscription revenues , a postretirement benefit settlement gain and higher digital advertising revenues , partially offset by a pension settlement charge , lower print advertising revenues and higher operating costs . operating profit before depreciation , amortization , severance , non-operating retirement costs and special items discussed below ( or “ adjusted operating profit , ” a non-gaap measure ) was $ 284.5 million and $ 240.9 million for 2017 and 2016 , respectively . total revenues increased 7.7 % to $ 1.68 billion in 2017 from $ 1.56 billion in 2016 primarily driven by a significant increase in digital subscription revenue , as well as increased digital advertising revenue , partially offset by a decrease in print advertising revenue . subscription revenues increased 14.5 % in 2017 compared with 2016 , and surpassed $ 1 billion for the first time in our history . this increase was primarily due to significant growth in the number of subscriptions to the company 's digital subscription products , as well as the 2017 increase in home-delivery prices for the new york times newspaper , which more than offset a decline in print copies sold . revenue from our digital-only subscription products , which include our news product , as well as our crossword product and cooking product ( which first launched as a paid digital product in the third quarter of 2017 ) , increased 46.2 % in 2017 compared with 2016 . paid digital-only subscriptions totaled approximately 2,644,000 as of december 31 , 2017 , a 41.8 % increase compared with year-end 2016 . news product subscriptions totaled approximately 2,231,000 at the end of 2017 , a 37.9 % increase compared with 2016 . other product subscriptions , which include subscriptions to our crossword product and cooking product , totaled approximately 413,000 at the end of 2017 , a 67.2 % increase compared with 2016 . the new york times company – p. 23 total advertising revenues decreased 3.8 % in 2017 compared with 2016 , reflecting a 13.9 % decrease in print advertising revenues , offset by an 14.2 % increase in digital advertising revenues . the decrease in print advertising revenues resulted from a continued decline in display advertising , primarily in the luxury , travel and real estate categories . the increase in digital advertising revenues primarily reflected increases in revenue from smartphone advertising and branded content , partially offset by a continued decrease in traditional website display advertising . other revenues increased 15.6 % in 2017 compared with 2016 , largely due to affiliate referral revenue associated with the product review and recommendation website , wirecutter , which the company acquired in october 2016. operating costs increased in 2017 to $ 1.49 billion from $ 1.41 billion in 2016 , driven by higher marketing and compensation costs , partially offset by a decline in outside printing costs and raw materials expense . operating costs before depreciation , amortization , severance and non-operating retirement costs ( or “ adjusted operating costs , ” a non-gaap measure ) increased in 2017 to $ 1.39 billion from $ 1.31 billion in 2016 . non-operating retirement costs , excluding special items , decreased to $ 11.2 million in 2017 from $ 15.9 million in 2016 , primarily due to lower multiemployer pension plan withdrawal expense . business environment we believe that a number of factors and industry trends have had , and will continue to have , an adverse effect on our business and prospects . these include the following : competition in our industry we operate in a highly competitive environment . our print and digital products compete for subscription and advertising revenue with both traditional and other content providers . competition among companies offering online content is intense , and new competitors can quickly emerge . some of our current and potential competitors may have greater resources than we do , which may allow them to compete more effectively than us . story_separator_special_tag fixed costs a significant portion of our costs are fixed , and therefore we are limited in our ability to reduce these costs in the short term . employee-related costs and raw materials together accounted for approximately half of our total operating costs in 2017 . changes in employee-related costs and the price and availability of newsprint can materially affect our operating results . for a discussion of these and other factors that could affect our business , results of operations and financial condition , see “ item 1a — risk factors. ” the new york times company – p. 25 our strategy we are operating during a period of transformation for our industry and amidst uncertain economic conditions . we anticipate that the challenges we currently face will continue , and we believe that the following elements are key to our efforts to address them . providing journalism worth paying for we believe that the times 's original and high-quality content and journalistic excellence set us apart from other news organizations , and that our readers are willing to pay for trustworthy , insightful and differentiated content . during 2017 , the times again broke stories and produced investigative reports that sparked global conversations on wide-ranging topics . our ground-breaking journalism continues to be recognized , most notably in the number of pulitzer prizes the times has received — more than any other news organization . in addition , we have continued to make significant investments in our newsroom , adding journalistic talent across a wide range of areas — from our business coverage to our opinion page — and investing in new forms of visual and multimedia journalism . we believe that the significant growth over the last year in subscriptions to our products demonstrates the success of our “ subscription-first ” strategy and the willingness of our readers to pay for high-quality journalism . as of december 31 , 2017 , we had approximately 3.6 million total subscriptions to our products , more than at any point in our history . as we look ahead to further executing on our strategic priorities , we remain committed to providing high-quality , trustworthy and differentiated content that we believe sets us apart . strengthening engagement by becoming an essential part of readers ' daily lives we continue to focus on deepening the engagement of readers by making the times an indispensable part of their daily lives . and we continue to communicate the value of independent , high-quality journalism and why it matters . during 2017 , we developed and enhanced products spanning a broad range of topics , interests , formats and platforms . among other things , we introduced the daily podcast in early 2017 , which became one of the most downloaded podcasts of the year , and launched a monthly insert in our print newspaper dedicated to children . and we continued to make investments in our lifestyle products and services , such as our crossword and cooking products and wirecutter . we also continued our efforts to reach and engage readers around the world , investing in , among other things , a news bureau in australia , and opportunities to reach more readers in the united kingdom , europe and canada . in addition , we continued to experiment with reaching new readers on third-party platforms , while remaining focused on building engagement with readers on our own platforms . looking ahead , we will continue to explore opportunities to deeply engage readers and further innovate our products , while remaining committed to creating quality content and a quality user experience , regardless of the distribution model or platform . creating marketing solutions as compelling as our journalism we are focused on continuing to grow our digital advertising revenue by developing innovative and compelling advertising offerings that integrate well with the user experience and provide value to advertisers . we believe we have a powerful brand that , because of the quality of our journalism , attracts educated , affluent and influential audiences , and provides a safe and trusted platform for advertisers ' brands . during 2017 , the digital advertising market continued to shift away from traditional desktop display advertising and towards newer advertising forms , such as branded content and other customized forms of advertising , as well as programmatic , video and mobile advertising . we adapted to this market shift , introducing innovative digital advertising solutions for our mobile and other platforms , and providing advertisers new ways of reaching our audience . looking ahead , we will continue to focus on leveraging our brand in developing and refining our advertising offerings . p. 26 – the new york times company transforming our operations to deliver on our goals we are focused on becoming a more effective and efficient organization and have taken and continue to take a number of steps to achieve this . among other things , we realigned our organizational structure to accelerate our digital transformation , and continue to optimize our product , technology and data systems to improve the speed with which we are able to develop , enhance and deliver our digital products . in addition , we introduced a new editing process in our newsroom intended to further streamline this function , and continued to optimize our print operations and supply chain . we are also engaged in a plan to redesign our headquarters building and consolidate our operations within a smaller number of floors , and to lease the remaining floors to third parties . we believe this plan will generate meaningful rental income for the company and result in a more collaborative workspace . looking ahead , we will continue to focus on optimizing our organizational and cost structure to ensure that we are operating more efficiently and effectively across functions . effectively managing our liquidity and our non-operating costs we have continued to strengthen our liquidity position and further de-leverage and de-risk our balance sheet .
| results of operations overview fiscal year 2017 comprised 53 weeks and fiscal years 2016 and 2015 each comprised 52 weeks . the following table presents our consolidated financial results : replace_table_token_5_th * represents a change equal to or in excess of 100 % or one that is not meaningful . p. 28 – the new york times company revenues subscription , advertising and other revenues were as follows : replace_table_token_6_th subscription revenues in 2017 , the company renamed “ circulation revenues ” as “ subscription revenues. ” subscription revenues consist of revenues from subscriptions to our print and digital products ( which include our news product , as well as our crossword and cooking products ) , and single-copy and bulk sales of our print products ( which represent approximately 10 % of these revenues ) . our cooking product first launched as a paid digital product in the third quarter of 2017. subscription revenues are based on both the number of copies of the printed newspaper sold and digital-only subscriptions , and the rates charged to the respective customers . the following tables summarize digital-only subscription revenues for the years ended december 31 , 2017 , december 25 , 2016 , and december 27 , 2015 : replace_table_token_7_th ( 1 ) includes revenues from subscriptions to the company 's news product . news product subscription packages that include access to the company 's crossword and cooking products are also included in this category . ( 2 ) includes revenues from standalone subscriptions to the company 's crossword and cooking products . the new york times company – p. 29 the following tables summarize digital-only subscriptions as of december 31 , 2017 , december 25 , 2016 , and december 27 , 2015 : replace_table_token_8_th ( 1 ) reflects certain immaterial prior-period corrections . ( 2 ) includes subscriptions to the company 's news product . news product subscription packages that include access to the company 's crossword and cooking products are also included in this category .
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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 ) . 35 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 , `` dvp '' ) 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 betw een 2019 and 2021. certa in of these vessels were previously owned and subject to sale and leaseback transactions with their lessors . 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 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 2018 , the company recorded impairment charges o f $ 14.6 million primarily associated with its ahts fleet ( four owned and three leased vessels ) and one specialty vessel . during 2017 , the company recorded impairment charges of $ 27.5 million primarily associated with its ahts vessels , one leased-in supply vessel removed from service , one owned fsv removed from service and two owned in-service specialty vessels . during 2016 , the company recorded impairment charges of $ 119.7 million primarily associated with its ahts fleet , its liftboat fleet 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 `` note 10. fair value measurements '' 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 broad range of customers ( e.g. , fsvs ) , vessels required for customers to meet regulatory mandates and operating under multiple year contracts ( e.g. , standby safety vessels ) or vessels that service customers outside of the offshore oil and natural gas market ( e.g. , crew transfer vessels ) . for vessel classes and individual vessels with indicators of impairment , but which were not impaired as of december 31 , 2018 , the company has estimated that their future undiscounted cash flows exceed their current carrying values by more than 40 % . 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 , 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 . 36 story_separator_special_tag average day rates and $ 0.3 million lower due to lower utilization of the active fleet . story_separator_special_tag other marine services were $ 6.6 million higher primarily due to the recognition of revenue , previously deferred due to collection concerns with regard to one customer following receipt of cash . as of december 31 , 2018 , the company had one specialty vessel retired and removed from service in this region . direct operating expenses . direct operating expenses were $ 5.8 million higher in 2018 compared with 2017. on an overall basis , operating costs were $ 9.4 million higher due to net fleet additions , $ 2.9 million lower due to the repositioning of vessels between geographic regions , and $ 0.7 million lower for vessels in active service . 2017 compared with 2016 operating revenues . time charter revenues were $ 3.8 million lower in 2017 compared with 2016. on an overall basis , time charter revenues were $ 0.8 million lower due to reduced utilization of the active fleet , $ 5.9 million lower due to reduced utilization as a consequence of cold-stacking vessels , $ 6.6 million lower due to a decrease in average day rates and $ 0.4 million lower due to the repositioning of vessels between geographic regions . in addition , time charter revenues for ahts vessels were $ 3.2 million lower in 2017 due to the deferral of revenue for one vessel on time charter ( excluded from time charter operating data ) to a customer as collection was not reasonably assured . time charter revenues were $ 13.1 million higher due to net fleet additions . as of december 31 , 2017 , the company did not have any of its 16 owned and leased-in vessels cold-stacked in this region compared with three of 12 vessels as of december 31 , 2016. as of december 31 , 2017 , the company had one fsv and one specialty vessel retired and removed from service in this region . direct operating expenses . direct operating expenses were $ 6.4 million higher in 2017 compared with 2016. on an overall basis , operating costs were $ 8.1 million higher due to net fleet additions and $ 2.4 million lower due to the effect of cold-stacking and retiring and removing vessels from service . 45 middle east and asia . for the years ended december 31 , the company 's direct vessel profit ( loss ) in the middle east and asia was as follows ( in thousands , except statistics ) : replace_table_token_16_th 2018 compared with 2017 operating revenues . time charter revenues were $ 16.7 million higher in 2018 compared with 2017. on an overall basis , time charter revenues were $ 8.1 million higher due to net fleet additions , $ 7.2 million higher due to improved utilization of which $ 0.4 million was due to the reactivation of vessels from cold-stack , and $ 3.4 million due to the repositioning of vessels between geographic regions . time charter revenues were $ 2.4 million lower due to a reduction in average day rates . as of december 31 , 2018 , the company had one of 22 owned and leased-in vessels cold-stacked in this region ( one ahts vessel ) compared with two of 25 vessels as of december 31 , 2017. as of december 31 , 2018 , the company had one specialty vessel retired and removed from service in this region . other operating revenues were $ 1.4 million lower in 2018 compared 2017 primarily due to the completion of a bareboat charter . direct operating expenses . direct operating expenses were $ 1.4 million higher in 2018 compared with 2017. on an overall basis , direct operating expenses were $ 1.8 million higher due to net fleet additions , $ 1.0 million higher for vessels in active service and other changes in fleet mix , $ 0.4 million higher due to the repositioning of vessels between geographic regions , and $ 1.8 million lower due to the effect of cold-stacking vessels . repair and maintenance costs were $ 2.1 million higher primarily due to higher main engine repair costs for the fsv fleet , and higher repair costs for the liftboats . other operating expenses were $ 1.3 million lower , primarily due to the repositioning of vessels between geographic regions in 2017 . 46 2017 compared with 2016 operating revenues . time charter revenues were $ 8.2 million lower in 2017 compared with 2016 primarily attributable to a $ 10.8 million reduction in the specialty vessel class . on an overall basis , time charter revenues were $ 1.2 million lower due to reduced utilization of the active fleet , $ 3.2 million lower due to reduced utilization as a consequence of cold-stacking vessels , $ 1.8 million lower due to fleet dispositions and $ 2.5 million lower due to reduced average day rates . time charter revenues were $ 0.5 million higher due to the repositioning of vessels between geographic regions . as of december 31 , 2017 , the company had two of 25 owned and leased-in vessels cold-stacked in this region ( one ahts vessel and one crew transfer vessel ) compared with five of 19 vessels as of december 31 , 2016. as of december 31 , 2017 , the company had one specialty vessel retired and removed from service in this region . other operating revenues were $ 11.8 million lower in 2017 compared 2016 primarily due to reduced earnings from revenue arrangements with certain of the company 's joint ventures . direct operating expenses . direct operating expenses were $ 2.2 million higher in 2017 compared with 2016. on an overall basis , direct operating expenses were $ 3.5 million higher due to net fleet additions , $ 1.8 million higher due to the repositioning of vessels between geographic regions , $ 0.9 million lower due to the effect of cold-stacking vessels and $ 2.2 million lower for vessels in active service primarily attributed to changes in fleet mix
| consolidated results 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_7_th 37 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_8_th ( 1 ) total assets excludes $ 153,151 thousand of corporate assets . 38 replace_table_token_9_th ( 1 ) total assets excludes $ 169,346 thousand of corporate assets . 39 replace_table_token_10_th ( 1 ) total assets excludes $ 22,427 thousand of corporate assets . 40 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_11_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 . 41 replace_table_token_12_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 .
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risk factors in this annual report on form 10-k. story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0000944148/000119312512117458/ # toc '' > gross margin and operating expenses operating expenses decreased to $ 643.9 million for the year ended december 31 , 2011 from $ 644.3 for the comparable period in 2010 , and decreased as a percentage of revenue to 87.7 % for the year ended december 31 , 2011 from 88.2 % for the comparable period in 2010. the majority of cbiz 's operating costs are relatively fixed in the short term , thus gross margin as a percentage of revenue generally improves with revenue growth and generally declines as revenue contracts . the primary components of operating expenses for the years ended december 31 , 2011 and 2010 are illustrated in the following table : replace_table_token_8_th ( 1 ) other operating expenses include office expense , equipment costs , restructuring charges , bad debt and other expenses , none of which are individually significant as a percentage of total operating expenses . personnel costs as a percentage of revenue decreased 0.6 % to 64.9 % for the year ended december 31 , 2011 compared to the same period in 2010. the decrease in personnel costs as a percentage of revenue was primarily the result of a 0.6 % decrease in salaries and wages . the increase or decrease in personnel costs as a percentage of revenue experienced by the individual practice groups is discussed in further detail under operating practice groups . the increase in travel and related costs as a percentage of revenue was primarily due to increased client development and retention efforts and an increase in professional staff training . the decrease in deferred compensation costs of 0.5 % resulted from adjustments to the fair value of investments held in the deferred compensation plan . the adjustments to the fair value of investments held in relation to the deferred compensation plan totaled a loss of $ 0.7 million and a gain of $ 3.2 million for the years ended december 31 , 2011 and 2010 , respectively . these adjustments are recorded as compensation expense and are offset by the same adjustments to other income , net , and thus do not have an impact on net income . although these adjustments are recorded as operating expenses , they are not allocated to the individual practice groups . 26 corporate general and administrative expenses corporate general and administrative ( g & a ) expenses increased by $ 2.4 million to $ 32.0 million for the year ended december 31 , 2011 , from $ 29.6 million for the comparable period of 2010 , and increased as a percent of revenue by 0.3 % to 4.4 % for the year ended december 31 , 2011. the primary components of corporate general and administrative expenses for the years ended december 31 , 2011 and 2010 are illustrated in the following table : replace_table_token_9_th ( 1 ) other corporate general and administrative expenses include office expenses , insurance expense and other expenses , none of which are individually significant as a percentage of total corporate g & a expenses . the increase in g & a expenses as a percentage of revenue attributable to personnel costs is primarily due to an increase in incentive based compensation and stock based compensation . the 0.2 % increase in legal settlement costs as a percentage of revenue for the year ended december 31 , 2011 compared to the same period in 2010 was primarily due to the combination of higher than normal legal settlement costs incurred during 2011 compared to lower than normal legal settlement costs during 2010 , partially due to the company receiving a $ 1.0 million favorable settlement in 2010. interest expense interest expense increased by $ 2.1 million to $ 17.4 million for the year ended december 31 , 2011 from $ 15.3 million for the comparable period in 2010. the increase in interest expense is a result of three components : an increase of $ 7.1 million related to the $ 130 million of convertible senior subordinated notes that were issued in june 2010 ( 2010 notes ) , a decrease of $ 5.3 million from the retirement of $ 99.3 million of 2006 notes , and an increase of $ 0.3 million related to the credit facility . for discussion on the convertible senior subordinated notes , see note 8 in the accompanying consolidated financial statements . regarding the credit facility , the $ 0.3 million increase in interest expense was due to an increase in the average debt outstanding , partially offset by a decrease in the average interest rates . average debt outstanding under the credit facility was $ 142.8 million and $ 126.0 million and weighted average interest rates were 3.27 % and 3.66 % for the years ended december 31 , 2011 and 2010 , respectively . debt is further discussed under liquidity and capital resources and in note 8 of the accompanying consolidated financial statements . gain on sale of operations , net the gain on sale of operations , net was $ 2.9 million and $ 0.5 million for the years ended december 31 , 2011 and 2010 , respectively . the increase was primarily due to the $ 2.3 million gain recognized from the sale of the company 's individual wealth management business in the first quarter of 2011. the operating results of the individual wealth management business were included in the employee services practice group . other income , net other income , net is primarily comprised of adjustments to the fair value of investments held in a rabbi trust related to the deferred compensation plan , interest income , gains and losses on sales of 27 assets , and other miscellaneous income and expenses such as contingent royalties from previous divestitures and adjustments to contingencies related to previous acquisitions . story_separator_special_tag 29 the largest components of operating expenses for the financial services group are personnel costs , occupancy costs , and travel and related costs which represented 88.4 % and 89.6 % of total operating expenses for the years ended december 31 , 2011 and 2010 , respectively . personnel costs increased $ 4.4 million for the year ended december 31 , 2011 compared to the same period in 2010 , and represented 78.4 % and 79.6 % of total operating expenses for the years ended december 31 , 2011 and 2010 , respectively . the increase was attributable to $ 11.6 million associated with the acquisitions of krmt , thompson dunavant plc and to a lesser extent gresham smith llc , partially offset by a reduction in same-unit personnel costs of $ 7.3 million . the $ 7.3 million reduction in same-unit personnel costs was associated primarily with staff reductions at those units that experienced reduced client demand . personnel costs represented 67.6 % and 68.4 % of revenue for the years ended december 31 , 2011 and 2010 , respectively . occupancy costs are relatively fixed in nature and were $ 23.7 million for each of the years ended december 31 , 2011 and 2010 , respectively , and were 6.1 % and 6.2 % of revenue for the years ended december 31 , 2011 and 2010 , respectively . travel and related costs were $ 10.2 million for the year ended december 31 , 2011 compared to $ 8.7 million in the same period in 2010 , and were 2.6 % and 2.3 % of total revenue for the years ended december 31 , 2011 and 2010 , respectively . the increase in travel and related costs was due to increased client development and professional staff training efforts . gross margin percentage declined to 13.8 % for the year ended december 31 , 2011 compared to 14.1 % in 2010. the decline in gross margin percentage was primarily attributable to higher bad debt expense , travel and related costs , and recruiting costs . bad debt expense increased to 1.5 % of revenue for the year ended december 31 , 2011 compared to 1.1 % of revenue is the same period in 2010. the increase in bad debt expense in 2011 was related to specific client receivables at several offices and not related to an overall deterioration in the collectability of accounts receivable . employee services replace_table_token_12_th the increase in same-unit revenue was primarily attributable to increases in the retirement plan advisory , specialty life insurance and human capital advisory businesses , offset in part by declines in the company 's employee benefits and property and casualty businesses . the company 's retirement advisory business increased approximately $ 1.6 million due to higher asset values resulting largely from favorable market performance , the specialty life insurance business increased $ 2.6 million due to an increase in the number of policy placements , and the human capital advisory and payroll revenues increased approximately $ 3.4 million due to an increase in demand for recruiting and compensation consulting services , as well as increased pricing for payroll-related services . partially offsetting these increases was a decrease in the employee benefits business of approximately $ 3.5 million due to client attrition and to a lesser extent , downsizing of client workforce and employer plan design changes , and a decline of $ 2.2 million in property and casualty revenues due to soft market conditions in pricing and lower volume-based carrier bonus payments . the growth in revenue from acquired businesses was provided by benexx and mbs . the decline in revenue from divestitures was due to the sale of the wealth management business in the first quarter of 2011 . 30 the largest components of operating expenses for the employee services group were personnel costs , including commissions paid to third party brokers , and occupancy costs , representing 82.7 % and 83.2 % of total operating expenses for the years ended december 31 , 2011 and 2010 , respectively . excluding personnel costs related to the divested wealth management businesses of $ 5.0 million for the year ended december 31 , 2010 , personnel costs increased approximately $ 2.9 million for the year ended december 31 , 2011 compared to the same period in 2010 , primarily as a result of additional commissions paid to third party brokers related to the increase in specialty life insurance sales . personnel costs represented 64.0 % and 63.3 % of revenue for the years ended december 31 , 2011 and 2010 , respectively . occupancy costs are relatively fixed in nature , and excluding the costs associated with the divested wealth management businesses of $ 0.4 million for the year ended december 31 , 2010 , were $ 9.7 million for the years ended december 31 , 2011 and 2010. gross margin percent was impacted by three factors . the decline in volume-based carrier bonus payments has a direct negative impact on gross margin , since there are no corresponding expenses associated with these revenues . in addition , the decrease in operating revenues in both the employee benefits and property casualty businesses played a role in the margin decline , despite a corresponding savings in variable sales commissions . these were offset , in part , by an increase from retirement advisory and human capital advisory revenues . asset-based revenues do not have related direct costs , and human capital advisory revenues have a more fixed cost structure ; therefore , growth in those revenues has a favorable impact on gross margin . medical management professionals replace_table_token_13_th same-unit revenue consists of revenue from existing clients and net new business sold . same-unit revenue decreased 5.0 % for the year ended december 31 , 2011 versus the comparable period in 2010. the decrease in same-unit revenue was approximately 60 % attributable to decreased revenues from existing clients , with the remaining 40 % attributable to client terminations , net of new business .
| executive summary revenue for the year ended december 31 , 2011 increased by 0.5 % to $ 733.8 million from $ 730.4 million for the comparable period in 2010. the revenue increase is attributable to newly acquired operations , net of divestitures , resulting in an increase of $ 13.1 million , or 1.8 % , offset by declines in same unit revenue of $ 9.7 million , or 1.3 % . earnings per share from continuing operations were $ 0.58 per diluted share for the year ended december 31 , 2011 compared to $ 0.48 per share for the year ended december 31 , 2010. earnings per share for the year ended december 31 , 2011 include a gain of approximately $ 0.02 per diluted share related to the divestiture of the wealth management business , and a favorable adjustment of approximately $ 0.04 per diluted share related to decreases in the fair value of contingent consideration payable related to prior acquisitions . for the year ended december 30 , 2010 , earnings per share included a charge of $ 0.02 per diluted share for lease restructuring activities in connection with the acquisition of goldstein lewin & company in boca raton , florida , a charge of $ 0.02 per diluted share related to the $ 2.0 million loss recorded in connection with the early redemption of the company 's 2006 notes , and a favorable adjustment of $ 0.02 per diluted share related to decreases in the fair value of contingent consideration payable related to prior acquisitions . cash earnings per diluted share were $ 1.10 , $ 1.03 and $ 0.99 for the years ended december 31 , 2011 , 2010 and 2009 , respectively . cbiz believes cash earnings per diluted share more clearly illustrates the impact of certain non-cash charges to income from continuing operations and is a useful measure for the company and its analysts .
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envestnet 's unified technology enhances advisor productivity and strengthens the wealth management process . envestnet empowers enterprises and advisors to more fully understand their clients and deliver better outcomes . more than 3,500 companies , including 15 of the 20 largest u.s. banks , 43 of the 50 largest wealth management and brokerage firms , over 500 of the largest ria , and hundreds of internet services companies , leverage envestnet technology and services . envestnet solutions enhance knowledge of the client , accelerate client on-boarding , improve client digital experiences , and help drive better outcomes for enterprises , advisors and their clients . founded in 1999 , envestnet has been a leader in helping transform wealth management , working towards its goal of building a holistic financial wellness network that supports enterprises , advisors and their clients . through a combination of platform enhancements , partnerships and acquisitions , envestnet uniquely provides a financial network connecting software , services and data , delivering better intelligence and enabling its customers to drive better outcomes . we believe that our business model results in a high degree of recurring and predictable financial results . recent developments acquisition of foliodynamix on january 2 , 2018 , envestnet acquired ( `` the acquisition '' ) folio dynamics holdings , inc. , a delaware corporation ( “ foliodynamix ” ) through a merger of foliodynamix with and into a wholly owned subsidiary of envestnet . in connection with the acquisition , envestnet paid consideration of $ 193,135 for foliodynamix , subject to certain closing and post-closing adjustments . envestnet funded the acquisition with a combination of cash on the company 's balance sheet , purchase consideration liabilities and borrowings under its revolving credit facility . foliodynamix provides financial institutions , rias and other wealth management clients with an end-to-end technology solution paired with a suite of advisory tools including model portfolios , research and overlay management services . the acquisition of foliodynamix added complementary trading tools as well as commission and brokerage support to envestnet 's existing suite of offerings . the company expects to integrate the technology and operations of foliodynamix into the company 's wealth management business , enabling the company to further leverage its operating scale and data analytics capabilities . foliodynamix is included in the envestnet segment . investment in private company on march 16 , 2018 , the company purchased 4,000 units representing approximately 43 % of the outstanding membership interests of a private company for cash consideration of $ 1,333 . the company uses the consolidation method of accounting for this investment . the private company was formed to enable financial advisors to provide insurance and income protection products to their clients . private offering of convertible notes due 2023 in may 2018 , we issued $ 345,000 of convertible notes maturing june 1 , 2023 ( the `` 2023 notes '' ) . net proceeds from the offering were $ 335,018 . the 2023 notes bear interest at a rate of 1.75 % per annum payable semiannually in arrears on june 1 and december 1 of each year , beginning on december 1 , 2018. the 2023 notes are general unsecured obligations , subordinated in right of payment to our obligations under our credit agreement . the 2023 notes are convertible into shares of the company 's common stock under certain circumstances prior to maturity at a conversion rate of 14.6381 shares per $ 1 principal amount of the 2023 notes , which represents a 41 conversion price of $ 68.31 per share , subject to adjustment under certain conditions . for more information on the the 2023 notes , see “ note 12 – debt ” in the notes to these consolidated financial statements in part ii , item 8. acquisition of private company in august 2018 , the company acquired all of the issued and outstanding membership interests of a private technology company that provides market research analytics . in connection with the private company acquisition , the company paid estimated net consideration of $ 6,585 , subject to certain closing and post-closing adjustments . investment in private company in november 2018 , the company acquired approximately 27 % of the outstanding membership interests of a privately held company for cash consideration of $ 1,200 . in accordance with the agreement , the company is required to make future capital contributions of $ 1,200 and $ 1,100 in 2019 and 2020 , respectively , subject to certain conditions . the private company develops high-end financial planning software . the company uses the equity method of accounting to record its portion of this privately held company 's net income or loss on a one quarter lag from the actual results of operations . the company uses the equity method of accounting because of its less than 50 % ownership and lack of control and does not otherwise exercise control over the significant economic decisions of the company . issuance and sale of common shares to blackrock on december 20 , 2018 , the company issued and sold to blackrock , inc. ( `` blackrock '' ) approximately 2,356,000 common shares at a purchase price of $ 52.13 per share , and warrants to purchase approximately 470,000 common shares at an exercise price of $ 65.16 per share , subject to customary anti-dilution adjustments . the warrants are exercisable at blackrock 's option for four years from the date of issuance . the warrants may be exercisable through cash exercise or net issue exercise with cash settlement at the sole discretion of the company . the gross proceeds received of approximately $ 122,788 were allocated to the common shares and the warrants and recorded within stockholders ' equity . in connection with this transaction , the company incurred total transaction costs of approximately $ 4,627 and recorded them as a reduction in equity . story_separator_special_tag our asset-based recurring revenues are affected by the amount of new assets that are added to existing and new client accounts , which we refer to as gross sales . gross sales , from time to time , also include conversions of client assets to our technology platforms . the amounts of assets that are withdrawn from client accounts are referred to as redemptions . we refer to the difference between gross sales and redemptions as net flows . positive net flows indicate that the market value of assets added to client accounts exceeds the market value of assets that have been withdrawn from client accounts . our asset-based revenues are also affected by changes in the market values of securities held in client accounts due to fluctuations in the securities markets . certain types of securities have historically experienced greater market price fluctuations , such as equity securities , than other securities , such as fixed income securities , though in any given period the type of securities that experience the greatest fluctuations may vary . subscription-based recurring revenues subscription-based recurring revenues are recognized ratably over the contracted term of each respective subscription agreement , commencing on the date the service is provisioned to the customer , provided all applicable revenue recognition criteria have been satisfied . as part of the subscription contracts , our customers generally commit to a minimum level of paid users from which a minimum level of non-refundable subscription revenue is derived . as paid users in excess of the guaranteed minimum level access the envestnet | yodlee platform , the customer is then required to pay additional usage fees calculated based upon a contracted per-paid-user fee . no refunds or credits are given if fewer paid users access the envestnet | yodlee platform than the contracted minimum level . usage-based revenue is recognized as earned , provided all applicable revenue recognition criteria have been satisfied . professional services and other revenues to a lesser degree we also receive revenues from professional services fees by providing customers with certain technology platform software development and implementation services . these revenues are recognized with when completed , under a proportional‑performance model utilizing an output‑based approach or on a straight‑line basis over the estimated life of the customer relationship . our contracts generally have fixed prices , and generally specify or quantify interim deliverables . expenses the following is a description of our principal expense items : cost of revenues cost of revenues primarily includes expenses related to our receipt of sub‑ advisory and clearing , custody and brokerage services from third parties . the largest component of cost of revenues is paid to third party investment managers . clearing , custody and brokerage services are performed by third‑party providers . these expenses are typically calculated based upon a contractual percentage of the market value of assets held in customer accounts measured as of the end of each fiscal quarter and are recognized ratably throughout the quarter based on the number of days in the quarter . also included in cost of revenues are vendor specific expenses related to the direct support of revenues associated with the envestnet | yodlee products . compensation and benefits compensation and benefits expenses primarily relate to employee compensation , including salaries , short-term incentive compensation , non‑cash stock‑based compensation , incentive compensation , benefits and employer‑related taxes . general and administration general and administration expenses include occupancy costs and expenses relating to communications services , research and data services , website and system development , marketing , professional and legal services , travel and entertainment and acquisition/transaction related expenses . 45 depreciation and amortization depreciation and amortization expenses include depreciation and amortization related to : fixed assets , including computer equipment and software , leasehold improvements , office furniture and fixtures and other office equipment ; internally developed software ; and intangible assets , primarily related to customer lists , backlog , proprietary technology and trade names , the value of which are capitalized in connection with our acquisitions . furniture and equipment are depreciated using the straight‑line method based on the estimated useful lives of the depreciable assets . leasehold improvements are amortized using the straight‑line method over their estimated economic useful lives or the remaining lease term , whichever is shorter . improvements are capitalized , while repairs and maintenance costs are recorded as expenses in the period they are incurred . assets are tested for recoverability whenever events or circumstances indicate that the carrying value of the assets may not be recoverable . internally developed software is amortized on a straight‑line basis over its estimated useful life . we evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets . intangible assets are depreciated using an accelerated or straight‑line basis over their estimated economic useful lives and are reviewed for possible impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets . interest expense interest expense includes coupon interest , discount amortization and issuance cost amortization related to the convertible notes as well as amortization of upfront fees and monthly fees related to the second amended and restated credit agreement . the discount , issuance costs and upfront fees are amortized over the term of the related agreements . other expense , net other expense , net includes foreign exchange gains or losses and gain or loss on foreign currency forward contracts as well as other miscellaneous revenue or expense items as appropriate . critical accounting policies our consolidated financial statements are prepared in conformity with accounting principles gaap . the accounting policies described below require management to apply significant judgment in connection with the preparation of our consolidated financial statements . in particular , judgment is applied to determine the appropriate assumptions to be used in calculating estimates that affect certain reported amounts in our consolidated financial statements .
| results of operations replace_table_token_8_th * not meaningful year ended december 31 , 2018 compared to year ended december 31 , 2017 revenues total revenues increased 19 % from $ 683,679 in 2017 to $ 812,363 in 2018 . the increase was primarily due to an increase in revenues from asset-based recurring and subscription-based recurring revenues of $ 71,217 and $ 49,600 , respectively . asset-based recurring revenue was 59 % and 60 % of total revenues in 2018 and 2017 , respectively . asset-based recurring revenues asset-based recurring revenues increased 17 % from $ 410,016 to $ 481,233 in 2018 . the increase was primarily due to the 2018 acquisition of foliodynamix which comprised of $ 49,691 of the increase as well as an increase in asset values applicable to our quarterly billing cycle in in 2018 , relative to the corresponding period in 2017 . the number of financial advisors with asset-based recurring revenue on our technology platforms decreased from 40,485 as of december 31 , 2017 to 40,103 as of december 31 , 2018 and the number of aum or aua client accounts increased from approximately 1,900,000 as of december 31 , 2017 to approximately 2,000,000 as of december 31 , 2018 . 51 subscription-based recurring revenues subscription-based recurring revenues increased 20 % from $ 245,867 in 2017 to $ 295,467 in 2018 . this increase was primarily due to the 2018 acquisition of foliodynamix which comprised $ 17,890 of the $ 32,324 envestnet segment increase and envestnet | yodlee contributed an additional $ 17,276. the increase in envestnet segment revenue is a result of continuing to add clients and selling additional services to existing clients . the increase in envestnet | yodlee revenue is primarily due to a broad increase in revenue from existing customers . professional services and other revenues professional services and other revenues increased 28 % from $ 27,796 to $ 35,663 in 2018 .
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the consumer segment includes a broad range of products used in the baby care , oral care , beauty , over-the-counter pharmaceutical , women 's health and wound care markets . these products are marketed to the general public and sold both to retail outlets and distributors throughout the world . the pharmaceutical segment is focused on six therapeutic areas , including immunology , infectious diseases , neuroscience , oncology , pulmonary hypertension , and cardiovascular and metabolic diseases . products in this segment are distributed directly to retailers , wholesalers , hospitals and health care professionals for prescription use . the medical devices segment includes a broad range of products used in the orthopaedic , surgery , interventional solutions ( cardiovascular and neurovascular ) and eye health fields . these products are distributed to wholesalers , hospitals and retailers , and used principally in the professional fields by physicians , nurses , hospitals , eye care professionals and clinics . the executive committee of johnson & johnson is the principal management group responsible for the strategic operations and allocation of the resources of the company . this committee oversees and coordinates the activities of the consumer , pharmaceutical and medical devices business segments . in all of its product lines , the company competes with other companies both locally and globally , throughout the world . competition exists in all product lines without regard to the number and size of the competing companies involved . competition in research , involving the development and the improvement of new and existing products and processes , is particularly significant . the development of new and innovative products , as well as protecting the underlying intellectual property of the company 's product portfolio , is important to the company 's success in all areas of its business . the competitive environment requires substantial investments in continuing research . in addition , the development and maintenance of customer demand for the company 's consumer products involves significant expenditures for advertising and promotion . management 's objectives with “ our credo ” as the foundation , the company 's purpose is to blend heart , science and ingenuity to profoundly change the trajectory of health for humanity . the company is committed to bringing its full breadth and depth to ensure health for people today and for future generations . united around this common ambition , the company is poised to fulfill its purpose and successfully meet the demands of the rapidly evolving markets in which it competes . the company is broadly based in human healthcare , and is committed to creating value by developing accessible , high quality , innovative products and services . new products introduced within the past five years accounted for approximately 25 % of 2019 sales . in 2019 , $ 11.4 billion was invested in research and development and $ 5.8 billion spent on acquisitions , reflecting management 's commitment to create life-enhancing innovations and to create value through partnerships that will profoundly change the trajectory of health for humanity . a critical driver of the company 's success is the 132,200 diverse employees worldwide . employees are empowered and inspired to lead with the company 's our credo and purpose as guides . this allows every employee to use the company 's reach and size to advance the company 's purpose , and to also lead with agility and urgency . leveraging the extensive resources across the enterprise , enables the company to innovate and execute with excellence . this ensures the company can remain focused on addressing the unmet needs of society every day and invest for an enduring impact , ultimately delivering value to its patients , consumers and healthcare professionals , employees , communities and shareholders . 17 story_separator_special_tag style= '' font-family : times new roman ; font-size:10pt ; width:99.0234375 % ; border-collapse : collapse ; text-align : left ; margin-left : auto ; margin-right:0 ; '' > 20 immunology products sales were $ 14.0 billion in 2019 , representing an increase of 6.3 % as compared to the prior year . growth was driven by strong uptake of stelara ® ( ustekinumab ) in crohn 's disease , and tremfya ® ( guselkumab ) in psoriasis , expanded indications of simponi ® /simponi aria ® ( golimumab ) , and the u.s. immunology market growth . immunology was negatively impacted by lower sales of remicade ® ( infliximab ) due to increased discounts/rebates and biosimilar competition . the patents for remicade ® ( infliximab ) in certain countries in europe expired in february 2015. biosimilar versions of remicade ® have been introduced in certain markets outside the u.s. , resulting in a reduction in sales of remicade ® in those markets . additional biosimilar competition will likely result in a further reduction in remicade ® sales in markets outside the united states . in the u.s. , a biosimilar version of remicade ® was introduced in 2016 , and additional competitors continue to enter the market . continued infliximab biosimilar competition in the u.s. market will result in a further reduction in u.s. sales of remicade ® . see note 21 to the consolidated financial statements for a description of legal matters regarding the remicade ® patents . infectious disease products sales were $ 3.4 billion in 2019 , representing an increase of 3.3 % as compared to the prior year . strong sales of symtuza ® and the launch of juluca ® ( dolutegravir/rilpivirine ) were partially offset by lower sales of prezista ® and prezcobix ® /rezolsta ® ( darunavir/cobicistat ) due to increased competition and loss of exclusivity of prezista ® in certain countries outside the u.s. neuroscience products sales were $ 6.3 billion , representing an increase of 4.1 % as compared to the prior year . story_separator_special_tag the vision franchise achieved sales of $ 4.6 billion in 2019 , an increase of 1.6 % from 2018. growth was primarily driven by the strength of daily disposable lenses in the acuvue ® oasys contact lenses category . the surgical operational growth was primarily driven by the strength of cataracts outside the u.s. partially offset by competitive pressures in the u.s. the interventional solutions franchise achieved sales of $ 3.0 billion in 2019 , an increase of 13.3 % from 2018. strong growth in the electrophysiology business was driven by atrial fibrillation procedure growth and with strong thermocool smarttouch ® sf contact force sensing catheter and diagnostic catheter sales . 23 analysis of consolidated earnings before provision for taxes on income consolidated earnings before provision for taxes on income was $ 17.3 billion and $ 18.0 billion for the fiscal years ended 2019 and 2018 , respectively . as a percent to sales , consolidated earnings before provision for taxes on income was 21.1 % and 22.1 % , in 2019 and 2018 , respectively . cost of products sold and selling , marketing and administrative expenses : cost of products sold and selling , marketing and administrative expenses as a percent to sales were as follows : replace_table_token_7_th in 2019 , cost of products sold as a percent to sales increased to 33.6 % from 33.2 % as compared to the same period a year ago primarily driven by the negative impact of currency in the pharmaceutical business as well as increased intangible asset amortization expense . intangible asset amortization expense of $ 4.5 billion was included in cost of products sold for 2019 as compared to $ 4.4 billion in 2018. there was a decrease in the percent to sales of selling , marketing and administrative expenses in 2019 as compared to the prior year , primarily due to favorable segment mix with a higher percentage of sales coming from the pharmaceutical business , planned prioritization and reduced brand marketing expense in the consumer business partially offset by increased selling and marketing investments in the medical devices business . research and development expense : research and development expense by segment of business was as follows : replace_table_token_8_th * as a percent to segment sales 24 research and development activities represent a significant part of the company 's business . these expenditures relate to the processes of discovering , testing and developing new products , upfront payments and developmental milestones , improving existing products , as well as ensuring product efficacy and regulatory compliance prior to launch . the company remains committed to investing in research and development with the aim of delivering high quality and innovative products . in 2019 , worldwide costs of research and development activities increased by 5.4 % compared to 2018 primarily driven by increased investment in the medical devices business related to robotics and digital surgery platforms along with higher upfront and developmental milestone payments , primarily from the argenx collaboration in the pharmaceutical business . research facilities are located in the u.s. , belgium , brazil , china , france , germany , india , israel , the netherlands , poland , singapore , sweden , switzerland and the united kingdom with additional r & d support in over 30 other countries . in-process research and development ( ipr & d ) : in the fiscal first quarter of 2019 , the company recorded an ipr & d charge of $ 0.9 billion for the remaining intangible asset value related to the development program of al-8176 , an investigational drug for the treatment of respiratory syncytial virus ( rsv ) and human metapneumovirus ( hmpv ) acquired with the 2014 acquisition of alios biopharma inc. the impairment charge was based on additional information , including clinical data , which became available and led to the company 's decision to abandon the development of al-8176 . in the fiscal third quarter of 2018 , the company recorded an impairment charge of $ 1.1 billion which included a partial impairment charge of $ 0.8 billion related to the development program of al-8176 and an impairment charge of $ 0.3 billion for the discontinuation of the development project for an anti-thrombin antibody associated with the 2015 acquisition of xo1 limited . other ( income ) expense , net : other ( income ) expense , net is the account where the company records gains and losses related to the sale and write-down of certain investments in equity securities held by johnson & johnson innovation - jjdc , inc. ( jjdc ) , unrealized gains and losses on investments , gains and losses on divestitures , certain transactional currency gains and losses , acquisition-related costs , litigation accruals and settlements , as well as royalty income . the change in other ( income ) expense , net for the fiscal year 2019 was additional net expense of $ 1.1 billion primarily attributable to litigation expense of $ 5.1 billion in 2019 , primarily related to the agreement in principle to settle opioid litigation of $ 4.0 billion , as compared to litigation expense of $ 2.0 billion in 2018. this was partially offset by divestiture gains in 2019 of $ 2.2 billion of which $ 2.0 billion related to the divestiture of the asp business . in addition , the fiscal year 2019 included higher unrealized gains on securities of $ 0.7 billion , an equity step-up gain of $ 0.3 billion related to the company 's previously held equity investment in dr. ci : labo , and lower restructuring related expense of $ 0.2 billion as compared to the same period a year ago . divestiture gains were approximately $ 1.2 billion in 2018 and included the lifescan business , nizoral ® , roc ® and certain non-strategic pharmaceutical products . additionally , 2018 included a reversal of a contingent liability of $ 0.2 billion .
| results of operations analysis of consolidated sales for discussion on results of operations and financial condition pertaining to the fiscal years 2018 and 2017 see the company 's annual report on form 10-k for the fiscal year ended december 30 , 2018 , item 7. management 's discussion and analysis of results of operations and financial condition . in 2019 , worldwide sales increased 0.6 % to $ 82.1 billion as compared to an increase of 6.7 % in 2018. these sales changes consisted of the following : replace_table_token_3_th the net impact of acquisitions and divestitures on the worldwide sales growth was a negative impact of 1.7 % in 2019 and a positive impact of 0.8 % in 2018. sales by u.s. companies were $ 42.1 billion in 2019 and $ 41.9 billion in 2018. this represents increases of 0.5 % in 2019 and 5.1 % in 2018. sales by international companies were $ 40.0 billion in 2019 and $ 39.7 billion in 2018. this represents an increase of 0.7 % in 2019 and 8.5 % in 2018. the five-year compound annual growth rates for worldwide , u.s. and international sales were 2.0 % , 3.9 % and 0.2 % , respectively . the ten-year compound annual growth rates for worldwide , u.s. and international sales were 2.9 % , 3.1 % and 2.6 % , respectively . in 2019 , sales by companies in europe experienced a sales decline of 1.5 % as compared to the prior year , which included operational growth of 3.8 % offset by a negative currency impact of 5.3 % . sales by companies in the western hemisphere ( excluding the u.s. ) experienced a sales decline of 2.8 % as compared to the prior year , which included operational growth of 5.7 % offset by a negative currency impact of 8.5 % .
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the effect on deferred taxes from a change in the tax rate is recognized through continuing operations in the period that includes the story_separator_special_tag the following discussion contains management 's discussion and analysis of our financial condition and results of operations and should be read together with the consolidated financial statements and the related notes thereto included elsewhere in this form 10-k. this discussion contains forward-looking statements that reflect our plans , estimates and beliefs and involve numerous risks and uncertainties , including , but not limited to , those described in the “ risk factors ” section included in part i. item 1a . in this form 10-k , as such risk factors may be updated from time to time in our periodic filings with the sec . actual results may differ materially from those contained in any forward-looking statements . you should carefully read “ special note regarding forward-looking statements ” in this form 10-k. we conduct substantially all of our activities through our direct wholly-owned subsidiary , nvi , and its subsidiaries . we operate on a retail fiscal calendar that results in a given fiscal year consisting of a 52- or 53-week period ending on the saturday closest to december 31. in a 52-week fiscal year , each quarter contains 13 weeks of operations ; in a 53-week fiscal year , each of the first , second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations . references herein to “ fiscal year 2019 ” relate to the 52 weeks ended december 28 , 2019 , references herein to “ fiscal year 2018 ” relate to the 52 weeks ended december 29 , 2018 and references herein to “ fiscal year 2017 ” relate to the 52 weeks ended december 30 , 2017 . overview we are one of the largest and fastest growing optical retailers in the united states and a leader in the attractive value segment of the u.s. optical retail industry . we believe that vision is central to quality of life and that people deserve to see their best to live their best , no matter what their budget . our mission is to make quality eye care and eyewear affordable and accessible to all americans . we achieve this by providing eye exams , eyeglasses and contact lenses to value seeking and lower income consumers . we deliver exceptional value and convenience to our customers , with an opening price point that strives to be among the lowest in the industry , enabled by our low-cost operating platform . we reach our customers through a diverse portfolio of 1,151 retail stores across five brands and 19 consumer websites as of fiscal year end 2019 . our operations consist of two reportable segments : owned & host – as of fiscal year end 2019 , our owned brands consisted of 725 america 's best contacts and eyeglasses ( “ america 's best ” ) retail stores and 117 eyeglass world retail stores . in america 's best stores , vision care services are provided by optometrists employed by us or by independent professional corporations or similar entities . america 's best stores are primarily located in high-traffic strip centers next to value-focused retailers . eyeglass world locations primarily feature eye care services provided by independent optometrists and optometrists employed by independent professional corporations or similar entities and on-site optical laboratories that enable stores to quickly fulfill many customer orders and make repairs on site . eyeglass world stores are primarily located in freestanding or in-line locations near high-foot-traffic shopping centers . our host brands consisted of 54 vista optical locations on military bases and 29 vista optical locations within fred meyer stores as of fiscal year end 2019 . we have strong , long-standing relationships with our host partners and have maintained each partnership for over 20 years . these brands provide eye exams primarily by independent optometrists . all brands utilize our centralized laboratories . this segment also includes sales from our america 's best , eyeglass world , and military omni-channel websites . 39 legacy – we manage the operations of , and supply inventory and laboratory processing services to , 226 vision centers in walmart retail locations as of fiscal year end 2019 . this strategic relationship with walmart is in its 30 th year . pursuant to a recent amendment to our management & services agreement with walmart , we will be adding five additional vision centers in walmart stores in fiscal year 2020. in addition , the amendment also extended the current term of the management & services agreement by six months , to february 23 , 2021 , and such term will automatically renew for an additional three-year term unless , no later than july 23 , 2020 , one party provides the other party written notice of non-renewal . under the management & services agreement , our responsibilities include ordering and maintaining merchandise inventory ; arranging the provision of optometry services ; providing managers and staff at each location ; training personnel ; providing sales receipts to customers ; maintaining necessary insurance ; obtaining and holding required licenses , permits and accreditations ; owning and maintaining store furniture , fixtures and equipment ; and developing annual operating budgets and reporting . we earn management fees as a result of providing such services and therefore we record revenue related to sales of products and product protection plans to our legacy partner 's customers on a net basis . our management & services agreement also allows our legacy partner to collect penalties if the vision centers do not generate a requisite amount of revenues . no such penalties have been assessed under our current arrangement , which began in 2012 . we also sell to our legacy partner merchandise that is stocked in retail locations we manage pursuant to a separate supplier agreement , and provide centralized laboratory services for the finished eyeglasses for our legacy partner 's customers in stores that we manage . story_separator_special_tag many factors affect comparable store sales , including : consumer preferences , buying trends and overall economic trends including amount and timing of tax refunds ; advertising strategies ; participation in managed care programs ; the recurring nature of eye care purchases ; our ability to identify and respond effectively to customer preferences and trends ; our ability to provide an assortment of high quality/low cost product offerings that generate new and repeat visits to our stores ; foot traffic in retail shopping centers where our stores are predominantly located ; the customer experience we provide in our stores ; the availability of optometrists and other vision care professionals ; our ability to source and receive products accurately and timely ; changes in product pricing , including promotional activities ; the number of items purchased per store visit ; the number of stores that have been in operation for more than 12 months ; and impact and timing of weather related store closures . a new store is included in the comparable store sales calculation during the 13th full fiscal month following the store 's opening . closed stores are removed from the calculation for time periods that are not comparable . in the past , we have closed stores as a result of poor store performance , lease expiration or non-renewal and or the terms of our arrangements with our host and legacy partners . managed care and insurance our managed care business relates to vision care programs and associated benefits which are either : ( i ) sponsored by employers or other groups , ( ii ) provided by insurers and managed care entities , such as health maintenance organizations to individuals , and ( iii ) delivered , typically on a fee-for-service or capitated basis , by health care providers , such as ophthalmologists , optometrists and opticians . managed care has become increasingly important to the optical retail industry . 41 an increasing percentage of our customers receive vision care insurance coverage through managed care payors . our participation in these programs represent an increasingly significant portion of our overall revenues and our revenue growth . while we have relationships with almost all vision care insurers in the united states and with all of the major carriers , currently , a relatively small number of payors comprise the majority of our managed care revenues , subjecting us to concentration risk . as our participation in managed care programs continues to expand , we have incurred and expect to incur additional costs related to this area of our business . our future operational success could depend on our ability to negotiate , maintain and extend contracts with managed vision care companies , vision insurance providers and other third-party payors , several of whom have significant market share . coverage and payment levels are determined at each third-party payor 's discretion , and we have no direct control over third-party payor 's decision-making with respect to coverage and payment levels . coverage restrictions and reductions in reimbursement levels or payment methodologies may negatively impact our sales and profits . in addition , as our participation in managed care programs continues to approach overall industry penetration levels , we expect our associated managed care revenue growth rate to slow over time . vision care professional recruitment and coverage our ability to continue to attract and retain qualified vision care professionals is key to store operations , as well as maintaining our relationships with independent optometrists and professional corporations owned by eye care practitioners that provide vision care services in our stores . overall economic trends macroeconomic factors that may affect customer spending patterns , and thereby our results of operations , include employment rates , business conditions , changes in the housing market , the availability of credit , interest rates , tax rates and fuel and energy costs . during periods of economic downturn and uncertainty , our customers especially benefit from our low prices . however , eye care purchases are predominantly a medical necessity and are considered non-discretionary in nature . therefore , the overall economic environment and related changes in consumer behavior may have less of an impact on our business than for retailers in other industries . consumer preferences and demand our ability to maintain our appeal to existing customers and attract new customers depends on our ability to originate , develop and offer a compelling product assortment responsive to customer preferences and design trends . we estimate that optical consumers typically replace their eyeglasses every two to three years , and contact lens customers order new lenses every six to 12 months , reflecting the predictability of these recurring purchase behaviors . infrastructure investment our historical results of operations reflect the impact of our ongoing investments in infrastructure to support our growth . we have made significant investments in information technology systems , supply chain systems , marketing , and personnel , including experienced industry executives , and management and merchandising teams to support our long-term growth objectives . we intend to continue to make targeted investments in our infrastructure to support our growth . pricing strategy we are committed to providing our products to our customers at low prices . we generally employ a simple low price/high value strategy that consistently delivers savings to our customers without the need for extensive promotions . our ability to source and distribute products effectively our revenue and operating income are affected by our ability to purchase our products in sufficient quantities at competitive prices . while we believe our vendors have adequate capacity to meet our current and anticipated demand , our level of revenue could be adversely affected in the event we face constraints in our supply chain , including the inability of our vendors to produce sufficient quantities of merchandise in a manner that is able to match market demand from our customers . we rely on a small number of vendors to supply the majority of our eyeglass frames , eyeglass lenses and contact lenses , and are thus exposed to supplier concentration risk .
| results of operations the following table summarizes key components of our results of operations for the periods indicated , both in dollars and as a percentage of our net revenue . replace_table_token_2_th replace_table_token_3_th 46 fiscal year 2019 compared to fiscal year 2018 net revenue the following presents , by segment and by brand , comparable store sales growth , stores open at the end of the period and net revenue for fiscal year 2019 compared to fiscal year 2018 . replace_table_token_4_th _ ( 1 ) we calculate total comparable store sales based on consolidated net revenue excluding the impact of ( i ) corporate/other segment net revenue , ( ii ) sales from stores opened less than 13 months , ( iii ) stores closed in the periods presented , ( iv ) sales from partial months of operation when stores do not open or close on the first day of the month and ( v ) if applicable , the impact of a 53rd week in a fiscal year . brand-level comparable store sales growth is calculated based on cash basis revenues consistent with what the codm reviews , and consistent with reportable segment revenues presented in note 16 . `` segment reporting '' in our consolidated financial statements included in part ii . item 8. of this form 10-k , with the exception of the legacy segment , which is adjusted as noted in clause ( ii ) of footnote ( 3 ) below . ( 2 ) percentages reflect line item as a percentage of net revenue , adjusted for rounding .
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2. liquidation subject to the rights of holders of all classes of stock outstanding having rights that are senior to or equivalent to holders of common stock as to liquidation , upon the liquidation , dissolution or winding up of the company , the assets of the company will be distributed to the holders of common stock . f-14 3. voting the holders of common stock are entitled to one vote for each share of common stock held . there is no cumulative voting . ( c ) preferred stock preferred stock may be issued from time to time by the board in one or more series . ( d ) warrants in conjunction with the ipo , the company granted the underwriters 100,000 warrants to purchase shares of company common stock at an exercise price of $ 7.50 per share , which is 125 % of the initial public offering price . the warrants have a five-year term and are not exercisable prior to january 29 , 2021. all of the warrants were outstanding at december 31 , 2020 , and the company accounts for the warrants as a component of stockholders ' equity . ( 10 ) share-based compensation effective upon the closing of the company 's ipo on january 31 , 2020 , the company 's 2019 equity incentive plan ( the “ 2019 plan ” ) became effective , succeeding the company 's previous equity incentive plan . the previous plan had 352,282 options outstanding as of the effective date of the 2019 plan . under the 2019 plan , 1,000,000 shares are authorized to be issued and no new options may be issued under the previous plan , although shares subject to grants which are cancelled or forfeited will again be available under the 2019 plan . as of december 31 , 2020 , 168,664 shares were available for future grants . the 2019 plan provides for grants to employees , members of the board , consultants and advisors to the company , in the form of stock options , stock awards and other equity-based awards . the amount and terms of grants are determined by the board . stock options have a maximum term of 10 years after date of grant and are exercisable in cash or as otherwise determined by the board . as of december 31 , 2020 , and 2019 , options to purchase common shares of the company outstanding were as follows : replace_table_token_12_th as of december 31 , 2020 , the aggregate intrinsic value of options outstanding was $ 5,523,826 and options exercisable was $ 5,303,326 . f-15 810,000 options were issued during the year ended december 31 , 2020. under the grant agreements , 50,000 of the options vest after one year and the remainder of the options were vested and exercisable upon grant . these options have a 10-year term . no options were issued during the year ended december 31 , 2019. the weighted average grant date fair value of options issued during the year ended december 31 , 2020 was $ 2.19 . the fair value was estimated using the black sholes option pricing model using the following weighted average assumptions : year ended december 31 , 2020 risk-free interest rate 0.38 % expected life 5.00 expected volatility 80 % expected dividend yield — during the year ended december 31 , 2020 , the company granted stock awards totaling 25,000 shares to consultants and advisors for services rendered which were vested upon grant . based on the closing price of the company 's common stock on the nyse american on the date of grant , these awards had an aggregate fair value of $ 122,750 , which was recognized in share-based compensation expense upon grant . no stock awards were issued during the year ended december 31 , 2019. as of december 31 , 2020 , there was no unrecognized compensation expense related to stock awards . share-based compensation expense in the statements of operations , including the fair value of stock awards to consultants and advisors for services rendered , for the years ended december 31 , 2020 and 2019 was $ 1,864,913 and $ 8,483 , respectively , of which $ 138,704 and $ 0 , respectively , was included in research and development and the remainder in general and administrative expense . as of december 31 , 2020 there was $ 31,970 unrecognized compensation expense related to unvested options . that cost is expected to be recognized over a weighted-average period of 0.3 years . ( 11 ) net loss per share the company has reported a net loss for the years ended december 31 , 2020 and 2019 , and the basic and diluted net loss per share attributable to common stockholders are the same for both years because all redeemable convertible preferred stock , convertible promissory notes and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact . the following table sets forth the computation of basic and story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing at the end of this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read “ cautionary note regarding forward-looking statements ” and item 1a . story_separator_special_tag from time to time , we use third-party cros , contractor laboratories and independent contractors in clinical studies . we recognize the expenses associated with third parties performing these services for us in our clinical studies based on the percentage of each study completed at the end of each reporting period . our research and development expenses in 2020 primarily related to the ad/pd trial which began treating patients in august 2020 and two long-term animal toxicology studies which began in november 2019—a six-month study in rats and a nine-month study in dogs . we expect that our research and development expenses in 2021 and for the next several years will be higher than in 2020 as a result of the continuation of our ad/pd trial and costs associated with the initiation of our planned phase 3 trial in ad-ds . these expenditures are subject to numerous uncertainties regarding timing and cost to completion . completion of our clinical development and clinical trials may take several years or more and the length of time generally varies according to the type , complexity , novelty and intended use of our product candidates . the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development , including , among others : ● the number of sites included in the clinical trials ; ● the length of time required to enroll suitable patients ; ● the size of patient populations participating in the clinical trials ; ● the duration of patient follow-ups ; ● the development stage of the product candidates ; and ● the efficacy and safety profile of the product candidates . due to the early stage of our research and development , we are unable to determine the duration or completion costs of our development of anvs401 . as a result of the difficulties of forecasting research and development costs of anvs401 as well as the other uncertainties discussed above , we are unable to determine when and to what extent we will generate revenues from the commercialization and sale of approved product candidates . 66 general and administrative expenses general and administrative expenses consist primarily of salaries , benefits and other related costs , including stock-based compensation , for personnel serving in our executive , finance , accounting , legal and human resource functions . our general and administrative expenses also include facility and related costs not included in research and development expenses , professional fees for legal services , including patent-related expenses , consulting , tax and accounting services , insurance and general corporate expenses . we expect that our general and administrative expenses will increase with the continued development and potential commercialization of our product candidates . we expect that our general and administrative expenses in 2021 and for the next several years will be higher than in 2020 as we increase our employee count . following our ipo in january 2020 , we also anticipate increased expenses relating to our operation as a public company , including increased costs for the hiring of additional personnel , and for payment to outside consultants , including lawyers and accountants , to comply with additional regulations , corporate governance , internal control and similar requirements applicable to public companies , as well as increased costs for insurance . interest income ( expense ) , net interest income ( expense ) consists primarily of interest earned on our cash and cash equivalents and interest expense on our convertible promissory notes , including amortization of deferred financing fees and debt discount . grant income grants received are recognized as grant income in the statements of operations as and when they are earned for the specific research and development projects for which these grants are designated . in september 2019 , as modified in september 2020 , we received a notice of award for a $ 1.9 million grant from the national institute on aging of the nih to cover the costs of long-term toxicology studies on anvs401 in rats and dogs . the costs of the studies and the grant income were substantially completed as of december 31 , 2020. income taxes as of december 31 , 2020 , the company had u.s. federal net operating loss ( “ nol ” ) carryforwards of $ 7,821,413 , which may be available to offset future income tax liabilities . federal nol carryforwards generated in 2017 and prior of $ 2,764,240 will expire beginning 2032. the remaining federal nol carryforwards generated in 2018 through 2020 , do not expire , and following the enactment of the coronavirus aid , relief , and economic security act in march 2020 , are permitted to offset 100 % of taxable income in future years . nol and tax credit carryforwards are subject to review and possible adjustment by the internal revenue service ( the “ irs ” ) and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 % as defined under sections 382 and 383 in the internal revenue code . this could substantially limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities . the amount of the annual limitation is determined based on our value immediately prior to the ownership change . subsequent ownership changes may further affect the limitation in future years . critical accounting policies and use of estimates we have based our management 's discussion and analysis of financial condition and results of operations on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states .
| results of operations operating expenses and other income ( expense ) were comprised of the following : replace_table_token_2_th years ended december 31 , 2020 and 2019 research and development expenses research and development expenses increased by $ 2,277.7 thousand for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the increase was primarily the result of an increase of $ 1,878.7 thousand in costs related to our ad/pd trial which began treating patients in august 2020 , an increase of $ 61.7 thousand in costs associated with our long-term toxicology studies in rats and dogs which began in november of 2019 , an increase in share-based compensation expense of $ 138.7 thousand and an increase of $ 130.1 thousand in personnel expenses . general and administrative expenses general and administrative expenses increased by $ 2,756.8 thousand for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the increase was primarily the result of increases of $ 1,717.7 thousand in share-based compensation expense , $ 650.9 thousand in other personnel expenses , $ 307.5 thousand in insurance expense and $ 134.1 thousand in stock listing fees and other financial filing and printing fees . change in fair value of derivative liability the derivative liability represents an embedded derivative in our convertible promissory notes which were issued in march 2019. at each balance sheet date , we estimated the fair value of the derivative liability and recognized any change in our statements of operations . the fair value of the derivative liability was adjusted to $ 132.5 thousand immediately prior to the closing of our ipo on january 31 , 2020. effective upon the closing of the ipo , the derivative liability was eliminated , and the amount was reclassified to additional paid-in capital on the balance sheet .
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the accounting for the changes in fair value of a commodity derivative can be summarized as follows : derivative treatment accounting method normal purchases and normal sales exception accrual accounting designated in a qualifying hedging relationship hedge accounting all other derivatives mark-to-market accounting we may elect the normal purchases and normal sales exception for certain short- and long-term purchases and sales of physical energy commodities . under accrual accounting , any change in the fair value of these derivatives is not reflected on the balance sheet after the initial election of the exception . we may also designate a hedging relationship for certain commodity derivatives . for a derivative to qualify for designation in a hedging relationship , it must meet specific criteria and we must maintain appropriate documentation . 98 the williams companies , inc. notes to consolidated financial statements – ( continued ) we establish hedging relationships pursuant to our risk management policies . we evaluate the hedging relationships at the inception of the hedge and on an ongoing basis to determine whether the hedging relationship is , and is expected to remain , highly effective in achieving offsetting changes in fair value or cash flows attributable to the underlying risk being hedged . we also regularly assess whether the hedged forecasted transaction is probable of occurring . if a derivative ceases to be or is no longer expected to be highly effective , or if we believe the likelihood of occurrence of the hedged forecasted transaction is no longer probable , hedge accounting is discontinued prospectively , and future changes in the fair value of the derivative are recognized currently in product sales or product costs in the consolidated statement of operations . for commodity derivatives designated as a cash flow hedge , the effective portion of the change in fair value of the derivative is reported in accumulated other comprehensive income ( loss ) ( aoci ) in the consolidated balance sheet and reclassified into earnings in the period in which the hedged item affects earnings . any ineffective portion of the derivative 's change in fair value is recognized currently in product sales or product costs in the consolidated statement of operations . gains or losses deferred in aoci associated with terminated derivatives , derivatives that cease to be highly effective hedges , derivatives for which the forecasted transaction is reasonably possible but no longer probable of occurring , and cash flow hedges that have been otherwise discontinued remain in aoci until the hedged item affects earnings . if it becomes probable that the forecasted transaction designated as the hedged item in a cash flow hedge will not occur , any gain or loss deferred in aoci is recognized in product sales or product costs in the consolidated statement of operations at that time . the change in likelihood of a forecasted transaction is a judgmental decision that includes qualitative assessments made by management . for commodity derivatives that are not designated in a hedging relationship , and for which we have not elected the normal purchases and normal sales exception , we report changes in fair value currently in product sales or product costs in the consolidated statement of operations . certain gains and losses on derivative instruments included in the consolidated statement of operations are netted together to a single net gain or loss , while other gains and losses are reported on a gross basis . gains and losses recorded on a net basis include unrealized gains and losses on all derivatives that are not designated as hedges and for which we have not elected the normal purchases and normal sales exception . realized gains and losses on derivatives that require physical delivery , as well as natural gas derivatives for ngl processing activities and which are not held for trading purposes nor were entered into as a pre-contemplated buy/sell arrangement , are recorded on a gross basis . revenue recognition revenues as a result of the ratemaking process , certain revenues collected by us may be subject to refunds upon the issuance of final orders by the ferc in pending rate proceedings . we record estimates story_separator_special_tag story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; padding-left:30px ; font-size:10pt ; '' > on september 24 , 2015 , wpz received a special distribution of $ 396 million from gulfstream reflecting its proportional share of the proceeds from new debt issued by gulfstream . the new debt was issued to refinance gulfstream 's debt maturities . subsequently , wpz contributed $ 248 million to gulfstream for its proportional share of amounts necessary to fund debt maturities of $ 500 million due on november 1 , 2015. wpz also expects to contribute its proportional share of amounts necessary to fund debt maturities of $ 300 million due on june 1 , 2016. as described in note 14 – debt , banking arrangements , and leases of notes to consolidated financial statements , we have determined that we have net assets that are technically considered restricted in accordance with rule 4-08 ( e ) of regulation s-x of the securities and exchange commission in excess of 25 percent of our consolidated net assets . we do not expect this determination will impact our ability to pay dividends or meet future obligations as the terms of wpz 's partnership agreement require it to make quarterly distributions of all available cash , as defined , to its unitholders . wpz incentive distribution rights our ownership interest in wpz includes the right to incentive distributions determined in accordance with wpz 's partnership agreement . we have agreed to temporarily waive incentive distributions of approximately $ 2 million per quarter in connection with wpz 's acquisition of an approximate 13 percent additional interest in ueom on june 10 , 2015. the waiver will continue through the quarter ending september 30 , 2017. story_separator_special_tag at the present time , we have not provided any additional collateral to third parties but no assurance can be given that we will not be requested to provide collateral in the future . the credit ratings agencies lowered the ratings of wpz in december 2015 and in january 2016 , and standard & poor 's and fitch ratings revised the wpz outlook . in february 2016 , standard & poor 's affirmed wpz 's ratings and revised wpz 's outlook . wpz maintains investment grade ratings . as of december 31 , 75 2015 , we estimate that a downgrade to a rating below investment grade for wpz could require it to provide up to $ 271 million in additional collateral with third parties . sources ( uses ) of cash replace_table_token_16_th operating activities the factors that determine operating activities are largely the same as those that affect net income ( loss ) , with the exception of noncash items such as impairment of goodwill , gain on remeasurement of equity-method investment , impairment of equity-method investments , depreciation and amortization , and provision ( benefit ) for deferred income taxes . our net cash provided ( used ) by operating activities in 2015 increased from 2014 primarily due to the impact of net favorable changes in operating working capital and the absence of contributions from acmp for the first six months of 2014. our net cash provided ( used ) by operating activities in 2014 decreased from 2013 primarily due to the impact of net unfavorable changes in operating working capital , lower olefins production margins , and increased interest payments on debt . these changes were partially offset by proceeds from insurance recoveries on the geismar incident , proceeds from a contingency settlement in 2014 , and contributions from consolidating acmp for the second half of 2014. financing activities significant transactions include : 2015 $ 306 million of net payments of wpz 's commercial paper ; $ 3.842 billion net received from wpz 's debt offerings ; $ 1.533 billion paid on wpz 's debt retirements ; $ 2.097 billion received from our credit facility borrowings ; $ 1.817 billion paid on our credit facility borrowings ; $ 3.832 billion received from wpz 's credit facility borrowings ; $ 3.162 billion paid on wpz 's credit facility borrowings ; $ 1.836 billion paid for quarterly dividends on common stock ; $ 942 million paid for dividends and distributions to noncontrolling interests ; $ 111 million received in contributions from noncontrolling interests ; $ 396 million special distribution from gulfstream ; 76 $ 248 million contribution to gulfstream for repayment of debt . 2014 $ 572 million net proceeds received from wpz 's commercial paper issuances ; $ 1.895 billion net received from our debt offerings ; $ 2.74 billion net proceeds received from wpz 's debt offerings ; $ 670 million paid on our credit facility borrowings ; $ 1.040 billion received from our credit facility borrowings ; $ 1.646 billion received from wpz 's credit facility borrowings ; $ 1.156 billion paid on wpz 's credit facility borrowings ; $ 3.416 billion received from our equity offerings ; $ 1.412 billion paid for quarterly dividends on common stock ; $ 840 million paid for dividends and distributions to noncontrolling interests ; $ 340 million received in contributions from noncontrolling interests . 2013 $ 224 million net proceeds received from wpz 's commercial paper issuances ; $ 994 million net proceeds received from wpz 's november 2013 public offering of $ 600 million of 4.5 percent senior unsecured notes due 2023 and $ 400 million of 5.8 percent senior unsecured notes due 2043 ; $ 1.705 billion received from wpz 's credit facility borrowings ; $ 2.08 billion paid on wpz 's credit facility borrowings ; $ 1.819 billion received from wpz 's equity offerings ; $ 982 million paid for quarterly dividends on common stock ; $ 489 million paid for dividends and distributions to noncontrolling interests ; $ 467 million received in contributions from noncontrolling interests . investing activities significant transactions include : 2015 capital expenditures totaled $ 3.167 billion ; $ 112 million paid to purchase a gathering system comprised of approximately 140 miles of pipeline and a sour gas compression facility in the eagle ford shale ; 77 purchases of and contributions to our equity-method investments of $ 595 million ; 2014 capital expenditures totaled $ 4.031 billion ; purchases of and contributions to our equity-method investments of $ 482 million ; $ 5.958 billion paid , net of cash acquired , for the acmp acquisition . 2013 capital expenditures totaled $ 3.572 billion ; purchases of and contributions to our equity-method investments of $ 455 million . off-balance sheet arrangements and guarantees of debt or other commitments we have various other guarantees and commitments which are disclosed in note 3 – variable interest entities , note 11 – property , plant , and equipment , note 14 – debt , banking arrangements , and leases , note 17 – fair value measurements , guarantees , and concentration of credit risk , and note 18 – contingent liabilities and commitments of notes to consolidated financial statements . we do not believe these guarantees and commitments or the possible fulfillment of them will prevent us from meeting our liquidity needs . contractual obligations the table below summarizes the maturity dates of our contractual obligations at december 31 , 2015 : replace_table_token_17_th ( 1 ) includes the borrowings outstanding under credit facilities , but does not include any related variable-rate interest payments . ( 2 ) the 2016 amount includes $ 200 million that is presented as long-term debt at december 31 , 2015 on the consolidated balance sheet , due to wpz 's intent and ability to refinance .
| overview in 2015 , we continued to focus upon both growth in our businesses through disciplined investment and growth in our per-share dividends . examples of this growth included : expansion of wpz 's interstate natural gas pipeline system through projects such as leidy southeast and virginia southside to meet the demand of growth markets ; wpz 's acquisitions of a gathering system in the eagle ford shale and an additional 13 percent interest in its equity-method investment in ueom ; wpz 's commissioning of the bucking horse gas processing facility joint venture in the powder river basin niobrara shale ; total per-share dividends grew 25 percent to $ 2.45 in 2015 compared to $ 1.9575 in 2014. this growth was funded through cash flow from operations , distributions from wpz , and additional net borrowings at wpz . outlook we continue to transition to an overall business mix that is increasingly fee-based . although our cash flows are impacted by fluctuations in energy commodity prices , that impact is somewhat mitigated by certain of our cash flow streams that are not directly impacted by short-term commodity price movements , including : firm demand and capacity reservation transportation revenues under long-term contracts ; fee-based revenues from certain gathering and processing services . however , we are indirectly exposed to longer duration depressed energy commodity prices and the related impact on drilling activities and volumes available for gathering and processing services . we believe we have , or have access to , the financial resources and liquidity necessary to meet our requirements for working capital , capital and investment expenditures , dividends and distributions , debt service payments , and tax payments , while maintaining a sufficient level of liquidity . in particular , we note that our expected growth capital and investment expenditures total approximately $ 2.2 billion in 2016 , down approximately $ 1.5 billion from previous plans .
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see forward-looking information on page ii of this annual report on form 10-k. these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described under item 1a risk factors. our actual results may differ materially from those contained in or implied by any forward-looking statements . company overview we are a leading supplier of a full range of cab related products and systems for the global commercial vehicle market , including the heavy-duty ( class 8 ) truck market , the medium and heavy-construction vehicle markets , military , bus and agriculture markets , the specialty transportation markets and recreational ( atv/utv ) markets . our products include static and suspension seat systems , electronic wire harness assemblies , control and switches , cab structures and components , interior trim systems ( including instrument panels , door panels , headliners , cabinetry and floor systems ) , interior and exterior finishes and mirrors and wiper systems specifically designed for applications in commercial vehicles . we are differentiated from suppliers to the automotive industry by our ability to manufacture low volume customized products on a sequenced basis to meet the requirements of our customers . we believe that we have the number one or two position in several of our major markets and that we are one of the only suppliers in the north american commercial vehicle market that can offer complete cab systems , including cab body assemblies , sleeper boxes , seats , interior trim , flooring , wire harnesses , panel assemblies and other structural components . we believe our products are used by a majority of the north american heavy truck and certain leading global construction oems , which we believe creates an opportunity to cross-sell our products and offer a full range of cab related products and systems . demand for our heavy truck products is generally dependent on the number of new heavy truck commercial vehicles manufactured in north america , which in turn is a function of general economic conditions , interest rates , changes in governmental regulations , consumer spending , fuel costs and our customers ' inventory levels and production rates . new heavy truck commercial vehicle demand has historically been cyclical and is particularly sensitive to the industrial sector of the economy , which generates a significant portion of the freight tonnage hauled by commercial vehicles . during 2007 , the demand for north american class 8 heavy trucks experienced a downturn as a result of preorders in 2006 and general weakness in the north american economy and corresponding decline in the need for commercial vehicles to haul freight tonnage in north america . the demand for new heavy truck commercial vehicles in 2008 was similar to 2007 levels as weakness in the overall north american economy continued to impact production related orders . the overall weakness in the north american economy and credit markets continued to put pressure on the demand for new vehicles in 2009 as reflected in the 42 % decline of north american class 8 production levels from 2008. we believe this general weakness has contributed to the reluctance of trucking companies to invest in new truck fleets . in 2010 , north american class 8 production levels increased approximately 30 % over the prior year period , indicating a recovery in the heavy truck market . this recovery continued into 2011 as north american class 8 production levels increased approximately 66 % from 2010. the north american class 8 market showed a modest increase in 2012 as production levels increased approximately 9 % over 2011. according to a february 2013 report by act research , a publisher of industry market research , north american class 8 production levels are expected to increase from 279,000 in 2012 , peak at 307,000 in 2014 after a decline in 2013 , decline to 234,000 in 2016 and increase to 273,000 in 2017. we believe the demand for new class 8 vehicles will be driven by several factors , including growth in freight volumes and the replacement of aging vehicles . act forecasts that the total u.s. freight composite will increase from 12.3 trillion in 2012 to 15.0 trillion in 2017. act estimates that the average 40 age of active u.s. class 8 trucks is 6.6 years in 2012 , down slightly from 6.7 years in 2011 , which was the highest average vehicle age over the previous 13 years . as vehicles age , their maintenance costs typically increase . act forecasts that the vehicle age will decline as aging fleets are replaced . in 2012 , approximately 49 % of our revenue was generated from sales to north american heavy-duty truck oems . our remaining revenue in 2012 was primarily derived from sales to oems in the global construction market , european truck market , aftermarket , oe service organizations , military market and other commercial vehicle and specialty markets . demand for our products is also driven to a significant degree by preferences of the end-user of the commercial vehicle , particularly with respect to heavy-duty ( class 8 ) trucks . unlike the automotive industry , commercial vehicle oems generally afford the ultimate end-user the ability to specify many of the component parts that will be used to manufacture the commercial vehicle , including a wide variety of cab interior styles and colors , the brand and type of seats , type of seat fabric and color and specific mirror styling . in addition , certain of our products are only utilized in heavy-duty ( class 8 ) trucks , such as our storage systems , sleeper boxes , sleeper bunks and privacy curtains , and , as a result , changes in demand for heavy-duty ( class 8 ) trucks or the mix of options on a vehicle can have a greater impact on our business than changes in the overall demand for commercial vehicles . story_separator_special_tag the acquisition of vijayjyot fits our long-term strategic plan of international growth and expansion and complements our existing initiatives in the construction and truck markets of india . in december 2012 , we acquired all of the assets related to daltek , which specializes in the application of customized industrial hydrographic films , paints and other interior and exterior finishes . daltek has two leased facilities in dalton , georgia . the acquisition of daltek complements our existing exterior and interior trim products and fits our long-term strategic plan for growth and diversification outside of the class 8 market . critical accounting policies and estimates our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states of america ( u.s . gaap ) . for a comprehensive discussion of our significant accounting policies , see note 2 to our consolidated financial statements in item 8 in this annual report on form 10-k. the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . we evaluate our estimates and assumptions on an ongoing basis , particularly relating to accounts receivable reserves , 42 inventory reserves , goodwill , intangible and long-lived assets , income taxes , warranty reserves and pension and other post-retirement benefit plans . we base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets , liabilities and equity that are not readily apparent from other sources . actual results and outcomes could differ materially from these estimates and assumptions . see item 1a risk factors in this annual report on form 10-k for additional information regarding risk factors that may impact our estimates . revenue recognition we recognize revenue when ( 1 ) delivery has occurred or services have been rendered , ( 2 ) persuasive evidence of an arrangement exists , ( 3 ) there is a fixed or determinable price and ( 4 ) collectability is reasonably assured . our products are generally shipped from our facilities to our customers , which is when legal title passes to the customer for substantially all of our revenues . we enter into agreements with our customers at the beginning of a given platform 's life to supply products for that platform . once we enter into such agreements , fulfillment of our purchasing requirements is our obligation for the entire production life of the platform , with terms generally ranging from five to seven years , and we have no provisions to terminate such contracts . inventory reserves inventories are valued at the lower of first-in , first-out cost or market . cost includes applicable material , labor and overhead . we value our finished goods inventory at a standard cost that is periodically adjusted to approximate actual cost . inventory quantities on-hand are regularly reviewed , and where necessary , provisions for excess and obsolete inventory are recorded based primarily on our estimated production requirements driven by expected market volumes . excess and obsolete provisions may vary by product depending upon future potential use of the product . goodwill , intangible and long-lived assets goodwill represents the excess of consideration transferred over the fair value of net assets acquired . we review goodwill for impairment annually in the second fiscal quarter and whenever events or changes in circumstances indicate the carrying value may not be recoverable . we evaluate whether goodwill has been impaired at the reporting unit level by first determining whether the estimated fair value of the reporting unit is less than its carrying value and , if so , by determining whether the implied fair value of goodwill within the reporting unit is less than the carrying value . implied fair value of goodwill is determined by considering both the income and market approach . determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions . these estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows , risk-adjusted discount rates , future economic and market conditions and determination of appropriate market comparables . we base our fair value estimates on assumptions we believe to be reasonable but that are inherently uncertain . we review definite-lived intangible and long-lived assets for recoverability whenever events or changes in circumstances indicate that carrying amounts may not be recoverable . if an indicator exists , a determination is made by management to ascertain whether property and equipment and certain definite-lived intangibles are recoverable based on the sum of expected future undiscounted cash flows from operating activities . determining the fair value of these assets is judgmental in nature and involves the use of significant estimates and assumptions . if the estimated undiscounted net cash flows are less than the carrying amount of such assets , we will recognize an impairment loss in an amount necessary to write down the assets to fair value as determined from expected discounted future cash flows . we base our fair value estimates on assumptions we believe to be reasonable , but that are inherently uncertain . for further information on our goodwill and intangible assets , see notes 2 and 9 to our consolidated financial statements in item 8 in this annual report on form 10-k. income taxes as part of the process of preparing our consolidated financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . in addition , tax expense includes 43 the impact of differing treatment of items for tax and accounting purposes which results in deferred tax assets and liabilities which are included in our consolidated balance sheet .
| results of operations the table below sets forth certain operating data expressed as a percentage of revenues for the periods indicated : replace_table_token_11_th year ended december 31 , 2012 compared to year ended december 31 , 2011 revenues . revenues increased $ 25.9 million , or 3.1 % , to $ 857.9 million for the year ended december 31 , 2012 from $ 832.0 million for the year ended december 31 , 2011. this change resulted primarily from : a 9 % increase in north american heavy-duty ( class 8 ) truck production , fluctuations in production levels for other north american end markets and net new business awards resulting in approximately $ 41.0 million of increased revenues ; a decrease in production levels due to lower demand in our european , australian and asian markets resulting in approximately $ 12.4 million of decreased revenues ; and unfavorable foreign exchange fluctuations from the translation of our foreign operations into u.s. dollars resulting in a decrease of approximately $ 4.2 million of revenues . cost of revenues . cost of revenues consists primarily of raw materials and purchased components for our products , wages and benefits for our employees and other overhead expenses such as manufacturing supplies , rent and utilities costs related to our operations . cost of revenues increased approximately $ 24.9 million , or 3.5 % , to $ 741.4 million for the year ended december 31 , 2012 from $ 716.4 million for the year ended december 31 , 2011. this increase was primarily driven by an increase in raw material and purchased components costs of approximately $ 22.2 million and an increase in other overhead costs of approximately $ 4.2 million , partially offset by a decrease in wages and benefits costs of approximately $ 1.5 million . gross profit . gross profit increased $ 0.9 million to $ 116.5 million for the year ended december 31 , 2012 from $ 115.6 million for the year ended december 31 , 2011.
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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 under “ risk factors ” in part i , item 1a above . business and executive overview arlo combines an intelligent cloud infrastructure and mobile app with a variety of smart connected devices that transform the way people experience the connected lifestyle . our cloud-based platform provides users with visibility , insight and a powerful means to help protect and connect in real-time with the people and things that matter most , from any location with a wi-fi or a cellular connection . since the launch of our first product in december 2014 , we have shipped over 15.8 million smart connected devices , and , as of december 31 , 2019 , our smart platform had approximately 4.02 million cumulative registered accounts across more than 100 countries around the world . we conduct business across three geographic regions-the americas ; europe , middle-east and africa ( “ emea ” ) ; and asia pacific ( “ apac ” ) and we primarily generate revenue by selling devices through retail , wholesale distribution and wireless carrier channels and paid subscription services through in-app purchases . international revenue was 48.6 % , 22.6 % and 24.6 % of our revenue for the years ended december 31 , 2019 , 2018 and 2017 , respectively . for the years ended december 31 , 2019 , 2018 and 2017 , we generated revenue of $ 370.0 million , $ 464.9 million and $ 370.7 million , respectively . loss from operations was $ 85.2 million for the year ended december 31 , 2019 compared with loss from operations of $ 74.8 million for the year ended december 31 , 2018 and income from operations of $ 5.7 million for the year ended december 31 , 2017 . income ( loss ) from operations for the year ended december 31 , 2019 , 2018 and 2017 included separation expense of $ 1.9 million , $ 27.3 million , and $ 1.4 million , respectively . our goal is to continue to develop innovative , world-class connected lifestyle solutions to expand and further monetize our current and future user and subscriber bases . we believe that the growth of our business is dependent on many factors , including our ability to innovate and launch successful new products on a timely basis and grow our installed base , to increase subscription-based recurring revenue , to invest in brand awareness and channel partnerships and to continue our global expansion . we expect to maintain our investment in research and development going forward as we continue to introduce new and innovative products and services to enhance the arlo platform . key business metrics in addition to the measures presented in our consolidated financial statements , we use the following key metrics to evaluate our business , measure our performance , develop financial forecasts and make strategic decisions . in addition , management 's incentive compensation is partially determined using certain of these key business metrics . we believe these key business metrics provide useful information by offering the ability to make more meaningful period-to-period comparisons of our on-going operating results and a better understanding of how management plans and measures our underlying business . our key business metrics may be calculated in a manner different from the same key business metrics used by other companies . we regularly review our processes for calculating these metrics , and from time to time we may discover inaccuracies in our metrics or make adjustments to better reflect our business or to improve their accuracy , including adjustments that may result in the recalculation of our historical metrics . we believe that any such inaccuracies or adjustments are immaterial unless otherwise stated . 52 replace_table_token_4_th _ ( 1 ) starting with this annual report form 10-k , service revenue is included as a line item in the consolidated statement of operations in item 8 of part ii of this annual report on form 10-k. cumulative registered accounts . we believe that our ability to increase our user base is an indicator of our market penetration and growth of our business as we continue to expand and innovate our arlo platform . we define our registered accounts at the end of a particular period as the number of unique registered accounts on the arlo platform as of the end of such particular period . the number of registered accounts does not necessarily reflect the number of end-users on the arlo platform , as one registered account may be used by multiple people . we have changed our definition from registered users to registered accounts due to the verisure transaction , verisure will own the registered accounts but we will continue to provide services to these european customers under the verisure agreements . paid accounts . paid accounts worldwide measured as any account where a subscription to a paid service is being collected ( either by the company or by the company 's customers or channel partners ) , plus paid service plans of a duration of more than 3 months bundled with products ( such bundles being counted as a paid account after 90 days have elapsed from the date of registration ) . during the second quarter of 2019 , we factored in an adjustment to the first quarter of 2019 paid account number and have subsequently revised the first quarter of 2019 paid accounts total to 162,000. we have redefined paid subscribers as paid accounts to include customers that were transferred to verisure as part of the disposal of our commercial operations in europe because we will continue to provide services to these european customers and receive payments under the verisure agreements . devices shipped . story_separator_special_tag we are subject to the reporting requirements of the exchange act , and we are required to establish procedures and practices as a standalone public company in order to comply with our obligations under the exchange act and related rules and regulations , as well as rules of the new york stock exchange . as a result , we will continue to incur additional costs , including internal audit , investor relations , stock administration , and regulatory compliance costs . these additional costs may differ from the costs that were historically allocated to us by netgear . components of our operating results revenue 54 our gross revenue consists primarily of sales of devices and prepaid and paid subscription service revenue . we generally recognize revenue from product sales at the time the product is shipped and transfer of control from us to the customer occurs . our prepaid services primarily pertain to devices which are sold with our arlo prepaid services offering , providing users with the ability to store and access data for up to five cameras for a rolling seven-day period , one-year free subscription for basic services . prepaid services also include one year of arlo smart bundled with our for our arlo ultra products launched in early 2019 , and three-month free subscription for arlo smart services for our arlo pro 3 products launched in late september 2019 and arlo video doorbell launched in late november 2019. upon device shipment , we attribute a portion of the sales price to the prepaid service , deferring this revenue at the outset and subsequently recognizing it ratably over the estimated useful life of the device or free trial period , as applicable . our paid subscription services relate to sales of subscription plans to our registered accounts . our revenue consists of gross revenue , less end-user customer rebates and other channel sales incentives deemed to be a reduction of revenue per the authoritative guidance for revenue recognition , allowances for estimated sales returns , price protection , and net changes in deferred revenue . a significant portion of our marketing expenditure is with customers and is deemed to be a reduction of revenue under authoritative guidance for revenue recognition . under the supply agreement , verisure became the exclusive distributor of our products in europe for all channels , and will non-exclusively distribute our products through its direct channels globally . revenue associated with the nre arrangement under the supply contract is not significant for the year ended december 31 , 2019. we expect that our revenue and profitability in europe will improve over the life of the supply agreement . we expect that our revenue and gross margin for the first half of 2020 will be negatively impacted by delayed delivery of components from suppliers located in regions affected by covid-19 and other potential impacts of covid-19 on our operations . cost of revenue cost of revenue consists of both product costs and costs of service . product costs primarily consist of : the cost of finished products from our third-party manufacturers ; overhead costs , including purchasing , product planning , inventory control , warehousing and distribution logistics , third-party software licensing fees , inbound freight , warranty costs associated with returned goods , write-downs for excess and obsolete inventory , royalties to third parties ; and amortization expense of certain acquired intangibles . cost of service consists of costs attributable to the provision and maintenance of our cloud-based platform , including personnel , storage , security , and computing . our cost of revenue as a percentage of revenue can vary based upon a number of factors , including those that may affect our revenue set forth above and factors that may affect our cost of revenue , including , without limitation : product mix , sales channel mix , registered user acceptance of paid subscription service offerings , fluctuation in foreign exchange rates and changes in our cost of goods sold due to fluctuations in prices paid for components , net of vendor rebates , cloud platform costs , warranty and overhead costs , inbound freight and duty product conversion costs , charges for excess or obsolete inventory , and amortization of acquired intangibles . we outsource our manufacturing , warehousing , and distribution logistics . we also outsource certain components of the required infrastructure to support our cloud-based back-end it infrastructure . we believe this outsourcing strategy allows us to better manage our product and services costs and gross margin . research and development research and development expense consists primarily of personnel-related expense , safety , security , regulatory services and testing , other research and development consulting fees , and corporate it and facilities overhead . we recognize research and development expense as it is incurred . we have invested in and expanded our research and development organization to enhance our ability to introduce innovative products and services . we believe that innovation and technological leadership are critical to our future success , and we are committed to continuing a significant level of research and development to develop new technologies , products , and services , including our hardware devices , cloud-based software , 55 ai-based algorithms , and machine learning capabilities . we expect research and development expense to stay relatively flat in absolute dollars as we manage our expenses while continuing to develop new product and service offerings to support the connected lifestyle market . we expect research and development expense to fluctuate depending on the timing and number of development activities in any given period , and such expense could vary significantly as a percentage of revenue , depending on actual revenue achieved in any given period . sales and marketing sales and marketing expense consists primarily of personnel expense for sales and marketing staff ; technical support expense ; advertising ; trade shows ; corporate communications and other marketing expense ; product marketing expense ; it and facilities overhead ; outbound freight costs ; and amortization of certain intangibles .
| results of operations we operate as one operating and reportable segment . the following table sets forth , for the periods presented , the consolidated statements of operations data , which we derived from the accompanying consolidated financial statements : replace_table_token_5_th 58 revenue we conduct business across three geographic regions : americas , emea , and apac . we generally base revenue by geography on the ship-to location of the customer for device sales and device location for service sales . replace_table_token_6_th revenue decreased 20.4 % across all geographic regions for the year ended december 31 , 2019 compared to the prior year . the decrease was primarily driven by a slowdown in our customer demand for connected cameras , increased competition , higher marketing expenditures deemed to be a reduction of revenues , increased in provisions for price protection that are deemed to be a reduction of revenue , offset by higher service revenue . we launched arlo ultra , with 4k video resolution capability , in the first fiscal quarter of 2019 , arlo pro 3 , with 2k video resolution capability , in the third fiscal quarter of 2019 and arlo video doorbell with 180 degree viewing angle , in the fourth quarter of 2019. service revenue increased by $ 9.0 million , or 23.7 % , for the year ended december 31 , 2019 compared to the prior year , as our paid subscribers increased compared to the prior year . revenue increased 25.4 % across all geographic regions for the year ended december 31 , 2018 compared to the prior year . the increase was primarily driven by continued rollout of our arlo pro 2 camera , which launched in the fourth quarter of fiscal 2017. additionally , service revenue increased by $ 8.7 million , or 30.0 % , for the year ended december 31 , 2018 compared to the prior year .
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our md & a should be read in conjunction with the consolidated financial statements and related notes included in item 8 , financial statements and supplementary data , of this annual report on form 10-k. overview the economic conditions in which we operate continued to be challenging through 2011. while there has been moderate job growth during 2011 and the national unemployment rate declined to 8.5 % for december 2011 , compared to 9.4 % for december 2010 , the unemployment rate remains substantially higher in southern california where we operate , softness in the housing and real estate markets persists , consumer confidence remains less than strong and interest rates remain at historic lows . in addition to the economic environment , the regulation and oversight of our business changed during 2011. as described in more detail in item 1 regulation , certain aspects of the dodd-frank act have had and will continue to have an impact on us , including the combination on july 21 , 2011 of our former primary banking regulator , the ots , with the occ , and transfer of the ots 's responsibilities as regulator of savings and loan holding companies to the frb , the imposition of consolidated holding company capital requirements and changes to deposit insurance assessments . total assets decreased during the year 2011 primarily due to a decrease in our loan portfolio . the decrease in loans primarily reflects reduced levels of loan originations and purchases as well as elevated levels of loan repayments during 2011 as a result of continued low market interest rates . the decline in assets also reflects our strategy throughout 2011 to maintain our capital ratios above the required regulatory thresholds and strengthen our liquidity and deposit base , in part by reducing both potential problem loans and non-performing assets . total deposits decreased during 2011 , as we continued to allow maturing certificates of deposit and brokered deposits , including deposits obtained through the cdars reciprocal deposit referral system , to run off as total assets declined . since the end of 2010 , fhlb borrowings decreased by $ 4.0 million while subordinated debentures and other borrowings remained unchanged . our net losses for the year ended december 31 , 2011 were ( $ 9.5 ) million , compared to net earnings of $ 1.9 million for the same period a year ago . the net loss was primarily due to higher provision for loan losses , lower net interest income , lower non-interest income , higher provision for losses on reo and higher income tax provision expense , which resulted from tax provision true-ups and an increase in the valuation allowance against our federal and state deferred tax assets . analysis of net interest income net interest income is the difference between income on interest-earning assets and the expense on interest-bearing liabilities . net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them . the following table sets forth average balance sheets , average yields and costs , and certain other information for the periods indicated . all average balances are daily average balances . the yields set forth below include the effect of deferred loan fees , and discounts and premiums that are amortized or accreted to interest income or expense . we do not accrue interest on loans on non-accrual status ; however , the balance of these loans is included in the total average balance , which has the effect of reducing average loan yields . 31 replace_table_token_18_th ( 1 ) amount is net of deferred loan fees , loan discounts , and loans in process , and includes loans held for sale . ( 2 ) amount excludes interest on non-performing loans . ( 3 ) net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities . ( 4 ) net interest rate margin represents net interest income as a percentage of average interest-earning assets . ( 5 ) percentage is calculated based on dividends on common stocks divided by net earnings ( loss ) less dividends and accretion on preferred stocks . changes in our net interest income are a function of changes in both rates and volumes of interest-earning assets and interest-bearing liabilities . the following table sets forth information regarding changes in our interest income and expense for the years indicated . information is provided in each category with respect to ( i ) changes attributable to changes in volume ( changes in volume multiplied by prior rate ) , ( ii ) changes attributable to 32 changes in rate ( changes in rate multiplied by prior volume ) , and ( iii ) the total change . the changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . replace_table_token_19_th comparison of operating results for the years ended december 31 , 2011 and 2010 story_separator_special_tag value after charge-offs of $ 10.2 million management believes that the allowance for loan losses is adequate to cover probable incurred losses in the loan portfolio as of december 31 , 2011 , but there can be no assurance that actual losses will not exceed the estimated amounts . in addition , the occ and the fdic periodically review the allowance for loan losses as an integral part of their examination process . these agencies may require an increase in the allowance for loan losses based on their judgments of the information available to them at the time of their examinations . non-interest income non-interest income for the year ended december 31 , 2011 totaled $ 713 thousand , compared to $ 2.4 million for the same period a year ago . story_separator_special_tag brokered deposits represented 3 % of total deposits at december 31 , 2011 , compared to 5 % at december 31 , 2010. the c & d issued to us by the ots effective september 9 , 2010 , which are now administered by the occ with respect to the bank , prohibits the bank from increasing the amount of its brokered deposits beyond the amount of interest credited without prior notice to and receipt of notice of non-objection from the occ . borrowings at december 31 , 2011 , borrowings consisted of advances from the fhlb of $ 83.0 million , junior subordinated debentures of $ 6.0 million and other borrowings of $ 5.0 million . during 2011 , fhlb borrowings 36 decreased by $ 4.0 million , primarily due to lower loan growth financing needs . at december 31 , 2011 and 2010 , fhlb advances were 20 % and 18 % , respectively , of total assets , and the weighted average cost of advances at those dates was 3.09 % and 3.24 % , respectively . stockholders ' equity stockholders ' equity was $ 23.0 million , or 5 % of the company 's total assets , at december 31 , 2011 , compared to $ 32.9 million , or 7 % of the company 's total assets , at december 31 , 2010. the $ 9.8 million decrease in stockholders ' equity was primarily due to a net loss of $ 9.5 million for the year . at december 31 , 2011 , the bank 's total risk-based capital ratio was 13.01 % , its tier 1 risk-based capital ratio was 11.71 % , and its core capital and tangible capital ratios were 8.38 % . the company is currently pursuing a recapitalization plan , described under capital resources below to increase equity capital and reduce debt and senior securities , including a sale of common stock and exchanges of preferred stock for common stock at a discount to the liquidation amount , to further strengthen the company 's capital ratios , and position the bank for future growth . capital resources our principal subsidiary , broadway federal , must comply with capital standards established by the occ in the conduct of its business and failure to comply with such capital requirements may result in significant limitations on its business or other sanctions . we are not currently subject to separate holding company capital requirements , but dodd-frank act will , among other things , impose specific capital requirements on us as a savings and loan holding company as well . these requirements must be no less than those to which insured depository institutions are currently subject to . as a result , by july 2015 , we will become subject to consolidated capital requirements which we have not been subject to previously . the current regulatory capital requirements and possible consequences of failure to maintain compliance are described in part i , item 1 business-regulation and in note 15 regulatory capital matters and capital purchase program of the notes to consolidated financial statements . on november 14 , 2008 , the company issued 9,000 shares of the company 's fixed rate cumulative perpetual preferred stock , series d , having a liquidation preference of $ 1,000 per share , together with a ten-year warrant to purchase 183,175 shares of company common stock at $ 7.37 per share , to the u.s. treasury department for gross proceeds of $ 9.0 million . the sale of the series d preferred stock was made pursuant to the u.s. treasury department 's tarp capital purchase program . on december 8 , 2009 , the company issued 6,000 shares of the company 's fixed rate cumulative perpetual preferred stock , series e , having a liquidation preference of $ 1,000 per share , to the u.s. treasury department for gross proceeds of $ 6.0 million . the sale of the series e preferred stock was made pursuant to the u.s. treasury department 's tarp capital purchase program . we are pursuing our comprehensive recapitalization plan to improve the company 's capital structure . to date , we : have obtained the agreement of the u.s. treasury department to exchange the shares of our series d and e fixed rate cumulative perpetual preferred stock held by it for our common stock at a discount of 50 % of the liquidation amount , plus an undiscounted exchange of the accumulated but unpaid dividends on such preferred stock for common stock ; have obtained the agreement of the holder of our series a perpetual preferred stock to exchange its holdings for common stock at a discount of 50 % of the liquidation amount , subject to documentation and certain terms and conditions and are in discussions with the holder of our series b perpetual preferred stock regarding exchange of its holdings for common stock on a similar basis ; are in discussions with our senior bank lender regarding exchange of a portion of the $ 5 million outstanding amount borrowed under our line of credit , which is currently in default , for common stock 37 at 100 % of the face amount to be exchanged ; forgiveness of the accrued interest on the entire amount of the line of credit to the date of the exchange ; and entering into a new credit agreement for the remainder of the facility that would be outstanding after the exchange . the conditions to each of the above proposed exchanges include , or are expected in include , requirements that the holder of our outstanding series c noncumulative perpetual convertible preferred stock concurrently exchange such preferred stock for our common stock on similar terms and that we concurrently complete private placements or other sales of our new shares of common stock aggregating $ 5 million or more in gross proceeds .
| general our most significant source of income is net interest income , which is the difference between our interest income and our interest expense . generally , interest income is generated from our loans and investments ( interest-earning assets ) and interest expense is generated from deposits and borrowings ( interest-bearing liabilities ) . our results of operations are also affected by our provision for losses , non-interest income generated from service charges and fees on loan and deposit accounts , gain or loss on the sale of loans and securities , non-interest expenses and income taxes . net earnings ( loss ) we recorded a net loss of ( $ 9.5 ) million , or ( $ 6.10 ) per diluted common share , for the year ended december 31 , 2011 , compared to net earnings of $ 1.9 million , or $ 0.44 per diluted common share , for the year ended december 31 , 2010. the decrease from net earnings to net loss primarily reflected higher provisions for losses , lower net interest income , lower non-interest income , higher non-interest expense and higher income tax provision expense . net interest income for the year ended december 31 , 2011 , net interest income before provision for loan losses totaled $ 17.1 million , down $ 3.7 million , or 18 % , from $ 20.8 million of net interest income before provision for loan losses for 33 the year ended december 31 , 2010. the $ 3.7 million decrease in net interest income primarily resulted from a $ 73.0 million decrease in average interest-earning assets and an 18 basis point decrease in net interest margin . average interest-earning assets for the year 2011 decreased $ 73.0 million to $ 446.1 million from $ 519.1 million for the year 2010 , which resulted in a $ 4.2 million reduction in interest income .
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it should be read in conjunction with the accompanying consolidated financial statements and related notes to consolidated financial statements . we begin with an introduction to our key businesses and then provide discussions of our results of operations , liquidity and capital resources , and critical accounting policies . it is important to note that our fiscal year 2016 included 53 weeks , whereas fiscal years 2015 and 2014 included 52 weeks . the additional week in fiscal 2016 was included in our fourth quarter . this management 's discussion and analysis reflects results for only our continuing operations , unless otherwise noted . during fiscal 2014 , we sold substantially all of the assets of our bauhaus u.s.a. business unit , and we marketed for sale our youth furniture business , lea industries , a division of la-z-boy casegoods , inc. ( formerly known as la-z-boy greensboro , inc. ) . we were unable to find a buyer for the lea industries business , and instead we ceased operations and liquidated all the assets , consisting mostly of inventory , during fiscal 2015. in the accompanying financial statements , we reported the operating results of bauhaus and lea industries as discontinued operations for all periods presented . for the fiscal years ended april 25 , 2015 , and april 26 , 2014 , we recorded pre-tax income of $ 0.9 million ( $ 0.6 million after tax ) and a pre-tax loss of $ 6.0 million ( $ 3.8 million after tax ) , respectively , in discontinued operations related to these businesses . we previously reported results of bauhaus as a component of our upholstery segment , and lea industries as a component of our casegoods segment . in fiscal 2015 , we also recorded $ 4.2 million of pre-tax income ( $ 2.7 million after tax ) in discontinued operations related to the continued dumping and subsidy offset act of 2000 ( `` cdsoa '' ) . before the act was revised in 2007 , it provided that duties collected on wooden bedroom furniture imported from china were to be distributed to domestic producers that supported the antidumping petition that resulted in the duties . of the $ 4.2 million pre-tax income we received , $ 3.8 million related to our previously owned subsidiary , american furniture company , incorporated . we sold this subsidiary in fiscal 2007 and reported it as discontinued operations at that time . when we sold the assets of american furniture company , incorporated our contract provided that we would receive a portion of any such duties to which that entity was entitled . the remainder of the cdsoa pre-tax income reported in discontinued operations related to lea industries . introduction our business we manufacture , market , import , export , distribute and retail upholstery furniture products . in addition , we import , distribute and retail accessories and casegoods ( wood ) furniture products . we are the leading global producer of reclining chairs and the second largest manufacturer/distributor of residential furniture in the united states . the la-z-boy furniture galleries® stores retail network is the third largest retailer of single-branded furniture in the united states . we have seven major north american manufacturing locations and six regional retail distribution centers in the united states to support our speed-to-market and customization strategy . we sell our products , primarily in the united states and canada but also internationally , to furniture retailers and directly to consumers through stores that we own and operate . the centerpiece of our retail distribution strategy is our network of 338 la-z-boy furniture galleries® stores and 559 comfort studio® locations , each dedicated to marketing our la-z-boy branded products . we consider this dedicated space to be `` branded outlets '' or `` proprietary . '' we own 124 of the la-z-boy furniture galleries® stores . the remainder of the la-z-boy furniture galleries® stores , as well as all 559 comfort studio® locations , are independently owned and operated . la-z-boy furniture galleries® 24 stores help consumers furnish their homes by combining the style , comfort and quality of la-z-boy furniture with our available in-home design service . la-z-boy comfort studio® locations are defined spaces within larger independent retailers that are dedicated to displaying and selling la-z-boy branded products . in addition to the la-z-boy comfort studio® locations , our kincaid and england operating units have their own dedicated proprietary in-store programs with 500 outlets and over 1.5 million square feet of proprietary floor space . in total , our proprietary floor space includes approximately 9.3 million square feet . our goal is to deliver value to our shareholders with improved sales and earnings over the long term through the execution of our strategic initiatives . the foundation of our strategic initiatives is driving sales growth in all areas of our business , but most importantly in our flagship la-z-boy brand . we are driving this growth in four ways : we are expanding our branded distribution channels by executing our 4-4-5 store growth initiative , through which we plan to expand the la-z-boy furniture galleries® stores network to 400 stores averaging $ 4 million in sales per store over the five-year period that began with fiscal 2014. we just completed year three of this initiative , which has been delivering results for us , as noted by the network 's achievement of our average sales per store target of $ 4 million per store during calendar 2015 , more than two years ahead of schedule . although we now expect the store build out to extend beyond five years , we believe as the average revenue per store increases , the same economic value could be delivered by the network in that time frame . through this initiative , we intend not only to increase the number of stores but also to improve their quality , including upgrading old format stores to our new design concept through remodels and relocations . story_separator_special_tag these items are further explained in the discussion of each segment 's results later in this management 's discussion and analysis . upholstery segment replace_table_token_12_th sales our upholstery segment 's sales increased $ 64.0 million in fiscal 2016 over fiscal 2015 , following an increase of $ 52.8 million in fiscal 2015 over fiscal 2014. increased unit volume in both fiscal 2016 and fiscal 2015 drove a 4.3 % and 4.2 % sales increase , respectively , compared with the prior year . we believe the increased unit volume over the two-year period was a result of our live life comfortably ® marketing campaign , the strength of our stationary product introductions , and our improved product value and styling . included in the increased volume is the additional week in fiscal 2016 , which accounted for approximately 2 % of the total fiscal 2016 sales volume . 28 favorable changes in our product mix in fiscal 2016 resulted in a 1.1 % increase in sales compared with fiscal 2015. our product mix included a shift to more powered motion units and an increase in motion sofas as compared with the prior year . powered motion units have a higher average selling price than motion units without power , as do motion sofas as compared with stationary products . unfavorable changes in our product mix in fiscal 2015 resulted in a 0.6 % decrease in sales compared with fiscal 2014. our product mix in fiscal 2015 included a shift to more recliners and stationary units , including a shift from motion sofas to stationary sofas and occasional chairs , as well as a shift to more fabric units and fewer leather units . motion sofas and leather units have a higher average selling price compared to stationary units and fabric units . higher selling prices in fiscal 2015 resulted in 1.0 % of the sales increase compared to fiscal 2014. operating margin our upholstery segment 's operating margin increased 0.5 percentage point in fiscal 2016 compared with the prior year , following a decrease of 0.2 percentage point in fiscal 2015 compared with fiscal 2014. the segment 's gross margin increased 1.9 percentage points during fiscal 2016 compared with fiscal 2015 , following a 0.3 percentage point increase during fiscal 2015 compared with fiscal 2014. the main driver of changes in our gross margin was the performance of our supply chain , which includes our procurement and manufacturing operations . during fiscal 2016 , improved efficiencies in our supply chain resulted in a 1.9 percentage point improvement in the segment 's gross margin , which reversed the performance in fiscal 2015 , when inefficiencies in our supply chain lowered our gross margin by 0.6 percentage point , when compared with fiscal 2014. the inefficiencies in fiscal 2015 were a result of implementing our erp system in all our branded upholstery plants . in fiscal 2016 , through improved inventory procurement , product flow , and leveraging the benefits of our erp system in our branded upholstery plants , we were able to operate more efficiently than in the prior fiscal year . additionally , the segment 's gross margin was impacted by favorable legal settlements , which provided a benefit of 0.3 percentage point and 0.5 percentage point , respectively , in fiscal 2016 and fiscal 2015. the segment 's sg & a expense as a percentage of sales increased 1.4 percentage points during fiscal 2016 compared with fiscal 2015 , following an increase of 0.5 percentage point during fiscal 2015 compared with fiscal 2014. professional fees and legal costs were 1.0 percentage point higher as a percent of sales during fiscal 2016 , primarily due to legal fees and a $ 5.5 million accrual for a pending legal matter associated with a lawsuit over a contract dispute , as well as spending for our continued erp implementation . the pending legal matter , which was previously announced , is currently under review by the court and the court could overturn the verdict which could result in the entire accrual being reversed . additionally , if the verdict is overturned , that decision could be appealed , which could result in additional expense in future periods in defense of that appeal . warranty expense was 0.3 percentage point higher as a percent of sales during fiscal 2016. our warranty expense was higher primarily due to higher replacement part costs and labor costs from our more complex product lines . additionally , our warranty expense was higher during fiscal 2016 due to favorable accrual adjustments during fiscal 2015 which reflected a change in the prior estimates of our product warranty liability during that time period . professional fees were 0.4 percentage point higher as a percent of sales during fiscal 2015 , primarily due to spending for investment in our business . the investments included higher costs for technology improvements , including our erp system and our website and e-commerce platform . 29 casegoods segment replace_table_token_13_th sales our casegoods segment 's sales decreased $ 7.2 million in fiscal 2016 over fiscal 2015 , following an increase of $ 3.0 million in fiscal 2015 over fiscal 2014. when we ceased domestic manufacturing of our wood furniture , we eliminated our hospitality product line , which resulted in $ 3.7 million lower sales in fiscal 2016 compared with fiscal 2015. in addition , as we have shifted our product line to more transitional and casual styles over the last few years , we have been selling through older product lines . higher promotional activity related to these product lines during fiscal 2015 resulted in higher sales during that period . these items were both somewhat offset by the additional week in fiscal 2016 , which resulted in approximately 2 % of additional sales .
| results of operations fiscal year 2016 , fiscal year 2015 , and fiscal year 2014 la-z-boy incorporated replace_table_token_11_th 26 sales our consolidated sales increased $ 100.0 million in fiscal 2016 over fiscal 2015 , following an increase of $ 68.1 million in fiscal 2015 over fiscal 2014. as a reminder , fiscal 2016 contained 53 weeks , while fiscal 2015 and 2014 had 52 weeks . the increases in sales in both fiscal 2016 and fiscal 2015 compared with the prior years were due to higher sales in our retail and upholstery segments . our retail segment sales continued to benefit from volume increases in our stores that had been open for a minimum of 12 months , in addition to sales from new and acquired stores . our upholstery segment sales increase over the last two years was driven by stronger unit volume . our casegoods segment has been working through a restructuring of its business , and sales in fiscal 2016 were lower than the prior year due mainly to the elimination of our hospitality product line and higher sales in fiscal 2015 that were the result of increased promotional activity of our older product lines . the additional week in fiscal 2016 compared with fiscal 2015 accounted for approximately 2 % of fiscal 2016 's total sales . operating margin our operating margin increased 0.8 percentage point in fiscal 2016 compared with the prior year , following an increase of 0.6 percentage point in fiscal 2015 compared with the prior year . our gross margin increased 2.8 percentage points during fiscal 2016 compared with fiscal 2015 , following a 1.2 percentage point increase in fiscal 2015 compared with fiscal 2014. our upholstery segment gross margin improved in both fiscal 2016 and fiscal 2015 compared with the prior years .
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during the quarter ended december 31 , 2018 , the company determined that other than temporary decline in value has occurred and as such impaired the investment in chanclazo completely . the company has made investments in cocina vista , llc ( “ cocina ” ) , a digital media company focused on spanish and latin american food and cooking in the united states , spain and latin america , beginning in the second quarter of 2017. the investment in cocina totaled $ 2.6 million for a 49.0 % ownership interest as of december 31 , 2019. the company has concluded that cocina is a variable interest entity but it is not the primary beneficiary . the investment was recorded in “ other assets ” on the consolidated balance sheet and is accounted for using the equity method . the current balance of total assets , net story_separator_special_tag the following discussion of our consolidated results of operations and cash flows for the years ended december 31 , 2019 , 2018 and 2017 and consolidated financial condition as of december 31 , 2019 and 2018 should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. the disc ussion and analysis of our financial condition and results of operations for 2019 compared to 2018 appears below . as permitted by sec rules , we have omitted the disc ussion and analysis of our financial condition and results of operations for 2018 compared to 2017. see item 7 , “ management 's discussions and analysis of financial condition and results of operations ” , in our annual report on form 10-k for the year ended december 31 , 2018 , for this discussion . overview we are a leading global media company that , through our television and radio segments , reaches and engages u.s. hispanics across acculturation levels and media channels . additionally , our digital segment , whose operations are located primarily in spain , mexico , argentina and other countries in latin america , reaches a global market . our operations encompass integrated marketing and media solutions , comprised of television , radio and digital properties and data analytics services . for financial reporting purposes , we report in three segments based upon the type of advertising medium : television broadcasting , radio broadcasting and digital media . our net revenue for the year ended december 31 , 2019 was $ 273.6 million . of that amount , revenue attributed to our television segment accounted for approximately 55 % , revenue attributed to our digital media segment accounted for approximately 25 % , and revenue attributed to our radio segment accounted for approximately 20 % . we own and or operate 56 primary television stations located primarily in california , colorado , connecticut , florida , kansas , massachusetts , nevada , new mexico , texas and washington , d.c. we own and operate 49 radio stations in 16 u.s. markets . our radio stations consist of 38 fm and 11 am stations located in arizona , california , colorado , florida , nevada , new mexico and texas . we also sell advertisements and syndicate radio programming to more than 100 markets across the united states . we also provide digital advertising solutions that allow advertisers to reach primarily online hispanic audiences worldwide . we operate a proprietary technology and data platform that delivers digital advertising in various advertising formats that allows advertisers to reach audiences across a wide range of internet-connected devices on our owned and operated digital media sites ; the digital media sites of our publisher partners ; and on other digital media sites we access through third-party platforms and exchanges . we generate revenue primarily from sales of national and local advertising time on television stations , radio stations and digital media platforms , and from retransmission consent agreements that are entered into with mvpds . advertising rates are , in large part , based on each medium 's ability to attract audiences in demographic groups targeted by advertisers . we recognize advertising revenue when commercials are broadcast and when display or other digital advertisements record impressions on the websites of our third party publishers or as the advertiser 's previously agreed-upon performance criteria are satisfied . we do not obtain long-term commitments from our advertisers and , consequently , they may cancel , reduce or postpone orders without penalties . we pay commissions to agencies for local , regional and national advertising . for contracts directly with agencies , we record net revenue from these agencies . seasonal revenue fluctuations are common in our industry and are due primarily to variations in advertising expenditures by both local and national advertisers . our first fiscal quarter generally produces the lowest net revenue for the year . in addition , advertising revenue is generally higher during presidential election years ( 2020 , 2024 , etc . ) , resulting from significant political advertising and , to a lesser degree , congressional mid-term election years ( 2022 , 2026 , etc . ) , resulting from increased political advertising , compared to other years . we refer to the revenue generated by agreements with mvpds as retransmission consent revenue , which represents payments from mvpds for access to our television station signals so that they may rebroadcast our signals and charge their subscribers for this programming . we recognize retransmission consent revenue earned as the television signal is delivered to the mvpd . our fcc licenses grant us spectrum usage rights within each of the television markets in which we operate . we regard these rights as a valuable asset . with the proliferation of mobile devices and advances in technology that have freed up excess spectrum capacity , the monetization of our spectrum usage rights has become a significant part of our business in recent years . story_separator_special_tag segment operating profit ( loss ) is defined as operating profit ( loss ) before corporate expenses , change in fair value of contingent consideration , impairment charge , other operating ( gain ) loss , and foreign currency ( gain ) loss . the company evaluates the performance of its operating segments based on the following ( in thousands ) : replace_table_token_6_th * percentage not meaningful . ( 1 ) consolidated adjusted ebitda means net income ( loss ) plus gain ( loss ) on sale of assets , depreciation and amortization , non-cash impairment charge , non-cash stock-based compensation included in operating and corporate expenses , net interest expense , other income ( loss ) , non-recurring cash expenses , gain ( loss ) on debt extinguishment , income tax ( expense ) benefit , equity in net income ( loss ) of nonconsolidated affiliate , non-cash losses , syndication programming amortization less syndication 51 programming payments , revenue from fcc spectrum incentive auction less related expenses , expenses associated with investments , acquisitions and dispositions and certain pro-forma cost savings . we use the term consolidated adjusted ebitda because that measure is defined in our 2017 cre dit agreement and does not include gain ( loss ) on sale of assets , depreciation and amortization , non-cash impairment charge , non-cash stock-based compensation , net interest expense , other income ( loss ) , non-recurring cash expenses , gain ( loss ) on debt exti nguishment , income tax ( expense ) benefit , equity in net income ( loss ) of nonconsolidated affiliate , non- cash losses , syndication programming amortization less syndication programming payments , revenue from fcc spectrum incentive auction less related expens es , expenses associated with investments , acquisitions and dispositions and certain pro-forma cost savings . since consolidated adjusted ebitda is a measure governing several critical aspects of our 2017 credit facility , we believe that it is important to disclose consolidated adjusted ebitda to our investors . we may increase the aggregate principal amount outstanding by an additional amount equal to $ 100.0 million plus the amount that would result in our total net leverage ratio , or the ratio of consolidated total senior debt ( net of up to $ 75.0 million of unrestricted cash ) to trailing-twelve-month consolidated adjusted ebitda , not exceeding 4.0. in addition , beginning december 31 , 2018 , at the end of every calendar year , in the event our total net leverage ratio is within certain ranges , we must make a debt prepayment equal to a certain percentage of our excess cash flow , which is defined as consolidated adjusted ebitda , less consolidated interest expense , less debt principal payments , less taxes paid , less other amounts set forth in the definition of excess cash flow in the 2017 credit agreement . the total leverage ratio was as follows ( in each case as of december 31 ) : 2019 , 3.5 to 1 ; 2018 , 3.2 to 1. while many in the financial community and we consider consolidated adjusted ebitda to be important , it should be considered in addition to , but not as a substitute for or superior to , other measures of liquidity and financial performance prepared in accordance with accounting principles generally accepted in the united states of america , such as cash flows from operating activities , operating income ( loss ) and net income ( loss ) . as consolidated adjusted ebitda excludes non-cash gain ( loss ) on sale of assets , non-cash depreciation and amortization , non-cash impairment charge , non-cash stock-based compensation expense , net interest expense , other income ( loss ) , non-recurring cash expenses , gain ( loss ) on debt extinguishment , income tax ( expense ) benefit , equity in net income ( loss ) of nonconsolidated affiliate , non-cash losses , syndication programming amortization less syndication programming payments , revenue from fcc spectrum incentive auction less related expenses , expenses associated with investments , acquisitions and dispositions and certain pro-forma cost savings , consolidated adjusted ebitda has certain limitations because it excludes and includes several important financial line items . therefore , we consider both non-gaap and gaap measures when evaluating our business . consolidated adjusted ebitda is also used to make executive compensation decisions . 52 consolidated adjusted ebitda is a non-gaap measure . the most directly comparable gaap financial measure to consolidated adjusted ebitda is cash flows from operating activities . a reconciliation of this non-ga ap measure to cash flows from operating activities follows ( in thousands ) : replace_table_token_7_th ( footnotes on preceding page ) year ended december 31 , 2019 compared to year ended december 31 , 2018 consolidated operations net revenue . net revenue decreased to $ 273.6 million for the year ended december 31 , 2019 from $ 297.8 million for the year ended december 31 , 2018 , a decrease of approximately $ 24.2 million . of the overall decrease , approximately $ 12.1 million was attributable to our digital segment and was primarily due to declines in both international and domestic revenue . this decline in digital revenue is being driven by a trend whereby revenue is shifting more to programmatic revenue . in addition , approximately $ 8.9 million of the overall decrease was attributable to our radio segment and was primarily due to decreases in local and national advertising revenue , as a result primarily of ratings declines , competitive factors with other spanish-language broadcasters and changing demographic preferences of audiences , as well as the absence of revenue from fifa world cup in 2019 compared to 2018 , and a decrease in political advertising revenue , which was not material in 2019. additionally , as we have previously noted , there is a trend for advertising to move increasingly from traditional media , such as radio , to new media , such as digital media , and we expect this trend to continue .
| highlights during 2019 , our consolidated revenue decreased to $ 273.6 million from $ 297.8 million in the prior year , primarily due to a decrease in advertising revenue . the decrease in advertising revenue was partially offset by increases in revenue from spectrum usage rights and retransmission consent revenue in our television segment . our audience shares remained strong in the nation 's most densely populated hispanic markets . net revenue for our television segment decreased to $ 149.7 million in 2019 , from $ 152.9 million in 2018. this decrease of approximately $ 3.2 million was primarily due to decreases in national and local advertising revenue , as a result primarily of ratings declines , competitive factors with other spanish-language broadcasters , and changing demographic preferences of audiences . we have previously noted a trend for advertising to move increasingly from traditional media , such as television , to new media , such as digital media , and we expect this trend to continue . we also experienced a decrease in political advertising revenue , which was not material in 2019. the overall decrease was partially offset by increases in revenue from retransmission consent and spectrum usage rights .
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we also have less significant operations in oklahoma , primarily in the granite wash. the majority of our eagle ford wells were drilled by us between 2011 and 2015. as commodity prices began their precipitous decline in the second half of 2014 , we reduced our capital program while exploiting our most productive drilling locations , attempting to maintain a consistent level of period-to-period growth to offset natural production declines and securing our most strategic acreage through the drillbit . we began 2015 with eight drilling rigs operating in the eagle ford . all of these rigs were initially contracted in 2014 or earlier at times when ( i ) the spot price for crude oil was substantially higher and ( ii ) we were executing our business plans to aggressively develop our acquired acreage in this region . by the end of 2015 , we had reduced our capital program to one operated drilling rig . throughout 2015 , we explored strategic alternatives to enhance liquidity , including first and second lien financing transactions . in december 2015 , a potential first lien financing agreement was terminated . we incurred $ 6.2 million in professional fees and consulting costs associated with this proposed transaction and other financing efforts during 2015. the continued deterioration of commodity prices as reflected in the future strip pricing as of december 31 , 2015 triggered an impairment of approximately $ 1.4 billion to our eagle ford properties , reducing their carrying value to their estimated fair value . 30 the following table sets forth certain historical summary operating and financial statistics for the periods presented : replace_table_token_14_th _ 1 excludes equity-classified share-based compensation , which is a non-cash expense , of $ 0.57 , $ 0.46 and $ 0.84 and liability-classified share-based compensation of $ ( 0.09 ) , $ 0.57 and $ 0.60 for the years ended december 31 , 2015 , 2014 and 2013 , respectively . 2 as of december 31 , 2015 , we were and continue to be unable to draw on the revolver ( see “ key developments ” and “ financial condition ” sections that follow ) . 31 key developments the following general business developments and corporate actions in 2015 and 2016 had or may have a significant impact on our results of operations , financial position and cash flows : depressed commodity prices and our hedging program commodity prices have exhibited significant volatility and continued a decline that began in mid-2014 and has lasted throughout 2015 and into 2016. crude oil prices declined from a high of over $ 105 per barrel in june 2014 to less than $ 27 per barrel in february 2016. natural gas prices faced similar downward pressure in 2015 , dropping below $ 1.70 per mmbtu in december 2015. the deterioration of commodity prices triggered an impairment of approximately $ 1.4 billion to our eagle ford properties . our crude oil derivatives provided cash settlements of $ 137.5 million during the year ended december 31 , 2015. for 2016 , we have hedged a total of approximately 6,000 bopd at a weighted-average swap price of $ 80.41 per barrel . we expect to remain unhedged with respect to natural gas production for the foreseeable future . ongoing efforts to refinance the company and improve liquidity as of december 31 , 2015 , the total outstanding principal amount of our debt obligations was $ 1.2 billion . we are continuing to actively explore and evaluate various strategic alternatives to reduce the level of our long-term debt and lower our future cash interest obligations . in january 2016 , we retained k & e and jefferies to provide strategic advice generally and to act as our advisors in that regard . the timing and outcome of these efforts is highly uncertain . one or more of these alternatives could potentially be consummated without the consent of any one or more of our current security holders and , if consummated , could be dilutive to the holders of our outstanding equity securities and adversely affect the trading prices and values of our current debt and equity securities or if we were to seek protection under the bankruptcy laws , could cause the shares of our common stock to be canceled , with limited recovery , if any . furthermore , there can be no assurance that any of these alternatives will be successful on acceptable terms or at all . while we were in compliance with the leverage covenant under the revolver at december 31 , 2015 , based on our current operating forecast and capital structure , we do not believe that we will be able to comply with the leverage covenant during the next twelve months . furthermore , we reclassified all of our debt as current as of december 31 , 2015 , which represents a breach of the current ratio covenant under the revolver . pursuant to the eleventh amendment to the revolver , we have received an agreement from our lenders that such default , together with certain other defaults , will not become events of default under the revolver until april 12 , 2016 ( which can be further extended until may 10 , 2016 if certain conditions have been satisfied ) . if we do not obtain a waiver or other suitable relief from the lenders under the revolver before the extension expires , there will exist an event of default under the revolver . even if we obtain such a waiver or other relief , we still believe we can not comply with the leverage covenant during the next twelve months . if we can not obtain from our lenders a waiver of such potential breach or an amendment of the leverage covenant , our breach would constitute an event of default that could result in an acceleration of substantially all of our outstanding indebtedness . we would not have sufficient capital to satisfy these obligations . for additional information regarding the eleventh amendment , please see item 9b , “ other information. story_separator_special_tag production and development in the eagle ford our eagle ford production was 16,544 boepd during the three months ended december 31 , 2015 with oil comprising 11,764 bopd , or 71 percent , and ngls and natural gas comprising approximately 16 percent and 13 percent . our fourth quarter production represented an 11 percent decrease compared to 18,528 boepd during the three months ended september 30 , 2015 , of which 12,826 bopd , or 69 percent , was crude oil , 17 percent was ngls and 14 percent was natural gas . the sequential decline in production was attributable to our reduction in drilling activity . during the three months ended december 31 , 2015 , we drilled and completed six gross ( 4.5 net ) wells in the eagle ford for a total of 61 gross ( 38.6 net ) wells for the full year . the last 11 wells that we drilled and completed were two-string lower eagle ford wells with slickwater stimulation . the average drilling and completion costs for these wells totaled approximately $ 5.2 million per well . during the three months ended december 31 , 2015 , the wells that we drilled and completed had an average ip rate of over 1,600 boepd over an average of 19.5 frac stages , with 71 percent of production from crude oil , compared to an average of approximately 1,500 boepd over an average of 21.2 frac stages in the three months ended september 30 , 2015. the average amount of proppant per stage for these was approximately 450,000 pounds and the average amount of proppant per lateral foot was approximately 2,020 pounds , compared to approximately 422,000 pounds per stage and 1,800 pounds per lateral foot in the three months ended september 30 , 2015. of the five gross wells that we have completed in 2016 , three had ip rates in excess of 3,500 boepd with approximately 93 percent production from crude oil over an average of 27.7 frac stages . these particular wells are among the most productive wells we have drilled in the eagle ford thus far . we believe the strong improvement in early-time production rates is attributable to the use of slickwater stimulations , continued use of “ zipper fracs ” for alternating laterals on multi-well pads and increased frac intensity as measured by the increased proppant pumped per stage . 33 financial condition ability to continue as a going concern the precipitous decline in oil and natural gas prices during 2015 and into 2016 has had a significant adverse impact on our business , and as a result of our financial condition , our registered independent public accountants have issued an opinion with an explanatory paragraph expressing substantial doubt as to our ability to continue as a “ going concern. ” the revolver requires us to deliver audited , consolidated financial statements without a “ going concern ” or like qualification or exception . furthermore , we have classified all of our total outstanding debt as short-term as of december 31 , 2015 , which represents a breach of the current ratio covenant under the revolver . pursuant to the eleventh amendment , we have received an agreement from our lenders that such default , together with certain other defaults , will not become events of default until april 12 , 2016 ( which can be further extended until may 10 , 2016 if certain other conditions have been satisfied ) . for additional information regarding the eleventh amendment , please see item 9b , “ other information. ” if we do not obtain a waiver or other suitable relief from the lenders under the revolver before the extension expires , there will exist an event of default under the revolver . even if we obtain such a waiver or other relief , we still believe we can not comply with the leverage covenant during the next twelve months . if we can not obtain from our lenders a waiver of such potential breach or an amendment of the leverage covenant , our breach would constitute an event of default that could result in an acceleration of substantially all of our outstanding indebtedness . we would not have sufficient capital to satisfy these obligations . liquidity our primary sources of liquidity have historically included cash from operating activities , borrowings under the revolver , proceeds from the sales of assets and , from time to time , proceeds from capital market transactions , including the offering of debt and equity securities . our cash flows from operating activities are subject to significant volatility due to changes in commodity prices for our crude oil , ngl and natural gas products , as well as variations in our production . the prices for these commodities are driven by a number of factors beyond our control , including global and regional product supply and demand , weather , product distribution , refining and processing capacity and other supply chain dynamics , among other factors . as a result of continued low oil and natural gas prices during 2015 and into 2016 , our liquidity has been significantly negatively impacted . as of december 31 , 2015 , we had an aggregate amount of approximately $ 1.2 billion of debt outstanding . we will be required to pay interest on our senior notes in the amount of $ 87.6 million in 2016 , including $ 10.9 million in april 2016 and $ 32.9 million in may 2016. our ability to make those payments is severely in doubt . in 2015 , we incurred a loss from operations of $ 1.6 billion , including an impairment charge of $ 1.4 billion . as of march 11 , 2016 , we had only $ 32.3 million in cash and cash equivalents . pursuant to the eleventh amendment , the commitments under the revolver were reduced to $ 171.8 million , which is equal to our currently outstanding loans ( $ 170 million ) and issued letters of credit ( $ 1.8 million ) under the revolver .
| results of operations substantial components of our year-to-year variances are due to the effects of property divestitures . in 2015 , we sold all of our interests in the haynesville shale and cotton valley in east texas and in 2014 we sold all of our interests in the selma chalk in mississippi . these non-core assets were primarily focused on natural gas production . in the discussion and analysis that follows , the term “ divested properties ” refers to the production , revenues and expenses associated with our former assets and operations in east texas and mississippi . in 2015 , we also sold various non-core properties in our south texas and mid-continent regions of operations . production the following tables set forth a summary of our total and daily production volumes by product and geographic region for the periods presented : replace_table_token_22_th _ 1 includes total production and average daily production of approximately 92 mboe ( 303 boepd ) , 96 mboe ( 264 boepd ) and 33 mboe ( 90 boepd ) for 2015 , 2014 and 2013 , respectively , attributable to non-core eagle ford properties that we sold in october 2015 . 2 includes total production and average daily production of approximately 19 mboe ( 61 boepd ) , 22 mboe ( 61 boepd ) and 29 mboe ( 81 boepd ) for 2015 , 2014 and 2013 , respectively , attributable to certain mid-continent properties that we sold in october 2015. also includes total production and average daily production of approximately 22 mboe ( 60 boepd ) , 24 mboe ( 66 boepd ) and 25 mboe ( 67 boepd ) for 2015 , 2014 and 2013 , respectively , attributable to our three active marcellus shale wells .
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examples of items that we consider non-core include non-cash asset impairment charges , gains and losses on dealership , franchise or real estate transactions , and catastrophic events such as hail storms , hurricanes , and snow storms . in order to improve the transparency of our disclosures , provide a meaningful presentation of results from our core business operations and improve period-over-period comparability , we have included certain adjusted financial measures that exclude the impact of non-core business items . these adjusted measures are not measures of financial performance under u.s. gaap , but are instead considered non-gaap financial performance measures . our results , which are reported in u.s. dollars , are impacted by fluctuations in exchange rates relating to our operations in the u.k. and brazil . for example , if the british pound sterling were to weaken against the u.s. dollar , our u.k. results of operations would translate into less u.s. dollar reported results . during the twelve months ended december 31 , 2017 , the british pound sterling weakened against the u.s. dollar as the average exchange rate decreased 4.9 % compared to the same period in 2016 from 0.74 to 0.78. the brazilian real strengthened against the u.s. dollar as the average exchange rate increased 8.5 % as compared to the same period in 2016 from 3.49 to 3.19. for the twelve months ended december 31 , 2016 , the british pound weakened against the u.s. dollar as the average rate decreased 13.2 % , as compared to the same period in 2015. the brazilian real also weakened against the u.s. dollar for the year ended december 31 , 2016 as compared to the same period in 2015 as the average rate declined 4.9 % . as such , management evaluates the company 's results of operations on both an as reported and a constant currency basis . the constant currency presentation , which is a non-gaap measure , excludes the impact of fluctuations in foreign currency exchange rates . we believe providing constant currency information provides valuable supplemental information regarding our underlying business and results of operations , consistent with how we evaluate our performance . we calculate constant currency percentages by converting our current period reported results for entities reporting in currencies other than u.s. dollars using comparative period exchange rates rather than the actual exchange rates in effect during the respective periods . the constant currency performance measures should not be considered a substitute for , or superior to , the measures of financial performance prepared in accordance with u.s. gaap . our management uses these adjusted measures in conjunction with u.s. gaap financial measures to assess our business , including communication with our board of directors , investors and industry analysts concerning financial performance . therefore , we believe these adjusted financial measures are relevant and useful to users of the following financial information . for further explanation and reconciliation to the most directly comparable u.s. gaap measures , see `` non-gaap financial measures '' below . overview we are a leading operator in the automotive retail industry . through our dealerships , we sell new and used cars and light trucks ; arrange related vehicle financing ; sell service and other insurance contracts ; provide automotive maintenance and repair services ; and sell vehicle parts . our operations are aligned into three geographic regions : the u.s. region , the u.k. region , and the brazil region . our president of u.s. operations reports directly to our chief executive officer and is responsible for the overall performance of the u.s. region , as well as for overseeing the market directors and dealership general managers . the operations of our two international regions are structured similar to the u.s. region , each with a regional vice president reporting directly to our chief executive officer . as such , our three reportable segments are the u.s. , which includes the activities of our corporate office , the u.k. and brazil . as of december 31 , 2017 , we owned and operated 227 franchises , representing 32 brands of automobiles , at 173 dealership locations and 48 collision centers worldwide . we own 151 franchises at 115 dealerships and 30 collision centers in the u.s. , 55 franchises at 42 dealerships and 11 collision centers in the u.k. , and 21 franchises at 16 dealerships and seven collision centers in brazil . our operations are primarily located in major metropolitan areas in alabama , california , florida , georgia , kansas , louisiana , maryland , massachusetts , mississippi , new hampshire , new jersey , new mexico , oklahoma , south carolina and texas in the u.s. , in 28 towns of the u.k. and in key metropolitan markets in the states of sao paulo , parana , mato grosso do sul and santa catarina in brazil . our typical acquisition strategy is to acquire large , profitable , well-established and well-managed dealerships that are leaders in their respective market areas . from january 1 , 2013 through december 31 , 2017 , we have purchased 97 franchises with expected annual revenues , estimated at the time of acquisition , of $ 3.6 billion and been granted six new franchises by our manufacturer partners , with expected annual revenues , estimated at the time of acquisition , of $ 55.0 million . in 2017 , we acquired 12 u.k. dealerships , inclusive of 14 franchises and opened one additional dealership for one awarded franchise in our u.k. segment . in addition , we acquired three dealerships in the u.s. , inclusive of four franchises , opened one dealership for one 40 awarded franchise in the u.s. and added motorcycles to an existing bmw dealership in brazil . the expected aggregate annualized revenues , estimated at the time of acquisition , for these acquisitions , were $ 490.0 million . story_separator_special_tag for the years ended december 31 , 2016 and 2015 , total revenues were $ 10.9 billion and $ 10.6 billion , respectively . for the years ended december 31 , 2016 and 2015 , gross profits were $ 1.6 billion and $ 1.5 billion , respectively . we generated net income of $ 213.4 million , or $ 10.08 per diluted common share for the year ended december 31 , 2017 , compared to $ 147.1 million , or $ 6.67 per diluted share for the year ended december 31 , 2016 and $ 94.0 million , or $ 3.90 per diluted share for the year ended december 31 , 2015 . in addition , the following table highlights additional key performance indicators we use to manage our business : consolidated statistical data replace_table_token_8_th in addition to the matters described above , the following factors impacted our financial condition and results of operations in 2017 , 2016 , and 2015 : year ended december 31 , 2017 : non-cash asset impairments : due to our determination that the fair value of indefinite-lived intangible franchise rights related to certain of our franchises did not exceed their carrying value , we recorded a $ 19.3 million pretax non-cash impairment charge , of which $ 12.6 million related to intangible franchise rights in our u.s. reporting unit and $ 6.7 million related to intangible franchise rights in our brazil reporting unit . catastrophic events : our results were negatively impacted by several catastrophic events . most significantly , insurance deductibles and other related expenses totaling $ 8.8 million were recognized as sg & a expenses and $ 6.6 million of chargeback expense reserves associated with finance and insurance revenues were recognized , as a result of vehicle and property damage suffered from hurricanes harvey and irma in the u.s. oem settlement : we recognized a net pre-tax gain of $ 1.1 million associated with the audi claims settlement , in connection with our ownership of audi dealerships in the u.s. tax rate changes : we recognized a tax benefit of $ 73.0 million based upon the remeasurement of net deferred tax liabilities associated with the reduction in the corporate income tax rate enacted by the u.s. government , commonly referred to as the tax cuts and jobs act ( the “ tax act ” ) . 42 year ended december 31 , 2016 : non-cash asset impairments : due to our determination that the fair value of indefinite-lived intangible franchise rights related to certain of our franchises did not exceed their carrying value , we recorded a $ 30.0 million pretax non-cash impairment charge , of which $ 19.9 million related to intangible franchise rights in our two u.s. reporting units and $ 10.1 million related to intangible franchise rights in our brazil reporting unit . we also recognized a total of $ 2.8 million in pre-tax non-cash asset impairment charges related to impairment of various real estate holdings and other long-lived assets . catastrophic events : our results were negatively impacted by several catastrophic events . insurance deductibles and other related expenses totaling $ 5.9 million were recognized as sg & a expenses as a result of vehicle damage from hailstorms and flooding in the u.s. , during the year . real estate and dealership transactions : we disposed of ten franchises : five in the u.s. segment , four in the brazil segment and one in the u.k. segment . primarily as a result of these dispositions , a net pre-tax gain of $ 2.7 million and net pre-tax losses of $ 0.8 million and $ 0.3 million , respectively , were recognized for the year ended december 31 , 2016. oem settlement : we recognized a net pre-tax gain of $ 11.7 million associated with the volkswagen diesel emissions scandal claims settlement , in connection with our ownership of volkswagen dealerships in the u.s. severance costs : negatively impacting our results was $ 2.0 million of severance costs paid to employees . foreign deferred income tax benefit : we recognized a tax benefit of $ 1.7 million associated with a dealership disposition in brazil . year ended december 31 , 2015 : non-cash asset impairments : as a result of our determination that the fair value of goodwill in our brazil reporting units did not exceed its carrying value , we recorded a $ 55.4 million pretax non-cash asset impairment charge . in addition , as a result of our determination that the fair value of indefinite-lived intangible franchise rights related to certain of our dealership franchises did not exceed their carrying value , we recognized a $ 30.1 million pretax non-cash impairment charge , of which $ 18.1 million related to intangible franchise rights in our two u.s. reporting units and $ 12.0 million related to intangible franchise rights in our brazil reporting unit . also , we recognized $ 2.1 million in pre-tax non-cash asset impairment charges associated with non-operating real estate holdings and other long-lived assets of our existing dealership facilities . in total , we recognized $ 87.6 million in pretax non-cash impairment charges . catastrophic events : our results were negatively impacted by several catastrophic events . insurance deductibles and other related expenses totaling $ 1.6 million were recognized as sg & a expenses as a result of snow storms and flooding in the u.s. , during the year . real estate and dealership transactions : we disposed of two u.s. dealerships and terminated one u.s. dealership franchise . we also terminated two franchises in brazil . as a result , we recognized a pre-tax net gain on sale of dealerships and real estate transactions of $ 8.2 million , as a reduction of sg & a expenses . in addition , we disposed of real estate during the year and received cash proceeds of $ 3.3 million , recognizing a net gain of $ 0.2 million . in addition to the key performance indicators presented above , we also reference numerous same store metrics as key indicators of results and trends occurring within our business .
| results of operations the “ same store ” amounts presented below include the results of dealerships for the identical months in each period presented in the comparison , commencing with the first full month in which the dealership was owned by us and , in the case of dispositions , ending with the last full month it was owned by us . for example , for a dealership acquired in june 2016 , the results from this dealership will appear in our same store comparison beginning in 2017 for the period july 2017 through december 2017 , when comparing to july 2016 through december 2016 results . depending on the periods being compared , the dealerships included in same store will vary . for this reason , the 2016 same store results that are compared to 2017 differ from those used in the comparison to 2015 . same store results also include the activities of our corporate headquarters . the following table summarizes our combined same store results for the year ended december 31 , 2017 as compared to 2016 and for the year ended december 31 , 2016 compared to 2015 . 45 total same store data ( dollars in thousands , except per unit amount ) replace_table_token_9_th 46 operating margin 3.2 % 3.2 % 3.2 % 2.7 % adjusted operating margin ( 1 ) 3.5 % 3.5 % 3.6 % 3.5 % finance and insurance revenues per retail unit sold $ 1,443 2.6 % 2.8 % $ 1,407 $ 1,429 3.4 % 4.4 % $ 1,382 adjusted finance and insurance revenuesper retail unit sold ( 1 ) $ 1,465 4.1 % 4.4 % $ 1,407 $ 1,429 3.4 % 4.4 % $ 1,382 ( 1 ) see “ non-gaap financial measures ” for more details .
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except where otherwise indicated , all financial information reflected herein is determined on the basis of accounting principles generally accepted in the united states . the information contained on our website , www.domtar.com , is not incorporated by reference into this form 10-k and should in no way be construed as a part of this or any other report that we file with or furnish to the sec . in accordance with industry practice , in this report , the term “ ton ” or the symbol “ st ” refers to a short ton , an imperial unit of measurement equal to 0.9072 metric tons . the term “ metric ton ” or the symbol “ admt ” refers to an air dry metric ton . in this report , unless otherwise indicated , all dollar amounts are expressed in u.s. dollars , and the term “ dollars ” and the symbol “ $ ” refer to u.s. dollars . in the following discussion , unless otherwise noted , references to increases or decreases in income and expense items , prices , contribution to net earnings ( loss ) , and shipment volumes are based on the twelve months period ended december 31 , 2017 , 2016 and 2015. the twelve month periods are also referred to as 2017 , 2016 and 2015. reference to notes refers to footnotes to the consolidated financial statements and notes thereto included in item 8 , financial statements and supplementary data . this md & a is intended to provide investors with an understanding of our recent performance , financial condition and outlook . topics discussed and analyzed include : overview 2017 highlights outlook consolidated results of operations and segment review liquidity and capital resources recent accounting pronouncements and critical accounting estimates and policies overview we have two reportable segments as described below , which also represent our two operating segments . each reportable segment offers different products and services and requires different manufacturing processes , technology and marketing strategies . the following summary briefly describes the operations included in each of our reportable segments . pulp and paper : our pulp and paper segment consists of the design , manufacturing , marketing and distribution of communication , specialty and packaging papers , as well as softwood , fluff and hardwood market pulp . personal care : our personal care segment consists of the design , manufacturing , marketing and distribution of absorbent hygiene products . story_separator_special_tag increase in interest expense related to the term loan agreement . this increase was offset by the repayment at maturity of the 9.5 % notes due in august 2016 and of the maturity of the 10.75 % notes due in june 2017. income taxes we recorded an income tax benefit of $ 125 million in 2017 compared to a tax expense of $ 29 million in 2016 , which yields an effective tax rate of 33 % and 18 % for 2017 and 2016 , respectively . during 2017 , we recorded a goodwill impairment charge of $ 578 million with minimal tax benefit which impacted the effective tax rate by $ 200 million . this was partially offset by a net tax benefit of $ 140 million related to the u.s. tax reform , which is composed of a benefit of $ 186 million for the remeasurement of deferred tax assets and liabilities and a charge of $ 46 million for the repatriation tax . see “ u.s . tax reform ” following for more information . the effective tax rate for 2017 was also significantly impacted by our foreign operations being taxed at lower statutory tax rates and by recording $ 24 million of tax credits , mainly research and experimentation credits . during 2016 , we recorded $ 18 million of tax credits , mainly research and experimentation credits , which significantly impacted the effective tax rate . the effective tax rate for 2016 was also significantly impacted by our foreign operations being taxed at lower statutory tax rates . u.s. tax cuts and jobs act ( the “ u.s . tax reform ” ) the u.s. tax reform was signed into law on december 22 , 2017. the u.s. tax reform significantly changes u.s. tax law for businesses by , among other things , lowering the maximum federal corporate income tax rate from 35 % to 21 % effective january 1 , 2018 , implementing a territorial tax system , and imposing a one-time deemed repatriation tax on accumulated foreign earnings . as a result of the corporate tax rate reduction , we revalued our ending net deferred tax liabilities , and recognized a provisional tax benefit of $ 186 million in our consolidated statement of earnings for the year ended december 31 , 2017. the u.s tax reform provides for a mandatory one-time deemed repatriation tax on our undistributed foreign earnings and profits . we recorded a provisional repatriation tax amount of $ 46 million , which we will elect to pay over eight years , and which impacted the 2017 tax rate . the current portion of $ 4 million is included on our consolidated balance sheet in income and other taxes receivables and the remaining $ 42 million is included in other liabilities and deferred credits . while we have made a reasonable estimate of the repatriation tax amount , we continue to analyze various factors , including the impact of foreign tax credits available to offset the tax . we continue to gather additional information and monitor for further interpretive guidance in order to finalize our calculations and complete our accounting for the repatriation tax liability . additionally , we continue to assess the impact of the u.s. tax reform with respect to our current strategy of reinvesting profits of foreign subsidiaries back into those foreign operations . we have not completed our analysis of the impacts of the u.s tax reform and how these changes will impact operational decisions around the utilization of cash residing in the foreign subsidiaries . story_separator_special_tag operating income in our pulp and paper segment amounted to $ 250 million in 2017 , an increase of $ 33 million , when compared to operating income of $ 217 million in 2016. our results were positively impacted by : lower depreciation charges ( $ 60 million ) due to accelerated depreciation related to our 2014 decision to convert a paper machine at our ashdown facility to a high quality fluff pulp line in 2016 and lower depreciation expenses due to certain assets being fully depreciated lower restructuring costs mostly related to the conversion of a paper machine to a high quality fluff pulp line at our ashdown mill and the closure of a pulp dryer and idling of related assets at our plymouth mill related to our plan to optimize fluff pulp manufacturing , recorded in 2016 ( $ 31 million ) lower input costs ( $ 14 million ) mostly related to lower fiber costs as a result of improved yields and better weather and lower energy costs mostly due to the favorable impact of a boiler conversion , partially offset by higher chemicals costs positive impact of our hedging program , partially offset by a stronger canadian dollar on our canadian denominated expenses ( $ 15 million ) higher other income/expense ( $ 8 million ) these increases were partially offset by : higher operating expenses ( $ 76 million ) mostly due to higher freight , compensation , warehousing and packaging costs as well as lower productivity lower volume and mix ( $ 17 million ) mostly related to lower volume of paper , partially offset by higher volume of pulp lower average selling prices for paper , partially offset by higher average selling prices for pulp ( $ 2 million ) 2016 vs. 2015 sales in 2016 in our pulp and paper segment decreased by $ 219 million , or 5 % , when compared to sales in 2015. this decrease in sales is mostly due to a 3 % decrease in net average selling prices for pulp and paper as well as a decrease in our paper sales volumes , partially offset by an increase in our pulp sales volumes of approximately 2 % . operating income in 2016 in our pulp and paper segment amounted to $ 217 million , a decrease of $ 53 million , when compared to operating income of $ 270 million in 2015. our results were negatively impacted by : lower average selling prices for paper and pulp ( $ 135 million ) lower volume and mix ( $ 30 million ) mostly related to lower volume of paper partially offset by higher volume of pulp 36 higher restructuring costs mostly related to the conversion at ashdown described above and the closure of a pulp dryer and idling of related assets at our plymouth mill , related to our plan to optimize fluff pulp manufacturing ( $ 28 million ) higher other income/expense ( $ 13 million ) these decreases were partially offset by : lower depreciation charges ( $ 59 million ) due to lower accelerated depreciation related to our 2014 decision to convert a paper machine at our ashdown facility to a high quality fluff pulp line and lower depreciation expenses due to certain assets reaching the end of their useful lives positive impact of a weaker canadian dollar on our canadian denominated expenses , net of our hedging program ( $ 44 million ) lower input costs ( $ 44 million ) mostly related to lower fiber and energy costs due to improved market and weather conditions lower operating expenses ( $ 6 million ) mostly related to lower freight costs due to favorable global economic factors including excess vessel capacity , carrier consolidation and lower oil prices as well as lower maintenance costs due to timing of major maintenance when compared to 2015 and reduced scope of outages and cost control measures , partially offset by lower productivity personal care 2017 vs. 2016 sales in 2017 in our personal care segment increased by $ 88 million , or 10 % , when compared to sales in 2016. this increase in sales was driven by higher sales volume and mix of 11 % , mostly due to the acquisition of hdis on october 1 , 2016 and organic sales growth . this increase was partially offset by lower selling prices of 1 % when compared to 2016. operating income decreased by $ 584 million compared to 2016. our results were negatively impacted by : higher depreciation/impairment charges ( $ 579 million ) mostly due to the non-cash impairment of goodwill recorded in 2017 of $ 578 million unfavorable average net selling prices ( $ 10 million ) unfavorable foreign exchange impact , net of our hedging program ( $ 4 million ) higher restructuring charges ( $ 1 million ) unfavorable other income/expense ( $ 1 million ) these decreases were partially offset by the following : higher sales volume and mix ( $ 6 million ) lower input costs ( $ 3 million ) mostly due to a decrease in price of super absorbent polymers , fluff pulp and non-woven lower operating expenses ( $ 2 million ) mostly due to lower manufacturing costs , partially offset by higher salaries & wages 2016 vs. 2015 sales in 2016 in our personal care segment increased by $ 48 million , or 6 % when compared to sales in 2015. this increase in sales is driven by higher sales volume and mix of approximately 9 % including sales of hdis since october 1 , 2016. this increase was partially offset by lower selling prices of approximately 3 % while foreign exchange was flat when compared to 2015. operating income decreased by $ 4 million , or 7 % , in 2016 compared to 2015. our results were negatively impacted by : unfavorable average net selling prices ( $ 25 million ) higher operating expenses ( $ 10 million ) mostly related to higher selling , general and administrative expenses as well as higher salaries and wages due to additional
| 2017 highlights operating income and net earnings decreased by 242 % and 302 % , respectively from 2016 sales increased by 1 % from 2016. net average selling prices for pulp were up while net average selling prices for paper and personal care products were down from 2016. our manufactured paper volumes were down while our pulp volumes were up when compared to 2016. in addition , sales in 2017 included a full year of home delivery incontinent supplies ( “ hdis ” ) which was acquired on october 1 , 2016 compared to one quarter included in 2016 recognition of a non-cash goodwill impairment charge associated with our personal care segment of $ 578 million recognition of a net tax benefit of $ 140 million related to the u.s. tax cuts and jobs act of 2017 ( “ u.s . tax reform ” ) , which is composed of a benefit of $ 186 million for the remeasurement of deferred tax assets and liabilities and a charge of $ 46 million for the repatriation tax we paid $ 104 million in dividends 31 replace_table_token_6_th replace_table_token_7_th 1 in the fourth quarter of 2017 , we recorded a non-cash goodwill impairment charge associated with our personal care segment of $ 578 million . see item 8 , financial statements and supplementary data under note 4 “ impairment of goodwill and property , plant and equipment ” for more information . 2 in the fourth quarter of 2017 , we recorded a net tax benefit of $ 140 million related to the u.s. tax reform , which is composed of a benefit of $ 186 million for the remeasurement of deferred tax assets and liabilities and a charge of $ 46 million for the repatriation tax . see item 8 , financial statements and supplementary data under note 10 “ income taxes ” for more information . 3 see item 8 , financial statements and supplementary data under note 6 `` earnings ( loss ) per common share '' for more information on the calculation of net earnings per common share .
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the credit agreement provided for a senior secured term loan facility ( the “ term loan facility ” ) in the aggregate amount of up to $ 40,000 ( the loans thereunder , the “ term loans ” ) and a senior secured revolving loan facility ( the “ revolving credit facility ” and , together with the term loan facility , the “ credit facilities ” ) of up to an aggregate amount of $ 100,000 ( the loans thereunder , the “ revolving credit loans ” ) . the credit agreement also provided that the borrowers could , at their option , increase the aggregate amount of borrowings under either the revolving credit facility or the term story_separator_special_tag the following discussion should be read in conjunction with information included in item 8 of this report . unless otherwise indicated , the terms “ company ” , “ chefs ' warehouse ” , “ we ” , “ us ” , and “ our ” refer to the chefs ' warehouse , inc. and its subsidiaries for the periods from and after july 27 , 2011 and our predecessor company , chefs ' warehouse holdings , llc . and its subsidiaries , prior to that date . all dollar amounts are in thousands . overview and recent developments overview we are a premier distributor of specialty foods in eight of the leading culinary markets in the united states . we offer more than 30,000 skus , ranging from high-quality specialty foods and ingredients to basic ingredients and staples and center-of-the-plate proteins . we serve more than 20,000 customer locations , primarily located in our 14 geographic markets across the united states and canada , and the majority of our customers are independent restaurants and fine dining establishments . as a result of our acquisition of allen brothers , we also sell certain of our center-of-the-plate products directly to consumers . we believe several key differentiating factors of our business model have enabled us to execute our strategy consistently and profitably across our expanding customer base . these factors consist of a portfolio of distinctive and hard-to-find specialty food products , an extensive selection of center-of-the-plate proteins , a highly trained and motivated sales force , strong sourcing capabilities , a fully integrated warehouse management system , a highly sophisticated distribution and logistics platform and a focused , seasoned management team . in recent years , our sales to existing and new customers have increased through the continued growth in demand for specialty food products in general ; increased market share driven by our large percentage of sophisticated and experienced sales professionals , our high-quality customer service and our extensive breadth and depth of product offerings , including , as a result of our acquisitions of michael 's in august 2012 and allen brothers in december 2013 , meat , seafood and other center-of-the-plate products , and , as a result of our acquisition of qzina in may 2013 , gourmet chocolate , pastries and dessert ; the acquisition of other specialty food distributors ; the expansion of our existing distribution centers ; the construction of a new distribution center ; and the import and sale of our proprietary brands . through these efforts , we believe that we have been able to expand our customer base , enhance and diversify our product selections , broaden our geographic penetration and increase our market share . we believe that as a result of these efforts , we have increased sales from approximately $ 271,072 in 2009 to approximately $ 673,545 in 2013. reorganization transaction on july 27 , 2011 , we completed a transaction in which we converted chefs ' warehouse holdings , llc into the chefs ' warehouse , inc. specifically , our predecessor , chefs ' warehouse holdings , llc , a delaware limited liability company , converted into the chefs ' warehouse , inc. , a delaware corporation , and the members of chefs ' warehouse holdings , llc received shares of our common stock in exchange for their membership interests in chefs ' warehouse holdings , llc . we issued 16,000,000 shares of common stock in our reorganization transaction and each of the holders of our class b units and class c units received approximately 0.2942 shares of our common stock for each unit of membership interest in chefs ' warehouse holdings , llc owned by them at the time of the conversion . of the total number of shares we issued in the reorganization transaction , 445,056 shares were restricted shares of our common stock issued upon conversion of our class c units that had not vested as of the time of the conversion . on august 2 , 2011 , we completed our initial public offering ( “ ipo ” ) of shares of our common stock . we issued 4,666,667 shares in the offering , and certain existing stockholders sold an additional 5,683,333 shares , including 1,350,000 shares sold to the underwriters to cover over-allotments . we received net proceeds from the offering of approximately $ 63,300 ( after the payment of underwriter discounts and commissions and offering expenses ) that have been used , together with borrowings under our new senior secured credit facilities , to repay all of our loans outstanding under our former senior secured credit facilities and senior subordinated notes , including any accrued and unpaid interest , call premiums and unamortized original issue discount ( “ oid ” ) . 36 on september 25 , 2013 , the company completed a public offering of 3,800,000 share of its common stock at $ 21.00 per share and certain existing stockholders sold an additional 1,375,000 shares , including 675,000 shares sold to the underwriters to cover over-allotments . the company recognized proceeds of approximately $ 75,037 after deducting underwriting fees and commissions and estimated offering expenses . story_separator_special_tag on april 27 , 2012 , we acquired 100 % of the outstanding common stock of praml international , ltd. ( “ praml ” ) , a nevada corporation . the purchase price paid to acquire praml was approximately $ 19,500. we financed the purchase price paid for the outstanding common stock of praml with borrowings under the revolving credit facility portion of the credit agreement we entered into in april 2012. praml was a leading specialty foods importer and wholesale distributor located in las vegas , nevada , which serviced the las vegas and reno markets . our growth strategies and outlook we continue to invest in our people , facilities and technology to achieve the following objectives and maintain our premier position within the specialty foodservice distribution market : ● sales and service territory expansion ; ● operational excellence and high customer service levels ; ● expanded purchasing programs and improved buying power ; ● product innovation and new product category introduction ; ● operational efficiencies through system enhancements ; and ● operating expense reduction through the centralization of general and administrative functions . our continued profitable growth has allowed us to improve upon our organization 's infrastructure , open new distribution facilities and pursue selective acquisitions . this improved infrastructure has allowed us to maintain our operating margins in an increasingly competitive environment . over the last several years , we have increased our distribution capacity to approximately 674,000 square feet in twenty distribution facilities . key factors affecting our performance due to our focus on menu-driven independent restaurants , fine dining establishments , country clubs , hotels , caterers , culinary schools , bakeries , patisseries , chocolatiers , cruise lines , casinos and specialty food stores , our results of operations are materially impacted by the success of the “ food-away-from-home ” industry in the united states , which is materially impacted by general economic conditions , discretionary spending levels and consumer confidence . when economic conditions deteriorate , our customers ' businesses are negatively impacted as fewer people eat away-from-home and those that do spend less money . as economic conditions begin to improve , our customers ' businesses historically have likewise improved , which contributes to improvements in our business . food price costs also significantly impact our results of operations . food price inflation , like that which we have experienced throughout 2011 , portions of 2012 , and 2013 , may increase the dollar value of our sales because many of our products are sold at our cost plus a percentage markup . when the rate of inflation declines or we experience deflation , as we experienced during portions of 2012 , the dollar value of our sales may fall despite our unit sales remaining constant or growing . for those of our products that we price on a fixed fee-per-case basis , our gross profit margins may be negatively affected in an inflationary environment , even though our gross revenues may be positively impacted . while we can not predict whether inflation will continue at current levels , prolonged periods of inflation leading to cost increases above levels that we are able to pass along to our customers , either overall or in certain product categories , may have a negative impact on us and our customers , as elevated food costs can reduce consumer spending in the food-away-from-home market and may negatively impact our sales , gross margins and earnings . 38 given our wide selection of product categories , as well as the continuous introduction of new products , we can experience shifts in product sales mix that have an impact on net sales and gross profit margins . this mix shift is most significantly impacted by the introduction of new categories of products in markets that we have more recently entered , the shift in product mix resulting from acquisitions , as well as the continued growth in item penetration on higher velocity items such as dairy products . the foodservice distribution industry is fragmented and consolidating . over the past five years , we have supplemented our internal growth through selective strategic acquisitions . we believe that the consolidation trends in the foodservice distribution industry will continue to present acquisition opportunities for us , which may allow us to grow our business at a faster pace than we would otherwise be able to grow the business organically . performance indicators in addition to evaluating our income from operations , our management team analyzes our performance based on sales growth , gross profit and gross profit margin . ● net sales growth . our net sales growth is driven principally by changes in volume and , to a lesser degree , changes in price related to the impact of inflation in commodity prices and product mix . in particular , product cost inflation and deflation impacts our results of operations and , depending on the amount of inflation or deflation , such impact may be material . for example , inflation may increase the dollar value of our sales , and when the rate of inflation declines , the dollar value of our sales may fall despite our unit sales remaining constant or growing . ● gross profit and gross profit margin . our gross profit and gross profit as a percentage of net sales , or gross profit margin , are driven principally by changes in volume and fluctuations in food and commodity prices and our ability to pass on any price increases to our customers in an inflationary environment and maintain or increase gross profit margin when our costs decline . our gross profit margin is also a function of the product mix of our net sales in any period . given our wide selection of product categories , as well as the continuous introduction of new products , we can experience shifts in product sales mix that have an impact on net sales and gross profit margins .
| results of operations the following table presents , for the periods indicated , certain income and expense items expressed as a percentage of sales : replace_table_token_8_th fiscal year ended december 27 , 2013 compared to fiscal year ended december 28 , 2012 net sales net sales for the 52 weeks ended december 27 , 2013 increased approximately 40.2 % to $ 673,545 from $ 480,292 for the 52 weeks ended december 28 , 2012. the increase in net sales was the result of organic sales growth and the acquisitions of allen brothers , qzina and queensgate in fiscal 2013 and the full year impact of michael 's and praml , which were acquired in fiscal 2012. these acquisitions accounted for approximately $ 157,091 of our sales growth in fiscal 2013. severe weather in the northeast and midwest during the month of december 2013 negatively impacted net sales by approximately $ 4,000. the severe weather has continued to affect the midwest and northeast into the first quarter of fiscal 2014 and has negatively impacted our business in those markets . our prior year net sales were negatively impacted by approximately $ 3,000 from hurricane sandy in the fourth quarter of fiscal 2012. inflation for fiscal 2013 was approximately 3.4 % , or $ 16,474. gross profit gross profit increased approximately 37.9 % to $ 172,364 for the 52 weeks ended december 27 , 2013 from $ 125,004 for the 52 weeks ended december 28 , 2012. gross profit margin decreased approximately 44 basis points to 25.6 % in fiscal 2013 from 26.0 % in the year earlier period . the decrease in gross profit margin was due in large part to the impact on our sales mix , as well as the decline in gross margins , in each case related to the michael 's subsidiary .
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item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by this item regarding security ownership is incorporated herein by reference to the sections captioned “ beneficial ownership ” and “ information regarding share ownership of management ” in the proxy statement . information required by this item regarding our equity compensation plans is incorporated herein by reference to the section entitled “ executive compensation ” in the proxy statement . item 13 . certain relationships and related transactions , and director independence the information required by this item is incorporated herein by reference to the sections captioned “ transactions with management ” , if any , and “ election of directors ” in the proxy statement . item 14 . principal accountant fees and services the information required by this item is incorporated herein by reference to the section captioned “ independent registered public accountants ” in the proxy statement . - 13 - part iv item 15 . exhibits and financial statement schedules replace_table_token_3_th ( a ) 3. exhibits required to be filed by item 601 of regulation s-k. exhibit no . 3.1 articles of incorporation ( incorporated by reference to the company 's quarterly report on form 10-q for the period ended december 31 , 1988 , file no . 1-31747 ) 3.2 articles supplementary , filed october 14 , 2003 ( incorporated by reference to exhibit 3.1 to the company 's current report on form 8-k filed october 31 , 2002 , file no . 1-31747 ) 3.3 bylaws , as amended ( incorporated by reference to exhibit 3.1 to the company 's current report on form 8-k filed july 13 , 2011 , file no . 1-31747 ) 10.1 2011 non-qualified stock option plan ( incorporated by reference to the company 's proxy statement with respect to the company 's 2011 annual meeting of shareholders , filed july 26 , 2011 , file no . 1-31747 ) 10.2 hong kong joint venture agreement , as amended ( incorporated by reference to exhibit 10.1 to the company 's annual report on form 10-k for the year ended march 31 , 2003 , file no . 1-31747 ) 10.3 amended and restated factoring agreement between the registrant and the cit group/commercial services , inc. ( “ cit ” ) , dated june 22 , 2007 ( substantially identical agreement entered into by the registrant 's wholly-owned subsidiary , usi electric , inc. ) ( incorporated by reference to exhibit 10.1 to the company 's current report on form 8-k filed june 26 , 2007 , file no . 1-31747 ) 10.4 amended and restated inventory security agreement between the registrant and cit , dated june 22 , 2007 ( substantially identical agreement entered into by the registrant 's wholly-owned subsidiary , usi electric , inc. ) ( incorporated by reference to exhibit 10.2 to the company 's current report on form 8-k filed june 26 , 2007 , file no . 1-31747 ) 10.5 amendment , dated december 22 , 2009 , to amended and restated factoring agreement between the registrant and cit dated june 22 , 2007 ( substantially identical agreement entered into by the registrant 's wholly-owned subsidiary , usi electric , inc. ) ( incorporated by reference to exhibit 10.5 to the company 's quarterly report on form 10-q filed february 16 , 2010 , file no . 1-31747 ) 10.6 lease between universal security instruments , inc. and st. john properties , inc. dated november 4 , 2008 for its office and warehouse located at 11407 cronhill drive , suites a-d , owings mills , maryland 21117 ( incorporated by reference to exhibit 10.8 to the company 's quarterly report on form 10-q for the period ended december 31 , 2008 , file no . 1-31747 ) 10.7 amendment to lease between universal security instruments , inc. and st. john properties , inc. dated june 23 , 2009 ( incorporated by reference to exhibit 10.9 to the company 's annual report on form 10-k for the year ended march 31 , 2009 , file no . 1-31747 ) 10.8 amended and restated employment agreement dated july 18 , 2007 between the company and harvey b. grossblatt ( incorporated by reference to exhibit 10.7 to the company 's quarterly report on form 10-q for the period ended december 31 , 2007 , file no . 1-31747 ) , as amended by addendum dated november 13 , 2007 ( incorporated by reference to exhibit 10.1 to the company 's current report on form 8-k filed november 15 , 2007 , file no . 1-31747 ) , by addendum dated september 8 , 2008 ( incorporated by reference to exhibit 10.1 to the company 's current report on form 8-k filed september 8 , 2008 , file no . 1-31747 ) , and by addendum dated march 11 , 2010 ( incorporated by reference to exhibit 10.1 to the company 's current report on form 8-k filed march 12 , 2010 , file no . 1-31747 ) 14 code of ethics ( incorporated by reference to exhibit 14 to the company 's annual report on form 10-k for the year ended march 31 , 2004 , file no . 1-31747 ) 21 subsidiaries of the registrant * - 14 - 31.1 rule 13a-14 ( a ) /15d-14 ( a ) certification of chief executive officer * 31.2 rule 13a-14 ( a ) /15d-14 ( a ) certification of chief financial officer * 32.1 section 1350 certifications * 99.1 press release dated june 26 , 2012 * 101 interactive data files providing financial information from the registrant 's annual report on form 10-k for the fiscal year ended march 31 , 2012 in xbrl ( extensible business reporting language ) pursuant to rule 405 of regulation s-t : ( i ) consolidated balance sheets as of march 31 , 2012 and 2011 ; ( ii ) consolidated statements of operations story_separator_special_tag item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by this item regarding security ownership is incorporated herein by reference to the sections captioned “ beneficial ownership ” and “ information regarding share ownership of management ” in the proxy statement . information required by this item regarding our equity compensation plans is incorporated herein by reference to the section entitled “ executive compensation ” in the proxy statement . item 13 . certain relationships and related transactions , and director independence the information required by this item is incorporated herein by reference to the sections captioned “ transactions with management ” , if any , and “ election of directors ” in the proxy statement . item 14 . principal accountant fees and services the information required by this item is incorporated herein by reference to the section captioned “ independent registered public accountants ” in the proxy statement . - 13 - part iv item 15 . exhibits and financial statement schedules replace_table_token_3_th ( a ) 3. exhibits required to be filed by item 601 of regulation s-k. exhibit no . 3.1 articles of incorporation ( incorporated by reference to the company 's quarterly report on form 10-q for the period ended december 31 , 1988 , file no . 1-31747 ) 3.2 articles supplementary , filed october 14 , 2003 ( incorporated by reference to exhibit 3.1 to the company 's current report on form 8-k filed october 31 , 2002 , file no . 1-31747 ) 3.3 bylaws , as amended ( incorporated by reference to exhibit 3.1 to the company 's current report on form 8-k filed july 13 , 2011 , file no . 1-31747 ) 10.1 2011 non-qualified stock option plan ( incorporated by reference to the company 's proxy statement with respect to the company 's 2011 annual meeting of shareholders , filed july 26 , 2011 , file no . 1-31747 ) 10.2 hong kong joint venture agreement , as amended ( incorporated by reference to exhibit 10.1 to the company 's annual report on form 10-k for the year ended march 31 , 2003 , file no . 1-31747 ) 10.3 amended and restated factoring agreement between the registrant and the cit group/commercial services , inc. ( “ cit ” ) , dated june 22 , 2007 ( substantially identical agreement entered into by the registrant 's wholly-owned subsidiary , usi electric , inc. ) ( incorporated by reference to exhibit 10.1 to the company 's current report on form 8-k filed june 26 , 2007 , file no . 1-31747 ) 10.4 amended and restated inventory security agreement between the registrant and cit , dated june 22 , 2007 ( substantially identical agreement entered into by the registrant 's wholly-owned subsidiary , usi electric , inc. ) ( incorporated by reference to exhibit 10.2 to the company 's current report on form 8-k filed june 26 , 2007 , file no . 1-31747 ) 10.5 amendment , dated december 22 , 2009 , to amended and restated factoring agreement between the registrant and cit dated june 22 , 2007 ( substantially identical agreement entered into by the registrant 's wholly-owned subsidiary , usi electric , inc. ) ( incorporated by reference to exhibit 10.5 to the company 's quarterly report on form 10-q filed february 16 , 2010 , file no . 1-31747 ) 10.6 lease between universal security instruments , inc. and st. john properties , inc. dated november 4 , 2008 for its office and warehouse located at 11407 cronhill drive , suites a-d , owings mills , maryland 21117 ( incorporated by reference to exhibit 10.8 to the company 's quarterly report on form 10-q for the period ended december 31 , 2008 , file no . 1-31747 ) 10.7 amendment to lease between universal security instruments , inc. and st. john properties , inc. dated june 23 , 2009 ( incorporated by reference to exhibit 10.9 to the company 's annual report on form 10-k for the year ended march 31 , 2009 , file no . 1-31747 ) 10.8 amended and restated employment agreement dated july 18 , 2007 between the company and harvey b. grossblatt ( incorporated by reference to exhibit 10.7 to the company 's quarterly report on form 10-q for the period ended december 31 , 2007 , file no . 1-31747 ) , as amended by addendum dated november 13 , 2007 ( incorporated by reference to exhibit 10.1 to the company 's current report on form 8-k filed november 15 , 2007 , file no . 1-31747 ) , by addendum dated september 8 , 2008 ( incorporated by reference to exhibit 10.1 to the company 's current report on form 8-k filed september 8 , 2008 , file no . 1-31747 ) , and by addendum dated march 11 , 2010 ( incorporated by reference to exhibit 10.1 to the company 's current report on form 8-k filed march 12 , 2010 , file no . 1-31747 ) 14 code of ethics ( incorporated by reference to exhibit 14 to the company 's annual report on form 10-k for the year ended march 31 , 2004 , file no . 1-31747 ) 21 subsidiaries of the registrant * - 14 - 31.1 rule 13a-14 ( a ) /15d-14 ( a ) certification of chief executive officer * 31.2 rule 13a-14 ( a ) /15d-14 ( a ) certification of chief financial officer * 32.1 section 1350 certifications * 99.1 press release dated june 26 , 2012 * 101 interactive data files providing financial information from the registrant 's annual report on form 10-k for the fiscal year ended march 31 , 2012 in xbrl ( extensible business reporting language ) pursuant to rule 405 of regulation s-t : ( i ) consolidated balance sheets as of march 31 , 2012 and 2011 ; ( ii ) consolidated statements of operations
| general we are in the business of marketing and distributing safety and security products which are primarily manufactured through our 50 % owned hong kong joint venture . our financial statements detail our sales and other operational results , and report the financial results of the hong kong joint venture using the equity method . accordingly , the following discussion and analysis of the fiscal years ended march 31 , 2012 and 2011 relate to the operational results of the company and its consolidated subsidiaries only and includes the company 's equity share of earnings in the hong kong joint venture . a discussion and analysis of the hong kong joint venture 's operational results for these periods is presented below under the heading “ hong kong joint venture. ” while we believe that our overall sales are likely affected by the current global economic situation , we believe that we are specifically negatively impacted by the severe downturn in the u.s. housing market . as stated elsewhere in this report , our usi electric subsidiary markets our products to the electrical distribution trade ( primarily electrical and lighting distributors and manufactured housing companies ) . every downturn in new home construction and new home sales negatively impacts sales by our usi electric subsidiary . we anticipate that when and as the housing market recovers , sales by our usi electric subsidiary will improve , as well . our operating results for the current fiscal year ended march 31 , 2012 continue to be significantly impacted by the continued economic downturn of the u.s. housing market . in addition , sales of our new generation of smoke and carbon monoxide alarms were delayed while the company pursued obtaining the necessary independent testing agency approvals necessary to begin canadian and u.s. sales and marketing .
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55 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , as amended , the registrant has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized . loop media , inc. , a nevada corporation ( registrant ) by : jon niermann jon niermann chief executive officer ( principal executive officer ) by : james cerna james cerna chief financial officer ( principal financial and accounting officer ) 56 pursuant to the requirements of the securities exchange act of 1934 , as amended , this annual 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 jon niermann jon niermann chief executive officer , chairman and director april 15 , 2021 bruce cassidy bruce cassidy director april 15 , 2021 57 index to consolidated financial statements loop media , inc. audited consolidated financial statements report of independent registered public accounting firm ( marcum llp ) f-1 consolidated balance sheets as of december 31 , 2020 and 2019 f-2 consolidated statements of operations for the years ended december 31 , 2020 and 2019 f-4 consolidated statements of changes in stockholders ' equity for the years ended december 31 , 2020 and 2019 f-5 consolidated statements of cash flows for the years ended december 31 , 2020 and 2019 f-6 notes to the consolidated financial statements f-8 58 report of independent registered public accounting firm to the stockholders and board of directors of loop media , inc. opinion on the financial statements we have audited the accompanying consolidated balance sheets of loop media , inc. ( the “ company ” ) as of december 31 , 2020 and 2019 , the related consolidated statements of operations , changes in stockholders ' equity and cash flows for the years ended december 31 , 2020 and 2019 , and the related notes ( collectively referred to as the “ financial statements ” ) . in our opinion , the financial statements present fairly , in all material respects , the financial position of the company as of december 31 , 2020 and 2019 , and the results of its operations and its cash flows for the years ended december 31 , 2020 and 2019 , in conformity with accounting principles generally accepted in the united states of america . explanatory paragraph – going concern the accompanying financial statements have been prepared assuming that the company will continue as a going concern . as more fully described in note 1 , the company has a working capital deficiency , has incurred recurring losses and needs to raise additional funds to meet its obligations and sustain its operations . these conditions raise substantial doubt about the company 's ability to continue as a going concern . management 's plans in regard to these matters are also described in note 1. the financial statements do not include any adjustments that might result from the outcome of this uncertainty . basis for opinion these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on the company 's financial statements based on our audits . we are a public accounting firm registered with the public company accounting oversight board ( united states ) ( “ pcaob ” ) and are required to be independent with respect to the company in accordance with the u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . story_separator_special_tag statement on forward-looking information this annual report contains certain forward-looking statements . all statements other than statements of historical fact are “ forward-looking statements ” for purposes of these provisions , including any projections of earnings , revenues , or other financial items ; any statements of the plans , strategies , and objectives of management for future operations ; any statements concerning proposed new products , services , or developments ; any statements regarding future economic conditions or performance ; statements of belief ; and any statement of assumptions underlying any of the foregoing . such forward-looking statements are subject to inherent risks and uncertainties , and actual results could differ materially from those anticipated by the forward-looking statements . these forward-looking statements involve significant risks and uncertainties , including , but not limited to , the following : competition , promotional costs , and risk of declining revenues . our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors . these forward-looking statements are made as of the date of this filing , and we assume no obligation to update such forward-looking statements . the following discusses our financial condition and results of operations based upon our financial statements which have been prepared in conformity with accounting principles generally accepted in the united states of america . it should be read in conjunction with our financial statements and the notes thereto included elsewhere herein . the following discussion and analysis provides information which our management believes to be relevant to an assessment and understanding of our results of operations and financial condition . the discussion should be read together with our financial statements and the notes to the financial statements , which are included in this report . overview loop media , inc. ( f/k/a interlink plus , inc. ) ( the “ company ” ) is a nevada corporation . story_separator_special_tag the shares are subject to restriction on resales until that date that is 365 days following the relevant closing date for any individual investor . as of april 14 , 2021 , the company had raised an aggregate of $ 5,530,000 and issued 4,424,000 shares under the share purchase agreement . critical accounting policies and use of estimates use of estimates and assumptions the preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . significant estimates include assumptions used in the revenue recognition of performance obligations , fair value of stock-based compensation awards , fair value measurements , right-of-use assets ( “ rou ” ) , lease liabilities , and allowance for doubtful accounts . revenue recognition asu no . 2014-09 , revenue from contracts with customers ( “ topic 606 ” ) , became effective for the company on january 1 , 2018. the company 's revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard . the company applied the “ modified retrospective ” transition method for open contracts for the implementation of topic 606. as sales are and have been primarily from delivery of streaming services , delivery of subscription content services in customized formats , and delivery of hardware and ongoing content delivery through software and the company has no significant post-delivery obligations , this new standard did not result in a material recognition of revenue on the company 's consolidated financial statements for the cumulative impact of applying this new standard . therefore , there was no cumulative effect adjustment required . 37 the company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer . revenue is measured based on the consideration the company expects to receive in exchange for those products . in instances where final acceptance of the product is specified by the customer , revenue is deferred until all acceptance criteria have been met . revenues are recognized under topic 606 in a manner that reasonably reflects the delivery of the company 's products and services to customers in return for expected consideration and includes the following elements : ● executed contracts with the company 's customers that it believes are legally enforceable ; ● identification of performance obligations in the respective contract ; ● determination of the transaction price for each performance obligation in the respective contract ; ● allocation the transaction price to each performance obligation ; and ● recognition of revenue only when the company satisfies each performance obligation . performance obligations and significant judgments the company 's revenue streams can be categorized into the following performance obligations and recognition patterns : ● delivery of streaming services including content encoding and hosting ; the company recognizes revenue over the term of the service based on bandwidth usage ; ● delivery of subscription content services in customized formats ; the company recognizes revenue over the term of the service ; and ● delivery of hardware for ongoing subscription content delivery through software ; the company recognizes revenue at the point of hardware delivery . transaction prices for performance obligations are explicitly outlined in relevant contractual agreements ; therefore , the company does not believe that significant judgments are required with respect to the determination of the transaction price , including any variable consideration identified . cost of revenue cost of revenue represents the cost of delivered hardware and bundled software and is recognized at the time of sale . for ongoing licensing and hosting fees , cost of sales is recognized over time based on usage patterns . stock-based compensation share-based compensation awarded to employees is measured at the award date , based on the fair value of the award , and is recognized as an expense over the requisite vesting period . the company measures the fair value of the share-based compensation issued to non-employees using the stock price observed in the trading market ( for stock transactions ) or the fair value of the award ( for non-stock transactions ) , which were more reliably determinable measures of fair value than the value of the services being rendered . the measurement date is the earlier of ( 1 ) the date at which commitment for performance by the counterparty to earn the equity instruments is reached , or ( 2 ) the date at which the counterparty 's performance is complete . fair value measurements the company determines the fair value of its assets and liabilities using a hierarchy established by the accounting guidance that prioritizes the inputs to valuation techniques used to measure fair value . the hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities ( level 1 measurements ) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation ( level 3 measurements ) . the three levels of valuation hierarchy are defined as follows : ● level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets ; ● level 2 inputs to the valuation methodology included quoted prices for similar assets and liabilities in active markets , quoted prices for identical or similar assets in inactive markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the financial instrument ; and ● level 3 inputs to the valuation methodology is one or more unobservable inputs which are significant to the fair valuemeasurement .
| consolidated results of operations the following tables set forth our results of operations for the periods presented . the period-to-period comparison of financial results is not necessarily indicative of future results : replace_table_token_2_th revenues the company 's revenue declined for the year ended december 31 , 2020 from 2019 by $ 587,040 or 17 % . content and streaming services decreased $ 291,903 year over year as customers were impacted by the pandemic . a customer accounting for nearly all production services revenue terminated its relationship with the company in february 2020 , accounting for $ 127,165 decrease . an online video streaming customer 's subscription charges ended in august 2019 , causing a year over year decrease of $ 124,258. a box office ticket reseller cancelled subscription charges in june 2020 , resulting in a $ 33,747 decrease year over year . a media entertainment customer with multiple sites is charging contract minimums and are not charging for normal additional usage due to the pandemic in 2020 , resulting in a $ 37,526 decrease year over year . content subscription revenues decreased $ 273,658 year over year 2020 is due to customers impacted by the pandemic . a customer 's multilocation gymnasium chain was provided with covid-19 credits which decreased revenues year over year $ 105,411. a customer in the travel industry 's subscription revenues were credited due to non-operations and decreased $ 47,653 from 2019. a multilocation bar and restaurant chain owner 's locations were negatively impacted by the pandemic and covid-19 credits resulted in a year over year subscription revenue decrease of $ 45,850 . 40 cost of revenue the $ 195,536 increase in cost of revenues year over year is due to $ 380,890 amortization of contract assets in 2020 offset by usage decreases due to the pandemic .
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in drafting the re-payment provision of the agreement , the parties contemplated that the company would be the party primarily performing the lead development activities , with assistance to be provided by bsc neuro . however , subsequent to the execution of the agreement , bsc neuro assumed responsibility from the company for the lead development efforts under the agreement , and , consequently , bsc neuro wholly controlled the pace and progress of the development efforts . as such , bsc neuro acknowledged that the repayment provision was not triggered . consequently , the company recognized revenue of approximately $ 746,000 during the year ended december 31 , 2012 which had been previously recorded as deferred revenue . f-14 mri interventions , inc. notes to financial statements boston scientific cardiac agreement the company has definitive license and development agreements ( collectively the “ bsc cardiac agreement ” ) story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes thereto included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that are based upon current expectations and involve risks , assumptions and uncertainties . you should review the “ risk factors ” section of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis . overview we are a medical device company that develops and commercializes innovative platforms for performing minimally invasive surgical procedures in the brain and heart under direct , intra-procedural magnetic resonance imaging , or mri . we have two product platforms . our clearpoint system , which is in commercial use in the united states and europe , is used to perform minimally invasive surgical procedures in the brain . we anticipate that our cleartrace system , which is still in development , will be used to perform minimally invasive surgical procedures in the heart . both systems utilize intra-procedural mri to guide the procedures . both systems are designed to work in a hospital 's existing mri suite . we believe that our two product platforms , subject to appropriate regulatory clearance and approval , will deliver better patient outcomes , enhance revenue potential for both physicians and hospitals , and reduce costs to the healthcare system . in 2010 , we received regulatory clearance from the fda to market our clearpoint system in the united states for general neurological procedures . in 2011 , we also obtained ce marking approval for the clearpoint system , which enables us to sell the clearpoint system in the european union . substantially all of our product revenues for 2013 and 2012 relate to sales of our clearpoint system products . we do not have regulatory clearance or approval to sell our cleartrace system , and , therefore , we have not generated revenues from commercial sales of that product candidate . we have financed our operations and internal growth primarily through the sale of equity securities , license arrangements , and the issuance of convertible notes and other secured notes . we have incurred significant losses since our inception in 1998 as we devoted substantial efforts to research and development . as of december 31 , 2013 , we had an accumulated deficit of $ 72.8 million . we may continue to incur operating losses as we commercialize our clearpoint system products , continue to develop our product candidates and to expand our business generally . factors which may influence future results of operations the following is a description of factors which may influence our future results of operations , and which we believe are important to an understanding of our business and results of operations . revenues in june 2010 , we received 510 ( k ) clearance from the fda to market our clearpoint system in the united states for general neurological procedures . future revenues from sales of our clearpoint system products are difficult to predict and may not be sufficient to offset our continuing research and development expenses and our increasing selling , general and administrative expenses . we can not sell any of our product candidates for commercial use until we receive regulatory clearance or approval . generating recurring revenues from the sale of our disposable components is an important part of our business model for our clearpoint system . we anticipate that over time , recurring revenues will constitute an increasing percentage of our total revenues as we leverage each new installation of our clearpoint system to generate recurring sales of these disposable components . clearpoint system product revenues were $ 2.9 million and $ 1.2 million for the years ended december 31 , 2013 and 2012 , respectively . since inception , the most significant source of our revenues has been related to our collaborative agreements with boston scientific , principally from recognition of the $ 13.0 million of licensing fees , which we received in 2008. revenues associated with these licensing fees were recognized on a straight-line basis over a five year period , which was the period we estimated for our continuing involvement in the development activities , and which period ended in the first quarter of 2013. our revenue recognition policies are more fully described in the “ critical accounting policies and significant judgments and estimates ” section below . 49 cost of product revenues cost of product revenues includes the direct costs associated with the assembly and purchase of disposable and reusable components of our clearpoint system which we have sold , and for which we have recognized the revenue in accordance with our revenue recognition policy . cost of product revenues also includes the allocation of manufacturing overhead costs , depreciation of loaned systems installed under our clearpoint placement program , and write-offs of obsolete , impaired or excess inventory . story_separator_special_tag future product royalty income under any such arrangements will be recognized as the related products are sold and amounts are payable to us . ( 3 ) development service revenues — we are party to an agreement to provide development services to a third party . under this agreement , we earn revenue equal to costs incurred for outside expenses related to the development services provided , plus actual direct internal labor costs ( including the cost of employee benefits ) , plus an overhead markup of the direct internal labor costs incurred . revenue is recognized in the period in which we incur the related costs . during the years ended december 31 , 2013 and 2012 , we recorded development service revenues of approximately $ 284,000 and $ 531,000 , respectively , related to this agreement . from time to time , we may also perform development services for other third parties evidenced by either a development agreement or a purchase order . during 2012 , we recorded revenues totaling $ 10,000 for such services . ( 4 ) other service revenues — other service revenues are comprised primarily of installation fees charged in connection with clearpoint system installations and service agreement revenues . typically , we will bill upfront for service agreements that have terms ranging from one to three years . these amounts are recognized as revenues ratably over the term of the related service agreement . inventory . inventory is carried at the lower of cost ( first-in , first-out method ) or net realizable value . all items included in inventory relate to our clearpoint system . software license inventory that is not expected to be utilized within the next twelve months is classified as a non-current asset . we periodically review our inventory for obsolete items and provide a reserve upon identification of potential obsolete items . derivative liability for warrants to purchase common stock . our derivative liability for warrants represents the fair value of warrants issued in connection with private placements of shares our common stock . these warrants are presented as liabilities based on certain exercise price reset and net cash settlement provisions . the liability , which is recorded at fair value at each balance sheet date , is calculated utilizing the monte carlo simulation valuation method . the change in fair value of these warrants is recognized as other income or expense in the statement of operations . 51 share-based compensation . we account for compensation for all arrangements under which employees and others receive shares of stock or other equity instruments ( including options and warrants ) based on fair value . the fair value of each award is estimated as of the grant date and amortized as compensation expense over the requisite vesting period . the fair values of our share-based awards are estimated on the grant dates using the black-scholes valuation model . this valuation model requires the input of highly subjective assumptions , including the expected stock volatility , estimated award terms and risk-free interest rates for the expected terms . to estimate the expected terms , we utilize the “ simplified ” method for “ plain vanilla ” options discussed in the sec 's staff accounting bulletin 107 , or sab 107. we believe that all factors listed within sab 107 as pre-requisites for utilizing the simplified method apply to us and to our share-based compensation arrangements . we intend to utilize the simplified method for the foreseeable future until more detailed information about exercise behavior becomes available . we based our estimate of expected volatility on the average of historical volatilities of publicly traded companies we deemed similar to us because we lack our own relevant historical volatility data . we will consistently apply this methodology until a sufficient amount of historical information regarding the volatility of our own share prices becomes available . we utilize risk-free interest rates based on a zero-coupon u.s. treasury instrument , the term of which is consistent with the expected term of the share-based award . we have not paid and do not anticipate paying cash dividends on shares of our common stock ; therefore , the expected dividend yield is assumed to be zero . research and development costs . costs related to research , design and development of products are charged to research and development expense as incurred . these costs include direct salary and employee benefit-related costs for research and development personnel , costs for materials used in research and development activities , sponsored research and costs for outside services . since most of the expenses associated with our development service revenues relate to existing internal resources , these amounts are included in research and development costs . story_separator_special_tag 2013 and 2012 , respectively . both the gain and the loss resulted from changes in the fair value of the derivative liability associated with the warrants we issued in equity private placement transactions . during the year ended december 31 , 2013 we recorded a loss of $ 1.4 million related to the march 2013 brainlab loan modification , which included a $ 1.9 million increase to the principal balance of the note , a decrease in the interest rate from 10 % to 5.5 % , and the elimination of the note 's equity conversion feature . the $ 1.4 million loss we recorded represented the difference between the carrying amount of the note plus the related accrued interest immediately prior to the loan modification and the fair value of the note immediately following the loan modification . net other income was $ 533,000 for the year ended december 31 , 2013 , compared with $ 4,000 for the prior year . net other income for the year ended december 31 , 2013 was primarily related to negotiated reductions in amounts payable to service providers . net interest expense for the year ended december 31 , 2013 was $ 475,000 , compared with $ 2.6 million for the prior year .
| results of operations comparison of the year ended december 31 , 2013 to the year ended december 31 , 2012 replace_table_token_2_th nm= not meaningful product and service revenues . product and service revenues were $ 3.3 million for the year ended december 31 , 2013 , and $ 1.7 million for the prior year , an increase of $ 1.6 million , or 92 % . product revenues for the year ended december 31 , 2013 were $ 2.9 million compared to $ 1.2 million for the prior year , an increase of $ 1.7 million , or 149 % . product revenues included clearpoint system disposable product sales for the year ended december 31 , 2013 of $ 1.8 million , compared with $ 1.0 million for the prior year , an increase of $ 763,000 , or 75 % . that increase in disposable product sales resulted primarily from the higher number of clearpoint procedures that were performed during the year ended december 31 , 2013. revenues related to sales of clearpoint system reusable components were $ 1.1 million for the year ended december 31 , 2013 compared with $ 150,000 for the prior year , representing an increase of $ 982,000. during the years ended december 31 , 2013 and 2012 , we recorded development service revenues of $ 284,000 and $ 541,000 , respectively , a decrease of $ 257,000. we do not expect development service revenues to be a long-term ongoing source of revenues . other service revenues , mostly related to installation services and clearpoint system service agreements , were $ 82,000 for the year ended december 31 , 2013. no such revenues were recorded during the prior year . 52 license revenues .
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for the fiscal years 2018 and 2016 , unallocated expenses reflect expenses of $ 7.9 million and $ 14.6 million , respectively , in connection with the data security incidents . ( b ) restructuring charges relate to the 2018 restructuring plan and the 2017 restructuring plan . - 29 - the fiscal year ended september 30 , 2018 compared to the fiscal year ended september 30 , 2017 net sales sbs . the decrease in net sales for sbs was primarily driven by a decrease in same store sales of approximately $ 23.7 million and lower net sales from new company-operated stores of approximately $ 17.9 million , partially offset by the positive impact from changes in foreign currency exchange rates of approximately $ 30.1 million . sbs experienced lower unit volume , including lower customer traffic , partially offset by a positive impact from an increase in average unit prices , resulting primarily from select price increases in certain geographical areas of the u.s. and a change in product mix ( to higher-priced products ) resulting from shifts in customer preferences . bsg . the increase in net sales for bsg was driven by the impact of the chalut acquisition , net of the impact of peerless sales in the prior year now included in same store sales , of approximately $ 10.1 million , the positive impact from changes in foreign currency exchange rates of approximately $ 3.0 million and higher net sales from other sales channels of approximately $ 7.2 million , partially offset by decreases in sales by our dscs of approximately $ 11.1 million and same store sales of approximately $ 3.8 million . net sales from other sales channels include sales from new company-operated stores , sales to our franchisees and sales by our dscs . bsg experienced an increase in average unit prices ( resulting primarily from the introduction of certain third-party brands with higher average unit prices in the preceding 12 months ) , partially offset by a decrease in unit volume ( notwithstanding the impact of incremental sales from 28 company-operated stores opened or acquired during the last 12 months ) . in addition , we were impacted by vendor supply chain issues that negatively affected bsg 's net sales by approximately $ 13 million . gross profit sbs . sbs 's gross profit decreased as a result of lower sales and a lower gross margin . this decrease reflects a change in geographic sales mix , as a result of lower-margin non-u.s. sales making up a greater portion of total segment sales , and higher coupon redemption , compared to the prior fiscal year . bsg . bsg 's gross profit decreased as a result of a lower gross margin , partially offset by higher sales . bsg 's gross margin decrease was driven by opportunistic purchases that were not repeated from the prior year and lower vendor allowances . selling , general and administrative expenses consolidated . consolidated selling , general and administrative expenses increased primarily as a result of the negative impact from changes in foreign currency exchange rates , the impact from the chalut acquisition , higher expenses related to the data security incidents and higher facility expenses . these increases were partially offset by a reduction of estimated casualty loss and no comparable casualty loss this fiscal year , positive impact from gift card breakage , positive adjustments to actuarially determined insurance liabilities and cost reduction initiatives , related to our restructuring plans . consolidated selling , general and administrative expenses , as a percentage of net sales , increased 50 basis points to 37.7 % for the fiscal year ended september 30 , 2018. sbs . sbs 's selling , general and administrative expenses increased primarily as a result of the negative impact from changes in the foreign currency exchange rate of approximately $ 13.2 million , higher facility expense of $ 5.0 million and higher advertising expense of $ 2.0 million . these increases were partially offset by the impact of the reduction of prior year 's estimated casualty loss , in connection with natural disasters that occurred in the fourth quarter of our fiscal year 2017 , and no comparable casualty losses this fiscal year , in the aggregate , of $ 6.5 million and by positive impact from gift card breakage of $ 2.1 million in the current fiscal year . bsg . bsg 's selling , general and administrative expenses increased primarily as a result of the incremental operating expenses associated with chalut of $ 8.6 million and higher facility expenses of $ 3.3 million . these increases were partially offset by lower commission expense of $ 3.0 million , advertising expense of $ 1.5 million - 30 - and intangible asset amortization expense of $ 1.3 million , resulting from the impact of intangible assets that became fully amortized in the preceding 12 months . unallocated . unallocated selling , general and administrative expenses increased $ 4.1 million , or 2.9 % , for the fiscal year ended september 30 , 2018. this increase includes expenses related to the previously disclosed data security incidents of $ 7.9 million and higher professional fees of $ 1.7 million . see note 11 of the notes to consolidated financial statements included in item 8 of this annual report for more information about the data security incidents . this increase was partially offset by lower compensation and compensation-related expenses of $ 4.3 million primarily due to the results of the 2018 restructuring plan . story_separator_special_tag sbs 's selling , general and administrative expenses increase reflects higher employee compensation and compensation-related expenses of $ 10.0 million ( including wage increases for sales staff at existing stores ) , incremental depreciation and amortization expenses of $ 7.6 million associated with capital expenditures made in the preceding 12 months , mainly in connection with store openings and with store refreshes ( primarily in the u.s. ) , higher expenses related to recent upgrades to our information technology systems of approximately $ 4.1 million , casualty losses of $ 4.0 million resulting from hurricanes that impacted areas of the u.s. and puerto rico , and higher foreign currency transaction losses of $ 2.4 million . these increases were partially offset by lower advertising expenses of $ 10.2 million and lower sales bonuses of $ 8.8 million . bsg . bsg 's selling , general and administrative expenses increase reflects the incremental expenses ( including rent and other occupancy-related expenses ) associated with the increase in store count described above , as well as higher employee compensation and compensation-related expenses of $ 6.7 million ( including incremental wages in connection with bsg stores added during the past 12 months and wage increases for sales staff at existing stores ) , incremental depreciation and amortization expenses of $ 2.2 million associated with capital expenditures made in the preceding 12 months , mainly in connection with store openings and higher expenses related to recent upgrades to our information technology and our point of sale systems , in the aggregate , of approximately $ 1.2 million . unallocated . the decrease in unallocated selling , general and administrative expenses was due primarily to lower expenses associated with the data security incidents of $ 14.6 million , lower compensation and compensation-related expenses of $ 6.4 million ( including the absence of approximately $ 1.3 million in expenses incurred in connection with management transition plans more fully discussed in our annual report on form 10-k for the fiscal year ended september 30 , 2016 ) , lower expenses related to upgrades to our corporate information technology systems of $ 2.8 million , lower share-based compensation expense of $ 2.1 million and lower foreign currency transaction losses of $ 2.0 million . - 32 - restructuring charges during the fiscal year ended september 30 , 2017 , we incurred charges of approximately $ 22.7 million in connection with the 2017 restructuring plan , including severance and related expenses of $ 12.1 million , facility closure expenses of $ 6.7 million and other expenses of $ 3.9 million . interest expense interest expense decreased $ 11.3 million to $ 132.9 million for the fiscal year ended september 30 , 2017 primarily from lower interest expense in the aggregate of $ 7.2 million on the senior notes currently outstanding and the term loan b , compared to the senior notes outstanding prior to our refinancing of debt in december 2015 and july 2017. the decrease in interest expense also reflects a lower loss on extinguishment of debt of approximately $ 5.3 million recognized in connection with our july 2017 refinancing of debt , compared to our december 2015 refinancing of debt . see note 12 of the notes to consolidated financial statements in item 8 contained elsewhere in this annual report for additional information about our debt refinancing . the decrease in interest expense was offset in part by approximately $ 1.1 million of incremental interest expenses in connection with borrowings under the abl facility and the predecessor abl facility , as appropriate . provision for income taxes the provision for income taxes was $ 130.6 million and $ 131.1 million , and the effective income tax rate was 37.8 % and 37.0 % , for the fiscal years ended september 30 , 2017 and 2016 , respectively . the increase in our effective income tax rate for the fiscal year ended september 30 , 2017 , compared to the fiscal year ended september 30 , 2016 , is due primarily to increased losses subject to a valuation allowance in certain of our foreign operations and a non-recurring reduction in non-deductible executive compensation in the prior year . liquidity and capital resources we are highly leveraged and a substantial portion of our liquidity needs will arise from debt service on our outstanding indebtedness and from funding the costs of operations , working capital , capital expenditures and opportunistic share repurchases . working capital ( current assets less current liabilities ) increased $ 94.4 million to $ 663.9 million at september 30 , 2018 , compared to $ 569.5 million at september 30 , 2017 , resulting primarily from the repayment of our abl facility . the ratio of current assets to current liabilities was 2.35 to 1.00 at september 30 , 2018 , compared to 1.99 to 1.00 at september 30 , 2017. at september 30 , 2018 , cash and cash equivalents were $ 77.3 million . based upon the current level of operations and anticipated growth , we anticipate that existing cash balances ( excluding certain amounts permanently invested in connection with foreign operations ) , funds expected to be generated by operations and funds available under the abl facility will be sufficient to meet our working capital requirements , potential acquisitions , finance anticipated capital expenditures , including information technology upgrades and store remodels , and opportunistic share repurchases over the next 12 months . for the foreseeable future , we will prioritize needed investments in our business that we believe will deliver value for shareholders , then focus on measured debt repayment within our ratings guidance and then share repurchases . we utilize our abl facility for the issuance of letters of credit , for certain working capital and liquidity needs and to manage normal fluctuations in our operational cash flow . in that regard , we may from time to time draw funds under the abl facility for general corporate purposes including funding of capital expenditures , acquisitions , interest payments due on our indebtedness , paying down other debt and share repurchases .
| financial condition and results of operations the following section discusses management 's view of the financial condition as of september 30 , 2018 and 2017 , and the results of operations and cash flows for the three fiscal years in the period ended september 30 , 2018 , of sally beauty . this section should be read in conjunction with the audited consolidated financial statements of sally beauty and the related notes included elsewhere in this annual report . this management 's discussion and analysis of financial condition and results of operations section may contain forward-looking statements . see “ cautionary notice regarding forward-looking statements ” and “ risk factors ” for a discussion of the uncertainties , risks and assumptions associated with these forward-looking statements that could cause results to differ materially from those reflected in such forward-looking statements . highlights of the fiscal year ended september 30 , 2018 : consolidated net sales for the fiscal year ended september 30 , 2018 , decreased $ 5.8 million , or 0.1 % , to $ 3,932.6 million , compared to the prior fiscal year . consolidated net sales for the fiscal year ended september 30 , 2018 , include a positive impact from changes in foreign currency exchange rates of $ 33.1 million , or 0.8 % of consolidated net sales ; consolidated same store sales decreased 1.5 % for the fiscal year ended september 30 , 2018 ; consolidated gross profit for the fiscal year ended september 30 , 2018 decreased by $ 20.5 million , or 1.0 % , to $ 1,944.4 million compared to the prior fiscal year . gross margin decreased 50 basis points to 49.4 % for the fiscal year ended september 30 , 2018 , compared to the prior fiscal year ; in connection with previously-announced 2018 comprehensive restructuring plan , we incurred approximately $ 33.6 million in expenses during the fiscal year ended september 30 , 2018 ; consolidated operating earnings for the fiscal year ended september 30 , 2018 decreased $ 52.0 million , or 10.9
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we have completed our analysis and identified certain areas that will be impacted as follows : renewals of licenses of intellectual property — under the current guidance , when the term of an existing license agreement is extended , without any other changes to the provisions of the license , revenue for the renewal period is recognized when the agreement is renewed or extended . under story_separator_special_tag the following discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve risks and uncertainties , such as statements of our plans , objectives , expectations and intentions . as described under the heading `` forward-looking statements '' of this annual report , our actual results could differ materially from those anticipated in our forward-looking statements . factors that could contribute to such differences include those discussed elsewhere in this annual report , including in item 1a of this annual report under the heading “ risk factors. ” you should not place undue reliance on our forward-looking statements , which apply only as of the date of this annual report . except as may be required under federal law , we undertake no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other events occur . you should read the following discussion and analysis in conjunction with our consolidated financial statements and related footnotes included in item 8 of this annual report . overview general rlj entertainment , inc. ( rlje or the company ) was incorporated in nevada in april 2012. on october 3 , 2012 , we completed the business combination of rlje , image entertainment , inc. ( or image ) and acorn media group , inc. ( or acorn media ) , which is referred to herein as the “ business combination . ” acorn media includes its united kingdom ( or u.k . ) subsidiaries rlj entertainment ltd ( or rlje ltd. ) , acorn media enterprises limited ( or ame ) , and rlje international ltd ( collectively , rlje uk ) , as well as rlj entertainment australia pty ltd ( or rlje australia ) . in february 2012 , acorn media acquired a 64 % ownership of agatha christie limited ( or acl ) . references to image include its wholly-owned subsidiary image/madacy home entertainment , llc . “ we , ” “ our ” or “ us ” refers to rlje and its subsidiaries unless otherwise noted . our principal executive offices are located in silver spring , maryland , with an additional location in woodland hills , california . we also have international offices in london , england and sydney , australia . we are a premium digital channel company serving distinct audiences through our proprietary subscription-based digital channels ( or digital channels segment ) , acorn tv and umc or urban movie channel . acorn tv features high-quality british and international mysteries and dramas . umc showcases quality urban programming including feature films , documentaries , original series , stand-up comedy and other exclusive content for african-american and urban audiences . we also exclusively control , co-produce , and own a large library of content primarily consisting of british mysteries and dramas , independent feature films and urban content . in addition to supporting our digital channels , we monetize our library through intellectual property ( or ip ) rights that we own , produce , and then exploit worldwide ( our ip licensing segment ) and distribution operations across all available wholesale windows of exploitation ( our wholesale distribution segment ) . our ip licensing segment consists of content that we own and includes our investment in agatha christie ltd. ( or acl ) , while our wholesale distribution segment consists of worldwide exploitation of exclusive content in various formats thro ugh our wholesale partners , including broadcasters , digital outlets and major retailers in the united states of america ( or u.s. ) , canada , u.k. and australia . we work closely with our wholesale partners to outline and implement release and promotional campaigns customized to the different audiences we serve and the program genres we exploit . on june 24 , 2016 , we entered into a licensing agreement with universal screen arts ( or usa ) whereby usa took over our acorn u.s. catalog/ecommerce business becoming the official , exclusive , direct-to-consumer seller of acorn product in the u.s. during the quarter ended june 30 , 2016 , we also electronically distributed our last acacia catalogs . as a result of these actions , we classified the u.s. catalog/ecommerce business as discontinued operations . 20 revenue sources revenues by reporting segment as a percentage of total revenues for the periods presented are as follows : replace_table_token_7_th ( 1 ) reported net revenues exclude revenues generated by our 64 % owned subsidiary , acl , which is accounted for under the equity method of accounting . revenues by geographical area as a percent of the total revenues are as follows : replace_table_token_8_th digital channels segment our digital channels segment predominately operates in the u.s. and comprises 31.5 % of our overall revenue base . the digital channels segment revenues are derived from our online , proprietary , svod channels , acorn tv and umc . during 2017 , revenues from our digital channels totaled $ 27.2 million , which represents an increase of $ 10.9 million when compared to 2016. ip licensing segment our television drama productions are generally financed by the pre-sale of the initial broadcast license rights . revenues reported in this segment include the initial broadcast license revenues , generally from the u.k. territory , and sublicense revenues for other territories outside the u.s. , u.k. and australia . wholesale distribution segment dvd and blu-ray our primary source of revenues within the wholesale distribution segment continues to be from the exploitation of exclusive content on dvd and blu-ray through third-party retailers such as amazon and walmart . story_separator_special_tag during 2016 , the pound weakened relative to the dollar , and we recognized foreign currency loss of $ 1.5 million . income taxes we have fully reserved our net u.s. deferred tax assets , and such tax assets may be available to reduce future income taxes payable should we have u.s. taxable income in the future . to the extent such deferred tax assets relate to net operating losses ( or nol ) carryforwards , the ability to use our nol carryforwards against future earnings will be subject to applicable carryforward periods and limitations subsequent to a change in ownership . as of december 31 , 2017 , we had nol carryforwards for federal and state income tax purposes of approximately $ 113.6 million and $ 61.0 million , respectively . we recorded income tax expense of $ 1.2 million and $ 0.2 million for the years ended december 31 , 2017 and 2016 , respectively . our tax provision consists primarily of a deferred tax provision for certain deferred tax liabilities and a current tax provision for our u.k. operations . we are recording a deferred tax provision and liability for our equity earnings of affiliate ( acl ) . these earnings will be taxable in the u.k. , when and if we dispose of our investment . we are providing current income tax expense on pre-tax income from our consolidated u.k. subsidiaries at an effective tax rate of approximately 19 % . we are not providing a current tax provision ( benefit ) on our u.s. operations , other than for certain state minimum taxes , which are not material . loss from discontinued operations , net of income taxes our loss from discontinued operations is attributable to us transitioning our u.s. catalog/ecommerce business to usa , which was completed during 2016. for the year ended december 31 , 2016 , our loss from discontinued operations was $ 3.3 million . revenues from discontinued operations were $ 7.8 million for the year ended december 31 , 2016. adjusted ebitda management defines adjusted ebitda as earnings before income tax , depreciation and amortization , non-cash royalty expense , interest expense , non-cash exchange gains and losses on intercompany accounts , goodwill impairments , restructuring costs , change in fair value of stock warrants and other derivatives , stock-based compensation , basis-difference amortization in equity earnings of affiliate and dividends received from affiliate in excess of equity earnings of affiliate . 25 management believes adjusted ebitda to be a meaningful indicator of our performance that provides useful information to investors regarding our financial condition and results of operations bec ause it removes material non-cash items that allows investors to analyze the operating performance of the business using the same metric management uses . the exclusion of non-cash items better reflects our ability to make investments in the business and me et obligations . presentation of adjusted ebitda is a non-gaap financial measure commonly used in the entertainment industry and by financial analysts and others who follow the industry to measure operating performance . management uses this measure to asses s operating results and performance of our business , perform analytical comparisons , identify strategies to improve performance and allocate resources to our business segments . while management considers adjusted ebitda to be an important measure of compar ative operating performance , it should be considered in addition to , but not as a substitute for , net income and other measures of financial performance reported in accordance with us gaap . not all companies calculate adjusted ebitda in the same manner and the measure , as presented , may not be comparable to similarly-titled measures presented by other companies . the following table includes the reconciliation of our consolidated us gaap net loss to our consolidated adjusted ebitda : replace_table_token_13_th adjusted ebitda increased by $ 3.5 million for the year ended december 31 , 2017 compared to the same period in the prior year . the increase reflects our improved operating results from continuing operations after adjusting for the above non-cash expenses . the improved performance primarily results from the growth of our digital channels segment , which is becoming a larger portion of our business and is contributing a higher profit margin . adjusted ebitda also improved due to the improved performance of our investment in acl during the fiscal year ended december 31 , 2017 as compared to the same period in december 31 , 2016. the 2017 restructuring adjustment primarily includes our net gain on extinguishment of debt , certain non-recurring transaction costs totaling $ 0.3 million , a legal settlement of $ 0.2 million and severance payments totaling $ 0.2 million . the 2016 restructuring adjustment includes our loss on extinguishment of debt and related transaction costs . the adjustment also includes severance payments and related expenses totaling $ 2.1 million , which consist entirely of personnel costs that have been eliminated as a result of our restructuring activities . 26 balance sheet analysis assets total assets at december 31 , 2017 and 2016 , were $ 147.6 million and $ 136.0 million , respectively . the increase of $ 11.6 million in assets is primarily attributed to increases in investments in content of $ 9.8 million , equity investment in acl of $ 5.1 million and increase in accounts receivable of $ 1.2 million offset by decreases in other intangible assets of $ 1.6 million , cash of $ 1.6 million and inventories of $ 1.3 million . the decrease in cash is primarily due to increased investments in content and increased royalty payments offset by the expansion of our debt , which generated about $ 9.3 million of cash , and cash dividends received from acl of $ 2.5 million . our equity investment in acl primarily increased due to improved operating performance . our accounts receivable increased largely due to the growth of revenues from our digital channels segment .
| highlights highlights for the year ended december 31 , 2017 and other significant events are as follows : digital channels segment revenues increased 67.2 % to $ 27.2 million , driven by subscriber growth of 50.6 % and was 31.5 % of 2017 total revenues compared to 20.3 % of 2016 total revenues . total revenues increased 7.6 % to $ 86.3 million , primarily driven by the increase in digital channels segment revenues . gross profit increased 40.7 % to $ 37.1 million and gross margin increased over ten percentage points to 43.0 % in 2017 from last year . continued growth in digital channels segment , which represents a larger portion of total revenues , drove the improvements in gross profit and gross margin . net loss improved by $ 15.7 million and was $ 6.1 million for the year compared to a net loss of $ 21.9 million last year . adjusted ebitda improved 26.5 % to $ 16.6 million from $ 13.1 million last year . the highlights above and the discussion below are intended to identify some of our more significant results and transactions during 2017 and should be read in conjunction with our consolidated financial statements and related discussions within this annual report . 22 results of operations a summary of our results of operations is presented below for the years ended december 31 , 2017 and 2016 , as disclosed in our consolidated financial statements in item 8 , financial statements and supplementary data , herein referred to as our “ consolidated financial statements . ” our consolidated financial statements have been prepared in accordance us gaap .
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the amendments address the rate implicit in the lease , impairment of the net investment in the lease , lessee reassessment of lease classification , lessor reassessment of lease term and purchase options , variable payments that depend on an index or rate and certain transition adjustments , among other issues . in addition , in july 2018 , the fasb issued asu 2018-11 , leases ( topic 842 ) , targeted improvements , which provides an additional ( and optional ) transition story_separator_special_tag the following discussion and analysis of our company 's financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in the annual report . this discussion contains forward-looking statements that involve risks and uncertainties . actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors . overview fiscal year 2018 highlights sales in the year ended june 30 , 2018 increased by $ 11,618,950 , or 101.5 % , from $ 11,445,613 for the year ended june 30 , 2017 , to $ 23,064,563. the increase was mainly due to : ● we continued to expand our freight logistics segment through continuing co-operations with our major customers . revenue from the freight logistics segment increased by about $ 11.0 million or 228.7 % compared to 2017 . ● in an effort to diversify our business , in the second quarter of fiscal 2018 , we have developed bulk cargo container services segment . bulk cargo container shipment refers to using containers to ship commodities which traditionally are shipped by freight cargo . the freight cargo rate is usually lower than of the container freight rate , however the transit time is much longer and has high minimum quantity requirements . with the chinese government banning the import of environmental wastes by the end of 2017 , the empty container rate of cosco group 's container shipping from the united states to china is further reduced . therefore with the signing of a strategic cooperation agreement cosco beijing , we are able to take advantage of the low container rate to jointly promote bulk cargo container transportation . revenue from bulk cargo container services amounted to $ 638,227 for fiscal 2018 while we did not have such business in 2017 . ● on september 11 , 2017 , the company set up a new wholly-owned subsidiary , ningbo saimeinuo supply chain management ltd. ( “ sino ningbo ” ) , via the wholly-owned entity , sino-global shipping new york inc. this subsidiary primarily engages in transportation management and freight logistics services . sino ningbo 's operating results were included in the consolidated financial statements starting the fourth quarter of fiscal year 2018 . ● on march 14 , 2018 , we raised approximately $ 2.6 million net proceeds in a registered direct offering for an aggregate of 2,000,000 shares of our common stock at $ 1.50 per share . the offering is concurrent with a private placement of two series of warrants as described elsewhere in this report . 2019 trends on september 3 , 2018 , we entered into a co-operation agreement with ningbo far-east universal shipping agency co. , ltd ( “ ningbo far-east ” ) to set up a joint venture in hong kong to engage in worldwide shipping agency and management business . the company shall have 51 % ownership in the joint venture . ningbo far-east is one of the top ranking shipping agencies for private enterprises in ningbo and zhoushan ports . in the past few years , we have sought diversification for our business and have since developed freight logistics , container trucking and inland transportation management segments and temporarily suspended our shipping agency business . however with our decades of experiences in shipping agency business and solid business relationships , we believe it is for the company 's best interest to redirect our focus on this segment in 2019 based on our assessment of current global trading environments . to our understanding , we are one of the few shipping agents specialized in providing a full range of general shipping agency services in china and the only shipping agency company listed on a major stock exchange in the u.s. while other shipping agencies are much smaller . the market in this industry is fragmented . the setup of sino ningbo allows us to use our resources such as our customer base , our it infrastructure currently under development and our business insight to build a global network of shipping agencies . in addition , our current business segments like freight logistics and container trucking can also be integrated and provide more comprehensive logistics services for our customers . our plan is to develop a shipping agency network in china and south east asia for the next three years and to expand our shipping agency network worldwide . we plan to build the network through acquisitions or strategic partnership with other shipping agencies . our shipping agency business will be mostly conducted through our subsidiaries in china , hong kong and australia . 11 company structure the company , founded in 2001 , is a non-asset based global shipping and freight logistics integrated solution provider . we provide tailored solutions and value-added services for our customers to drive effectiveness and control in related aspects throughout the entire shipping and freight logistics chain . we conduct our business primarily through our wholly-owned subsidiaries in the u.s. , the people 's republic of china ( the “ prc ” ) ( including hong kong ) , australia and canada . story_separator_special_tag the following table sets forth the components of the company 's costs and expenses for the periods indicated : replace_table_token_6_th costs of revenues the cost of revenues was $ 15,585,693 for the year ended june 30 , 2018 , an increase of $ 10,605,102 , or 212.9 % , as compared to $ 4,980,591 for the year ended june 30 , 2017. the overall cost of revenues as a percentage of our revenues increased from 43.5 % for the year ended june 30 , 2017 , to 67.6 % for the year ended june 30 , 2018 . 92.5 % of increase was mainly from freight logistics services segment due to increase in freight cost of carriers as a result of rising fuel costs . cost of revenue for freight logistics and container trucking services are mainly freight cost to various freight carriers . cost of revenue for inland transportation segment consisted mainly of the cost of labor and other overhead costs and cost of revenue for bulk container cargo segments were costs paid to cosco for container shipments . the decrease in overall gross profit margin of 24.1 % is mainly due to different scope of services we provided to customers . general and administrative expenses the company 's general and administrative expenses consist primarily of salaries and benefits , office rent , office expenses , regulatory filing and listing fees , amortization of stock-based compensation expenses , legal , accounting and other professional service fees . for the year ended june 30 , 2018 , we had $ 6,202,555 of general and administrative expenses , as compared to $ 3,152,336 for the year ended june 30 , 2017 , an increase of $ 3,050,219 , or 96.8 % . stock-based compensation to business consultants amounted to $ 621,834 while stock-based compensation to management and employees amounted to $ 1,041,665 , representing a total of 134.3 % increase from 2017. the company 's provision for doubtful accounts was $ 1,726,599 in 2018 compared with a recovery of doubtful accounts of $ 18,912 in 2017. the increase was due to a change in the allowance policy to reserve any past due amounts over 180 days compared to 365 days in the previous year . as we continue our business relationship with several large customers , we are giving them more time to pay , however we are monitoring the payments closely and do not think there are any collection issues with respect to our trade accounts receivable . general and administrative expenses as a percentage of revenue remained consistent at 26.9 % and 27.5 % for the years ended june 30 , 2018 and 2017 , respectively . 16 selling expenses our selling expenses consist primarily of business promotion and salaries and commissions for our operating staff at the ports at which we provide services . for the year ended june 30 , 2018 , we had $ 458,166 of selling expenses as compared to $ 211,504 for the year ended june 30 , 2017 , an increase of $ 246,662 , or 116.6 % . we increased our business development efforts to explore new business opportunities while maintaining our current customer relationships . as a percentage of revenue , our selling expenses was 2.0 % for the year ended june 30 , 2018 compared to 1.8 % for the corresponding period in 2018. operating income we had operating income of $ 818,149 for the year ended june 30 , 2018 , compared to an operating income of $ 3,101,182 for the comparable period ended june 30 , 2017. the decrease was mainly due to increased costs of revenue and selling , general and administrative expenses discussed above . financial income , net our net financial income was $ 79,502 for the year ended june 30 , 2018 , compared to $ 30,278 for the same period in 2017. we have operations in the u.s. , canada , australia , hong kong and the prc , and our financial income for this reporting period primarily reflects the foreign currency transaction income or loss expressed in u.s. dollars . taxation on december 22 , 2017 , the “ tax cuts and jobs act ” ( the “ act ” ) was enacted . under the provisions of the act , the u.s. corporate tax rate decreased from 35 % to 21 % . since we have a june 30 fiscal year-end , a blended u.s. statutory federal rate of approximately 28 % for the fiscal year ending june 30 , 2018 is applied to the provision for income tax , and a 21 % for subsequent fiscal years . as of june 30 , 2018 , we re-measured deferred tax assets based on current effective rate of 21 % at which these deferred tax amounts are expected to reverse in the future . in addition , we are subject to a one-time transition tax for all untaxed foreign earnings of its foreign subsidiaries . foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5 % rate , and the remaining earnings are taxed at a rate of 8 % , net of certain exemptions . we recorded an income tax expense of $ 949,659 for the year ended june 30 , 2018 compared to income tax benefit of $ 472,084 for 2017. current income tax increased by $ 557,442 or 201.0 % compare to the prior year , resulting mainly from an increase in net income from operations in china and the u.s. we had approximately $ 4.6 million of taxable income in the us which includes non-deductible stock compensation expenses of $ 1.0 million , $ 1.7 million increase in allowance for doubtful accounts and $ 2.6 million of one time transition tax . a total of approximately $ 4.6 million of nol was utilized and the tax benefit derived from such nol was approximately $ 1.3 million . approximately $ 2.6 million of nol was applied to the transition tax and the rest was applied to current year taxable income .
| results of operations revenues total revenues increased by $ 11,618,950 or 101.5 % , from $ 11,445,613 for the year ended june 30 , 2017 to $ 23,064,563 for the fiscal 2018. the increase was mainly due to the company 's continuing efforts to diversify its business , resulting in the rise in revenues generated from its freight logistics services , container trucking services and bulk cargo container services segments while revenue from inland transportation management services had a slight decrease of 4.5 % . 12 the following tables present summary information by segment for the years ended june 30 , 2018 and 2017 : replace_table_token_3_th replace_table_token_4_th 13 replace_table_token_5_th revenues ( 1 ) revenues from inland transportation management services in september 2013 , the company executed an inland transportation management service contract with zhiyuan investment group , a related party , whereby the company agreed to provide certain solutions to help control the potential loss of commodities during the transportation process . the company also began providing inland transportation management services to a third-party customer , tengda northwest , following the quarter ended september 2014. both contracts have been extended to fy 2019. for tengda northwest , the service fee charge was rmb 32 per ton and rmb 38 per ton for zhiyuan investment group . the rates are determined by the scope of services provided . for the years ended june 30 , 2018 and 2017 , inland transportation management services generated related party revenue of $ 2,059,406 and $ 2,746,423 , respectively , representing a 25.0 % decrease . the decrease was mainly from a decrease in quantity transported of 354,852 tons for the year ended june 30 , 2018 compared to 498,210 tons for the year ended june 30 , 2017 coupled with the effects of depreciation of usd against rmb .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors , including those set forth under “ risk factors ” and elsewhere in this annual report on form 10-k and those discussed in other documents we file with the sec . in light of these risks , uncertainties , and assumptions , readers are cautioned not to place undue reliance on such forward-looking statements . these forward-looking statements represent beliefs and assumptions only as of the date of this annual report on form 10-k. except as required by applicable law , we do not intend to update or revise forward-looking statements contained in this annual report on form 10-k to reflect future events or circumstances . recent developments on december 29 , 2016 , we completed our business combination with lpath in accordance with the terms of the merger agreement , dated september 8 , 2016. following the merger , lpath was renamed `` apollo endosurgery , inc. '' and began trading on the nasdaq global market under the symbol `` apen . '' overview we are a medical technology company primarily focused on the design , development and commercialization of innovative medical devices that can be used for the interventional treatment of obesity . we develop and distribute minimally invasive surgical products for bariatric and gastrointestinal procedures that are used by general surgeons , bariatric surgeons and gastroenterologists in a variety of settings to provide interventional therapy to patients who suffer from obesity and the many co-morbidities associated with obesity . our strategic focus and the majority of our future revenue growth is expected to come from our endo-bariatric product portfolio , which consists of the orbera and overstitch systems . historically , the majority of our revenues have come from surgical product sales although in 2016 endo-bariatric product sales reached just under 50 % of total revenues . on december 2 , 2013 , we entered into an asset purchase agreement to acquire the obesity intervention division of allergan , inc. in conjunction with this purchase agreement , we entered into several agreements whereby allergan agreed to provide manufacturing and distribution support over a two year period as we established our own manufacturing and worldwide distribution capabilities . from december 2 , 2013 , we proceeded to establish capabilities and transfer responsibility for a variety of activities related to the acquired allergan business . significant milestones during the transition period included : transfer of united states sales force in december 2013 ; transfer of united states distribution in september 2014 ; transfer of europe , canada and australia sales force and distribution in november 2014 ; transfer of most worldwide regulatory activities in december 2014 ; transfer of product surveillance activities in october 2015 ; transfer of brazilian sales and distribution activities in november 2015 ; and start of costa rica manufacturing operations in june 2016. as a result of these transition activities , we have established sales distribution offices in england , australia and brazil that oversee regional sales and distribution activities outside the united states , a products manufacturing facility in costa rica and a device analysis lab in california . all other activities are managed and operated from facilities in austin , texas . financial operations overview revenues our principal source of revenues has come from and is expected to continue to come from sales of our endo-bariatric products and our surgical products . in our direct markets , product sales are made to end customers by our employed sales representatives or independent sales agents . in other markets , we sell our products to distributors who resell our products to end 37 customers . revenues between periods will be impacted by several factors , including physician procedures and therapy preferences , patient procedures and therapy preferences , other market trends , the stability of the average sales price we realize on products and changes in foreign exchange rates used to translate foreign currency denominated sales into u.s. dollars . our endo-bariatric sales grew 86.4 % in 2016 compared to 2015 and 270 % in 2015 compared to 2014 due to the introduction of the orbera intra-gastric balloon system in the u.s. market following approval by the fda in august 2015 , transition of direct sales activity from allergan in europe , australia and canada in the fourth quarter of 2014 and in brazil in the fourth quarter of 2015 and increased sales of the overstitch endoscopic suturing system . we can not predict the future growth rate of our endo-bariatric sales as we continue to launch orbera and overstitch in our direct and distributor markets . cost of sales historically , we have relied on third-party suppliers to manufacture our products . however , since june 2016 the products which comprise the majority of our revenue are manufactured in our costa rica facility . our historical cost of sales primarily consist of costs of products purchased from our third-party suppliers , excess and obsolete inventory charges , royalties , shipping , inspection and related cost incurred in making our products available for sale or use . our historical cost of sales also includes certain start-up costs associated with establishing our costa rica facility . as our costa rica facility begins manufacturing , costs include raw materials , labor , manufacturing overhead and other direct costs . raw materials used to produce our products are generally not subject to substantial commodity price volatility and most of our product manufacturing costs are incurred in u.s. dollars . manufacturing overhead is a significant portion of our cost of sales and is generally a fixed cost . cost of sales could vary as a percentage of revenue between periods as a result of manufacturing rates and the degree to which manufacturing overhead is allocated to production during the period . as we move towards manufacturing our own products , overhead costs may be higher than the costs we acquired inventory from third parties in the past due to different economies of scale . story_separator_special_tag a significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand . when quantities on hand exceed estimated sales forecasts , we record estimated excess and obsolescence charges to cost of sales . our inventories are stated using the weighted average cost approach , which approximates actual costs . intangible and long-lived assets definite-lived intangible assets consist of customer relationships , product technology , trade names , patents and trademarks which are amortized over their estimated useful lives . long-lived assets , including definite-lived intangible assets , are monitored and reviewed for impairment whenever events or circumstances indicate that the carrying value of any such asset may not be recoverable . the determination of recoverability is based on an estimate of undiscounted cash flows expected to result from the use of an asset and its eventual disposal . the estimate of undiscounted cash flows is based upon , among other things , certain assumptions about expected future operating performance . our estimates of undiscounted cash flows may differ from actual cash flows . if the sum of the undiscounted cash flows is less than the carrying value of the asset , an impairment charge is recognized , measured as the amount by which the carrying value exceeds the fair value of the asset . 39 income taxes we account for deferred income taxes using the asset and liability method . under this method , deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements , which will result in taxable or deductible amounts in the future . temporary differences are then measured using the enacted tax rates and laws . valuation allowances are established , when necessary , to reduce deferred tax assets to the amount that is more-likely than-not to be realized . determining the appropriate amount of valuation allowance requires management to exercise judgment about future operations . in the ordinary course of business , there are many transactions for which the ultimate tax outcome is uncertain . we regularly assess uncertain tax positions in each of the tax jurisdictions in which it has operations and accounts for the related consolidated financial statement implications . the amount of unrecognized tax benefits is adjusted when information becomes available or when an event occurs indicating a change is appropriate . we include interest and penalties related to our uncertain tax positions as part of income tax expense . story_separator_special_tag received from allergan associated with the distribution of our products in most ous markets during the majority of 2014 and for certain latin american markets for the majority of 2015 as required under the transition services agreement between us and allergan . other revenue in 2015 primarily consists of machine shop billings for external customer projects and freight charges invoiced to customers . gross margin gross margin as a percentage of revenues was 69.7 % for 2015 compared to 68.8 % for 2014. costs of sales was $ 20.5 million for 2015 compared to $ 21.8 million for 2014. cost of sales in 2014 included $ 7.6 million related to the amount of 42 the allergan purchase price allocated to inventory which was sold during the year . cost of sales in 2015 included $ 6.3 million due to the start-up cost for the costa rica manufacturing facility and additional shipping and warehousing costs due to the transfer of ous direct sales and distribution activities in december 2014. operating expenses sales and marketing expense . sales and marketing expense increased $ 1.1 million , or 3.2 % , in 2015 compared to 2014 due to an increase in sales and marketing personnel costs ous resulting from the transition of direct sales activity in europe , canada and australia to us from allergan in the fourth quarter of 2014 , partially offset by lower u.s. sales compensation and lower spending on u.s. lap-band direct to consumer marketing campaigns . general and administrative expense . general and administrative expense increased $ 1.1 million , or 10.7 % , in 2015 compared to 2014 due to the establishment of supporting ous infrastructure upon completion of the transition of direct sales activity in europe , canada and australia to us from allergan in the fourth quarter of 2014. research and development expense . research and development expense increased $ 0.7 million , or 8.3 % , in 2015 compared to 2014 primarily due to activities supporting the integration of products acquired from allergan into our quality system , transferring regulatory clearances from allergan to us , and supporting manufacturing transfer activities . amortization of intangible assets . intangible amortization increased by $ 0.6 million , or 9.1 % , in 2015 compared to 2014 due to increased investment in capital software and patent and trademark activities . reversal of accrued contingent consideration . previously accrued contingent purchase price consideration related to the allergan acquisition was reversed in 2014 based on our determination that the required lap-band future revenue performance thresholds would not be achieved . interest expense interest expense increased to $ 10.0 million in 2015 from $ 5.1 million for 2014. interest expense for 2015 included $ 3.2 million in prepayment charges related to refinancing our long-term debt in february and the write-off of unamortized debt issue cost and discount . the remaining increase in interest expense is primarily due to $ 1.3 million of beneficial conversion feature amortization related to the july 2015 issuance of $ 22.2 million of convertible notes and non-cash interest of $ 0.5 million associated with these notes . other expense other expense primarily consists of realized and unrealized foreign exchange gains and losses . realized losses on foreign exchange were $ 0.1 million for each of 2015 and 2014. income tax expense income tax expense was $ 0.1 million for 2015 compared to no expense for 2014. we have established a valuation allowance equal to total net deferred tax assets due to our lack of earnings history .
| results of operations comparison of the years ended 2016 and 2015 replace_table_token_2_th revenues product sales by product group and geographic market for the periods shown were as follows : replace_table_token_3_th endo-bariatric product sales increased $ 14.8 million , or 86.4 % , in 2016 compared to 2015 . in the u.s. , sales increased $ 6.4 million , or 70.2 % , in 2016 compared to 2015 primarily due to both the introduction of the orbera intra-gastric balloon system in the u.s. market following approval by the fda in august 2015 and increased sales of the overstitch endoscopic suturing system . in ous markets , sales increased $ 8.4 million or 104.7 % , in 2016 compared to 2015 primarily due to the start 40 of brazil direct sales activity to us following the transition of this market activity from allergan in november 2015 and increased overstitch sales by our direct and distributor markets . surgical product sales decreased $ 15.1 million , or 31.8 % , in 2016 compared to 2015 . in the u.s. , surgical product sales declined $ 13.2 million or 37.7 % , in 2016 compared to 2015 due to the decline in gastric banding procedures being performed in the u.s. and the loss of a significant customer in the u.s. following that customer 's acquisition by a third party . the significant customer represented 13 % of u.s. surgical sales in the year ended december 31 , 2015. in ous markets , surgical product sales declined by $ 1.9 million , or 15.2 % , for 2016 compared to 2015 due to the decline in gastric banding procedures being performed . other revenues during 2015 primarily represented fees received from allergan under our distribution services arrangement while we established our own distribution capabilities .
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our total comprehensive income consists of net income , amortization of gains and losses on derivative instruments , changes in the funded status and amortization of amounts related to our postretirement benefit plans , unrealized gains and losses on available-for-sale marketable story_separator_special_tag our management 's discussion and analysis of financial condition and results of operations ( md & a ) includes the following sections : executive overview that discusses what we do , our operating results at a high level and our financial outlook for the upcoming year . consolidated results of operations , restructuring costs and segment results that includes a more detailed discussion of our revenue and expenses . cash flows and liquidity , capital resources and other financial position information that discusses key aspects of our cash flows , capital structure and financial position . off-balance sheet arrangements , guarantees and contractual obligations that discusses our financial commitments . critical accounting policies that we believe are important to understanding the assumptions and judgments underlying our financial statements . you should note that this md & a discussion contains forward-looking statements that involve risks and uncertainties . please see the introduction included in item 1a of this report for important information to consider when evaluating our forward-looking statements . the private securities litigation reform act of 1995 ( the reform act ) provides a “ safe harbor ” for forward-looking statements to encourage companies to provide prospective information . we are filing this cautionary statement in connection with the reform act . when we use the words or phrases “ should result , ” “ believe , ” “ intend , ” “ plan , ” “ are expected to , ” “ targeted , ” “ will continue , ” “ will approximate , ” “ is anticipated , ” “ estimate , ” “ project , ” “ outlook , ” `` forecast '' or similar expressions in this annual report on form 10-k , in future filings with the securities and exchange commission , in our press releases and in oral statements made by our representatives , they indicate forward-looking statements within the meaning of the reform act . certain amounts included in our consolidated balance sheet as of december 31 , 2015 and our consolidated statements of cash flows for 2015 and 2014 have been revised to correct the presentation of borrowings under our revolving credit facility and the related asset for debt issuance costs . our consolidated statements of cash flows for 2015 and 2014 have also been revised to reflect the 2016 adoption of accounting standards update ( asu ) no . 2016-09 , improvements to employee share-based payment accounting . further information regarding these revisions can be found under the caption `` note 1 : significant accounting policies '' of the notes to consolidated financial statements appearing in item 8 of this report . executive overview we provide solutions that help our customers acquire and engage their customers across multiple channels , as well as operate their businesses efficiently and effectively . to promote and sell a wide range of products and services , we use printed and electronic marketing ; a direct sales force ; referrals from financial institutions , telecommunication clients and other partners ; purchased search results from online search engines ; and networks of distributors and independent dealers . over the past 24 months , our small business services segment has provided products and services to approximately 4.4 million small business customers and our direct checks segment has provided products and services to more than 5.5 million consumers . through our financial services segment , we provide products and services to approximately 5,600 financial institution clients . we operate primarily in the united states . small business services also has operations in canada and portions of europe . our product and service offerings are comprised of the following : checks – we remain one of the largest providers of checks in the united states . during 2016 , checks represented 39.1 % of our small business services segment 's revenue , 53.8 % of our financial services segment 's revenue and 84.1 % of our direct checks segment 's revenue . marketing solutions and other services – we offer products and services designed to meet our customers ' sales and marketing needs , as well as various other service offerings . our marketing products utilize digital printing and web-to-print solutions to provide promotional solutions such as postcards , brochures , retail packaging supplies , apparel , greeting cards and business cards . our web services offerings include logo and web design ; hosting and other web services ; search engine optimization ; and marketing programs , including email , mobile and social media . we also offer fraud protection and security services , online and offline payroll services , and electronic checks ( `` echecks '' ) . our financial services segment also offers a suite of financial technology ( `` fintech '' ) solutions . these solutions include data-driven marketing solutions , including outsourced marketing campaign targeting and execution ; treasury management solutions ; and digital enablement solutions , including loyalty and rewards programs . forms – our small business services segment is a leading provider of printed forms to small businesses , including deposit tickets , billing forms , work orders , job proposals , purchase orders , invoices and personnel forms . this segment also offers computer forms compatible with accounting software packages commonly used by small businesses . forms sold by our financial services and direct checks segments include deposit tickets and check registers . 25 accessories and other products – small business services offers products designed to provide small business owners with the customized documents necessary to efficiently manage their business including envelopes , office supplies , stamps and labels . our financial services and direct checks segments offer checkbook covers and stamps . story_separator_special_tag revenue from the december 2016 acquisition of first manhattan consulting group , llc ( fmcg direct ) is expected to be between $ 80.0 million and $ 85.0 million in 2017. we expect these revenue increases to be 26 partially offset by year-over-year secular check order declines of between 5 % and 6 % , an expected loss of approximately $ 10.0 million in deluxe rewards revenue , primarily due to the loss of verizon communications inc. as a customer , as well as the impact of some pricing pressure . in direct checks , we expect revenue to decline between 9 % and 10 % compared to 2016 revenue of $ 153.3 million , driven primarily by secular check order volume declines resulting from reduced check usage . we expect that 2017 diluted earnings per share will be between $ 5.10 and $ 5.30 , compared to $ 4.65 for 2016 , which included total charges of $ 0.32 per share related to the loss on early debt extinguishment in the fourth quarter of 2016 , as well as restructuring costs and transaction costs related to acquisitions . we expect that the benefits of additional cost reduction activities will be partially offset by increases in medical expenses , material costs and delivery rates , as well as continued investments in revenue growth opportunities , including brand awareness , marketing solutions and other services offers , and enhanced e-commerce capabilities . the fmcg direct acquisition is expected to be $ 0.05 per share dilutive to 2017 earnings per share . we estimate that our effective tax rate for 2017 will be approximately 33 % , compared to 32.6 % for 2016 . we anticipate that net cash provided by operating activities will be between $ 335 million and $ 355 million in 2017 , compared to $ 319 million in 2016 , driven by stronger operating performance and lower interest payments , partially offset by higher income tax payments . we anticipate contract acquisition payments of approximately $ 23 million in 2017 , and we estimate that capital spending will be approximately $ 45 million in 2017 as we continue to invest in key revenue growth initiatives and order fulfillment and information technology infrastructure . we believe that cash generated by operating activities , along with availability under our credit facility , will be sufficient to support our operations in 2017 , including dividend payments , capital expenditures , required debt principal and interest payments , and periodic share repurchases , as well as possible small-to-medium-sized acquisitions . we expect to maintain a disciplined approach to capital deployment that focuses on our need to continue investing in initiatives to drive revenue growth , including small-to-medium-sized acquisitions . we anticipate that our board of directors will maintain our current dividend level . however , dividends are approved by the board of directors on a quarterly basis , and thus are subject to change . as of december 31 , 2016 , $ 86.1 million was available for borrowing under our revolving credit facility . to the extent we generate excess cash , we plan to reduce the amount outstanding under our credit facility agreement . consolidated results of operations consolidated revenue replace_table_token_5_th the increase in total revenue for 2016 , as compared to 2015 , was driven by incremental revenue of approximately $ 114 million from acquired businesses . information regarding our acquisitions can be found under the caption `` note 5 : acquisitions '' of the notes to consolidated financial statements appearing in item 8 of this report . in addition , revenue benefited from previous price increases in our small business services and financial services segments . these increases in revenue were partially offset by lower order volume for both personal and business checks , as well as forms and accessories sold by small business services . in addition , revenue declined due to continued pricing allowances within financial services . the increase in total revenue for 2015 , as compared to 2014 , was driven by incremental revenue of approximately $ 144 million from acquired businesses . further information regarding our acquisitions can be found under the caption `` note 5 : acquisitions '' of the notes to consolidated financial statements appearing in item 8 of this report . in addition , revenue benefited from price increases in all three segments . these increases in revenue were partially offset by lower order volume for both personal and business checks , as well as forms and accessories sold by small business services . in addition , revenue declined due to continued pricing allowances within financial services , lower search engine marketing/optimization revenue of approximately $ 12 million due primarily to our decision in the third quarter of 2014 to reduce the revenue base of this business , and an unfavorable currency exchange rate impact of $ 11 million . 27 service revenue represented 20.3 % of total revenue in 2016 , 18.1 % in 2015 and 15.7 % in 2014 . as such , the majority of our revenue is generated by product sales . we do not manage our business based on product versus service revenue . instead , we analyze our products and services based on the following categories : replace_table_token_6_th the number of orders decreased in 2016 as compared to 2015 driven by the impact of the continuing decline in check and forms usage , partially offset by growth in marketing solutions and other services , including the impact of acquisitions . the number of orders increased in 2015 as compared to 2014 as growth in marketing solutions and other services , including the impact of acquisitions , more than offset the impact of the continuing decline in check and forms usage . revenue per order increased in each of the past two years primarily due to the benefit of price increases and favorable product and service mix , partially offset by the impact of financial services continued pricing allowances .
| segment results additional financial information regarding our business segments appears under the caption “ note 16 : business segment information ” of the notes to consolidated financial statements appearing in item 8 of this report . small business services this segment 's products and services are promoted through direct response mail and internet advertising ; referrals from financial institutions , telecommunications clients and other partners ; networks of distributors and independent dealers ; a direct sales force that focuses on selling to and through major accounts ; and an outbound telemarketing group . results for this segment were as follows : replace_table_token_14_th the increase in total revenue for 2016 , as compared to 2015 , was driven by incremental revenue of approximately $ 75 million from acquired businesses , as well as the benefit of price increases . further information about our acquisitions can be found under the caption “ note 5 : acquisitions ” of the notes to consolidated financial statements appearing in item 8 of this report . these increases in revenue were partially offset by lower order volume , primarily related to business checks , forms and accessories , as check and forms usage continues to decline . in addition , revenue declined due to an unfavorable currency exchange rate impact of approximately $ 3 million . the increase in operating income for 2016 , as compared to 2015 , was primarily due to price increases , benefits of our cost reduction initiatives and lower performance-based compensation . partially offsetting these increases in operating income were increased delivery rates and material costs in 2016 , higher medical costs and and an increase in commission expense of approximately $ 2 million due primarily to increased financial institution commission rates . while the impact of acquired businesses was slightly positive to operating income for 2016 , operating margin decreased 1.1 points for 2016 due to acquired businesses .
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the fair value of the exchanged options determined using the black-scholes option pricing model was $ 26.8 million , of which $ 8.8 million attributable to services performed prior to the acquisition date was allocated to purchase consideration . the remaining fair value of $ 18.0 million was allocated to future services and is being expensed over the remaining service story_separator_special_tag investors should read the following discussion and analysis of our financial condition and results of operations together with the section titled “ selected consolidated financial data ” and the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed in the section titled ” risk factors ” and in other parts of this annual report on form 10-k. see also the section titled “ note regarding forward-looking statements ” in this report . our fiscal year end is the first sunday after january 30. overview data is foundational to our customers ' digital transformation and we are focused on delivering innovative and disruptive technology and data storage solutions that enable customers to maximize the value of their data . in our first decade , we completely changed customers ' expectations of what they should see from storage arrays and storage vendors , making flash storage widely available to enterprise organizations and revolutionizing the customer experience with our evergreen storage subscription model that radically simplified and reduced total cost of storage ownership . today , we are changing the expectations for data and storage management by providing customers a cloud experience with flexible on-demand data services consumption through delivery of a modern data experience that empowers organizations to run their operations as a true , automated , storage as-a-service model seamlessly across multiple clouds . our solutions support a wide range of structured and unstructured data , at scale and across any data workloads on-premise , in the cloud , or hybrid environments and include mission-critical production , test/development , analytics , disaster recovery , and backup/recovery . our modern data experience vision begins with our portfolio of products and subscription services that is transforming and modernizing storage operations for our customers . our modern data experience vision extends to an innovative and highly-integrated data platform of products and subscription services , consisting of cloud data infrastructure ( integrated hardware and software appliances which run in on-premise data centers ) , cloud data services ( software services which run natively in major public cloud infrastructures ) , and cloud data management ( software hosted data management services to manage our entire platform ) . revenue drivers we generate the majority of our revenues from our cloud data infrastructure , including flasharray and flashblade , and subscription services which primarily includes our evergreen storage subscription , pure as-a-service ( paas ) , and cloud block store . portworx acquisition in october 2020 , we expanded our data services capabilities for containerized , cloud-native applications with the acquisition of portworx inc. ( portworx ) , a privately-held container storage company that provides a kubernetes data services platform . cloud-native databases , analytics applications and artificial intelligence ( ai ) frameworks , such as cassandra , mongodb , postgres , kafka , elasticsearch , spark , and tensorflow , are the tools upon which customers build their modern data pipelines . by integrating portworx container data services , which includes storage , data protection , data security and disaster recovery/backup , with our data platforms , this acquisition further enhances our modern data experience by expanding our support for these cloud-native applications on any infrastructure , on-premise or in the cloud environment at any scale . 37 coronavirus ( covid-19 ) the coronavirus ( covid-19 ) pandemic , which resulted in authorities implementing preventive measures to contain or mitigate the outbreak of the virus , such as travel bans and restrictions , limitations on business activity , quarantines and shelter-in-place orders continues to have an impact globally . in response to the pandemic , we made some changes to our business at the outset that included instituting a global work-from-home policy beginning in march 2020 that resulted in limited disruptions in our work operations during fiscal 2021. after a brief acceleration of our business from increased demand of mission critical it needs as customers shifted to work at home and online , we experienced a sharp deceleration as customers assessed both their business prospects and plans for digital transformation . this was then followed by a gradual stabilization in our business during the second half of fiscal 2021 as customers increasingly adapted to the covid-19 environment . partially offsetting the headwinds from covid-19 were reduced operating expenses in the areas of travel and marketing costs . in addition , we effected certain restructuring activities to streamline our operations , such as limited workforce realignments and vacating certain office leases . we continue to actively monitor , evaluate and respond to developments relating to covid-19 . since the impact of the pandemic on our operational and financial performance remains highly unpredictable , our past results may not be indicative of future performance . given the uncertainty , we are unable to predict the full extent and duration of the impact of covid-19 on customer demand , our global supply chains and our business , operations and financial results . to the extent the pandemic continues to disrupt economic activity globally we , like other businesses , would not be immune at it could adversely affect our business , operations and financial results . see `` risk factors '' in part i , item 1a . for additional details . story_separator_special_tag the increase in product cost of revenue was primarily driven by increased sales and , to a lesser extent , by the increased costs in our manufacturing operations associated with increased headcount and an increase in the amortization of intangible assets . 41 product cost of revenue and product gross margins during fiscal 2020 benefited from significant price reductions for certain key raw materials that we use for our solutions and sales of our larger flasharray systems . the increase in subscription services cost of revenue was primarily attributable to costs in our customer support organization as this business grows . operating expenses research and development replace_table_token_7_th research and development expense increased by $ 46.8 million , or 11 % , during fiscal 2021 compared to fiscal 2020 , as we continued to innovate and develop technologies to both enhance and expand our solution portfolio . the increase was primarily driven by a $ 56.5 million increase in employee compensation and related costs , including a $ 9.6 million increase in stock-based compensation expense . the remainder of the increase was primarily attributable to a $ 10.1 million increase in outside services expenses , partially offset by a $ 22.4 million decrease in depreciation expense primarily due to revising our estimated useful lives of test equipment and certain computer equipment and software during fiscal 2021. research and development expense increased by $ 83.7 million , or 24 % , during fiscal 2020 compared to fiscal 2019 , as we continued to innovate and develop technologies to both enhance and expand our solution portfolio . the increase was primarily driven by a $ 70.9 million increase in employee compensation and related costs , including a $ 15.2 million increase in stock-based compensation expense . the remainder of the increase was primarily attributable to a $ 8.2 million increase in office and facilities related costs , and a $ 4.4 million increase in outside services expenses . sales and marketing replace_table_token_8_th sales and marketing expense decreased by $ 12.0 million , or 2 % , during fiscal 2021 compared to fiscal 2020 , primarily due to a decrease of $ 63.0 million in marketing and travel spend as a result of the covid-19 pandemic , partially offset by an increase of $ 37.7 million in employee compensation and related costs as we continue to invest in certain areas within sales and marketing and expand our international presence , including an $ 8.2 million increase in sales commission expense . the remainder of the increase was primarily attributable to a $ 7.2 million increase in outside services expenses and a $ 4.2 million increase in subscription costs . sales and marketing expense increased by $ 143.9 million , or 25 % , during fiscal 2020 compared to fiscal 2019 , as we continue to grow our sales force and expand our international presence . the increase was primarily driven by an increase of $ 115.5 million in employee compensation and related costs , including a $ 24.5 million increase in sales commission expense . the remainder of the increase was primarily attributable to a $ 14.6 million increase in travel related costs , a $ 9.1 million increase in office and facilities related costs , and a $ 4.3 million increase in marketing and brand awareness program costs . 42 general and administrative replace_table_token_9_th general and administrative expense increased by $ 19.3 million , or 12 % , during fiscal 2021 compared to fiscal 2020. the increase was primarily driven by an increase of $ 21.4 million in employee compensation and related costs , including a $ 7.5 million increase in stock-based compensation expense related , in part , to certain performance restricted stock awards , partially offset by a $ 3.7 million decrease in office and facilities related costs . general and administrative expense increased by $ 25.6 million , or 19 % , during fiscal 2020 compared to fiscal 2019 . the increase was primarily driven by an increase of $ 11.4 million in employee compensation and related costs . the remainder of the increase was primarily attributable to a $ 8.0 million increase in office and facilities related costs and an increase of $ 5.1 million in outside services expenses . the decrease in stock-based compensation was primarily due to lower expense recognized related to certain performance restricted stock awards and increased forfeitures . restructuring and other fiscal year ended change fiscal year ended change 2019 2020 $ 2020 2021 $ ( in thousands ) restructuring and other $ — $ — $ — $ — $ 30,999 $ 30,999 % of total revenue — % — % — % 2 % during fiscal 2021 , we incurred incremental costs of $ 8.9 million directly related to the covid-19 pandemic . these costs primarily included the write-off of marketing commitments no longer deemed to have value for the remainder of the fiscal year and estimated non-recoverable costs for internal events that could not be held . in addition , we expensed $ 9.9 million relating to the cease use of certain lease facilities and recognized $ 12.2 million in one-time involuntary termination benefit costs related to workforce realignment plans . other income ( expense ) , net replace_table_token_10_th other income ( expense ) , net decreased during fiscal 2021 compared to fiscal 2020 primarily attributable to a decrease in interest income of $ 9.8 million from our cash , cash equivalents and marketable securities resulting from lower interest rate environment and , to a lesser extent , higher interest expense due to borrowings under our revolving line of credit , partially offset by a $ 6.0 million reduction in net foreign exchange losses .
| results of operations the following tables set forth our results of operations for the periods presented in dollars and as a percentage of total revenue ( in thousands ) : revenue replace_table_token_4_th total revenue increased in fiscal 2021 by $ 40.7 million , or 2 % , compared to fiscal 2020. the decrease in product revenue during fiscal 2021 compared to fiscal 2020 was largely driven by headwinds caused by the covid-19 pandemic , despite sales growth from our flashblade and flasharray//c offerings and purchases from new customers . our customer base grew from over 7,500 at the end of fiscal 2020 to over 8,700 at the end of fiscal 2021. the increase in subscription services revenue was primarily driven by increases in sales of our evergreen storage subscription services , and our unified subscription that includes paas and cloud block store , as well as increased recognition of deferred subscription services revenue contracts . total revenue increased in fiscal 2020 by $ 283.6 million , or 21 % , compared to fiscal 2019 despite being adversely impacted by significant accelerated declines in prices of certain key components that we use in our solutions . the increase in product revenue during fiscal 2020 compared to fiscal 2019 was driven by multiple factors including increased sales of our new products such as flashblade and flasharray//c , sales of larger flasharray systems , increases in repeat purchases from existing customers and purchases from new customers . our customer base grew from over 5,800 at the end of fiscal 2019 to 7,500 at the end of fiscal 2020. the increase in subscription services revenue was primarily driven by increases in sales of our evergreen storage subscription services , and our unified subscription that includes paas and cloud block store , as well as increased recognition of deferred subscription services revenue contracts .
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the purpose of this discussion is to focus on information about our financial condition and results of operations that is not otherwise apparent from the audited financial statements . this discussion should be read in conjunction with the financial statements and selected financial data included elsewhere in this report . overview we are a bank holding company within the meaning of the bhc act headquartered in birmingham , alabama . through our wholly-owned subsidiary bank , we operate 21 full service banking offices located in jefferson , shelby , madison , montgomery , mobile , baldwin and houston counties in alabama , escambia and hillsborough counties in florida , cobb and douglas counties in georgia , charleston county in south carolina and davidson county in tennessee . these offices operate in the birmingham-hoover , huntsville , montgomery , dothan , daphne-fairhope-foley and mobile , alabama msas , the pensacola-ferry pass-brent and tampa-st. petersburg-clearwater , florida msas , the atlanta-sandy springs-roswell , georgia msa , the charleston-north charleston , south carolina msa and the nashville-davidson-murfreesboro-franklin , tennessee msa . we also operate loan production offices in columbus , georgia , sarasota , florida , and summerville , south carolina . our principal business is to accept deposits from the public and to make loans and other investments . our principal source of funds for loans and investments are demand , time , savings , and other deposits and the amortization and prepayment of loans and borrowings . our principal sources of income are interest and fees collected on loans , interest and dividends collected on other investments and service charges . our principal expenses are interest paid on savings and other deposits , interest paid on our other borrowings , employee compensation , office expenses and other overhead expenses . critical accounting policies our consolidated financial statements are prepared based on the application of certain accounting policies , the most significant of which are described in the notes to the consolidated financial statements . certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect our reported results and financial position for the current period or in future periods . the use of estimates , assumptions , and judgments are necessary when financial assets and liabilities are required to be recorded at , or adjusted to reflect , fair value . assets carried at fair value inherently result in more financial statement volatility . fair values and information used to record valuation adjustments for certain assets and liabilities are based on either quoted market prices or are provided by other independent third-party sources , when available . when such information is not available , management estimates valuation adjustments . changes in underlying factors , assumptions or estimates in any of these areas could have a material impact on our future financial condition and results of operations . 42 allowance for credit losses the company assesses the adequacy of its allowance for credit losses at the end of each calendar quarter . the level of allowance is based on the company 's evaluation of historical default and loss experience , current and projected economic conditions , asset quality trends , known and inherent risks in the portfolio , adverse situations that may affect the borrowers ' ability to repay a loan , the estimated value of any underlying collateral , composition of the loan portfolio and other relevant factors . the allowance is increased by a provision for credit losses , which is charged to expense , and reduced by charge-offs , net of recoveries . the allowance for credit losses is believed adequate to absorb all expected future losses to be recognized over the contractual life of the loans in the portfolio . loans with similar risk characteristics are evaluated in pools and , depending on the nature of each identified pool , the company utilizes a discounted cash flow ( “ dcf ” ) , probability of default / loss given default ( “ pd/lgd ” ) or remaining life method . the historical loss experience estimate by pool is then adjusted by forecast factors that are quantitatively related to the company 's historical credit loss experience , such as national unemployment rates and gross domestic product . losses are predicted over a period of time determined to be reasonable and supportable , and at the end of the reasonable and supportable period losses are reverted to long term historical averages . the reasonable and supportable period and reversion period are re-evaluated each quarter by the company and are dependent on the current economic environment among other factors . see note 1 – summary of significant accounting policies in the notes to consolidated financial statements included in item 8. financial statements and supplementary data elsewhere in this report . the expected credit losses for each loan pool are then adjusted for changes in qualitative factors not inherently considered in the quantitative analyses . the qualitative adjustments either increase or decrease the quantitative model estimation . the company considers factors that are relevant within the qualitative framework which include the following : lending policy , changes in nature and volume of loans , staff experience , changes in volume and trends of problem loans , concentration risk , trends in underlying collateral values , external factors , quality of loan review system and other economic conditions . expected credit losses for loans that no longer share similar risk characteristics with the collectively evaluated pools are excluded from the collective evaluation and estimated on an individual basis . individual evaluations are performed for nonaccrual loans , loans rated substandard , and modified loans classified as troubled debt restructurings . specific allocations of the allowance for credit losses are estimated on one of several methods , including the estimated fair value of the underlying collateral , observable market value of similar debt or the present value of expected cash flows . story_separator_special_tag for the year ended december 31 , 2020 compared to 2019 increase ( decrease ) in interest income and expense due to changes in : 2019 compared to 2018 increase ( decrease ) in interest income and expense due to changes in : volume rate total volume rate total interest-earning assets : loans , net of unearned income : taxable $ 61,402 $ ( 53,028 ) $ 8,374 $ 37,250 $ 11,590 $ 48,840 tax-exempt ( 85 ) 21 ( 64 ) 62 69 131 total loans , net of unearned income 61,317 ( 53,007 ) 8,310 37,312 11,659 48,971 mortgage loans held for sale 180 ( 105 ) 75 48 ( 38 ) 10 debt securities : taxable 5,914 ( 800 ) 5,114 3,258 1,096 4,354 tax-exempt ( 830 ) 137 ( 693 ) ( 930 ) ( 230 ) ( 1,160 ) total debt securities 5,084 ( 663 ) 4,421 2,328 866 3,194 federal funds sold ( 2,867 ) ( 2,839 ) ( 5,706 ) 2,839 96 2,935 interest-bearing balances with banks 7,037 ( 15,892 ) ( 8,855 ) 8,667 259 8,926 total interest-earning assets 70,751 ( 72,506 ) ( 1,755 ) 51,194 12,842 64,036 interest-bearing liabilities : interest-bearing demand deposits 949 ( 4,782 ) ( 3,833 ) 427 1,793 2,220 savings 93 ( 139 ) ( 46 ) 16 75 91 money market 7,282 ( 49,522 ) ( 42,240 ) 11,311 16,525 27,836 time deposits 2,640 ( 2,249 ) 391 1,289 4,020 5,309 total interest-bearing deposits 10,964 ( 56,692 ) ( 45,728 ) 13,043 22,413 35,456 federal funds purchased 3,459 ( 9,835 ) ( 6,376 ) 2,809 945 3,754 other borrowed funds 1 ( 70 ) ( 69 ) ( 1 ) 1 - total interest-bearing liabilities 14,424 ( 66,597 ) ( 52,173 ) 15,851 23,359 39,210 increase ( decrease ) in net interest income $ 56,327 $ ( 5,909 ) $ 50,418 $ 35,343 $ ( 10,517 ) $ 24,826 46 in the table above , changes in net interest income are attributable to ( a ) changes in average balances ( volume variance ) , ( b ) changes in rates ( rate variance ) , or ( c ) changes in rate and average balances ( rate/volume variance ) . the volume variance is calculated as the change in average balances times the old rate . the rate variance is calculated as the change in rates times the old average balance . the rate/volume variance is calculated as the change in rates times the change in average balances . the rate/volume variance is allocated on a pro rata basis between the volume variance and the rate variance in the table above . from 2019 to 2020 , growth in loans was the primary driver of our volume component change . growth in average balances of interest-bearing balances with banks was a significant contributor to our overall unfavorable volume change . the rate component was favorable as average rates paid on interest-bearing liabilities decreased 96 basis points while yields on average earning assets decreased 89 basis points . our average rates paid on interest-bearing deposits have come back down since the federal reserve started lowering rates during the second half of 2019. the two primary factors that make up the spread are the interest rates received on loans and the interest rates paid on deposits . we have been responsive to market declines in deposit rates as federal aid money has been inserted into the banking system in response to the covid-19 outbreak . we dropped our deposit rates five times during 2020. also , we have not competed for new loans on interest rate alone , but rather we have relied significantly on effective marketing to business customers . our net interest spread and net interest margin were 3.09 % and 3.31 % , respectively , for the year ended december 31 , 2020 , compared to 3.02 % and 3.46 % , respectively , for the year ended december 31 , 2019. the increase in net interest spread was due to rates paid on interest-bearing liabilities decreasing by 96 basis points while average yields on interest-earning assets decreased 89 basis points . the decrease in net interest margin in 2020 was due to increases in average interest-bearing balances with banks driven higher by increasing average deposits due to the influx of federal covid-19 relief money . our average interest-earning assets for the year ended december 31 , 2020 increased $ 1.91 billion , or 22.9 % , to $ 10.24 billion from $ 8.33 billion for the year ended december 31 , 2019. this increase in our average interest-earning assets was due to ppp loan originations and higher interest-bearing balances with banks . our average interest-bearing liabilities increased $ 995.1 million , or 16.1 % , to $ 7.18 billion for the year ended december 31 , 2020 from $ 6.19 billion for the year ended december 31 , 2019. all but one of our markets had an increase in total deposits during 2020. the ratio of our average interest-earning assets to average interest-bearing liabilities increased from 134.6 % for the year ended december 31 , 2019 to 142.5 % for the year ended december 31 , 2020 , as average noninterest-bearing deposits and stockholders ' equity grew by a combined $ 995.0 million , or 41.3 % , from 2019 to 2020. our average interest-earning assets produced a taxable equivalent yield of 3.80 % for the year ended december 31 , 2020 , compared to 4.69 % for the year ended december 31 , 2019. the average rate paid on interest-bearing liabilities was 0.71 % for the year ended december 31 , 2020 , compared to 1.67 % for the year ended december 31 , 2019. provision for credit losses the provision for credit losses represents the amount determined by management to be necessary to maintain the allowance for credit losses ( “ acl ” ) at a level capable of absorbing expected credit losses over the contractual life of loans in the loan portfolio .
| results of operations the following discussion and analysis presents the more significant factors that affected our financial condition as of december 31 , 2020 and 2019 and results of operations for each of the years then ended . refer to management 's discussion and analysis of financial condition and results of operations included in our annual report on form 10-k file with the sec on february 25 , 2020 ( 2019 form 10-k ) for a discussion and analysis of the more significant factors that affected periods prior to 2019 . 43 net income available to common stockholders net income available to common stockholders was $ 169.5 million for the year ended december 31 , 2020 , compared to $ 149.2 million for the year ended december 31 , 2019. this increase in net income is primarily attributable to an increase in net interest income , which increased $ 50.4 million , or 17.5 % , to $ 338.0 million in 2020 from $ 287.6 million in 2019. noninterest income increased $ 6.1 million , or 25.6 % , to $ 30.1 million in 2020 from $ 24.0 million in 2019. noninterest expense increased by $ 9.4 million , or 9.2 % , to $ 111.5 million in 2020 from $ 102.1 million in 2019. basic and diluted net income per common share were $ 3.15 and $ 3.13 , respectively , for the year ended december 31 , 2020 , compared to $ 2.79 and $ 2.76 , respectively , for the year ended december 31 , 2019. return on average assets was 1.59 % in 2020 , compared to 1.73 % in 2019 , and return on average stockholders ' equity was 18.55 % in 2020 , compared to 19.16 % in 2019. the following table presents some ratios of our results of operations for the years ended december 31 , 2020 , 2019 and 2018. replace_table_token_4_th the following tables present a summary of our statements of income , including the percent change in each
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product pricing is determined at the point revenue is recognized by reference to active and freely traded commodity markets , for example , the london bullion market for both gold and silver , in an identical form to the product sold . under the company 's concentrate sales contracts with third-party smelters , final gold and silver prices are set on a specified future quotational period , typically one to three months , after the shipment date based on market metal prices . revenues are recorded under these contracts at the time title passes to the buyer based on the forward price for the expected settlement period . the contracts , in general , provide for provisional payment based upon provisional assays and quoted metal prices . final settlement is based on the average applicable price for the specified future quotational period and generally occurs from three to six months after shipment . final sales are settled using smelter weights and settlement assays ( average of assays exchanged and or umpire assay results ) and are priced as specified in the smelter contract . the company 's provisionally priced sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes . the host contract is the receivable from the sale of concentrates at the forward price at the time of sale . the embedded derivative does not qualify for hedge accounting . the embedded derivative is recorded as a derivative asset in prepaid expenses and other assets or as a derivative liability in accrued liabilities and other on the balance sheet and is adjusted to fair value through revenue each period until the date of final gold and silver settlement . the form of the material being sold , after deduction for smelting and refining , is in an identical form to that sold on the london bullion market . the form of the product is metal in flotation concentrate , which is the final process for which the company is responsible . the effects of forward sales contracts are reflected in revenue at the date the related precious metals are delivered . third-party smelting and refining costs are recorded as a reduction of revenue . at december 31 , 2011 , the company had outstanding provisionally priced sales of $ 22.5 million consisting of 0.2 million ounces of silver and 9,701 ounces of gold , which had a fair value of approximately $ 21.7 million including the embedded derivative . for each one cent per ounce change in realized silver price , revenue would vary ( plus or minus ) approximately $ 2,000 and for each one dollar per ounce change in realized gold price , revenue would vary ( plus or minus ) approximately $ 9,700. at december 31 , 2010 , the company had outstanding provisionally priced sales of $ 35.7 million consisting of 0.6 million ounces of silver and 12,758 ounces of gold , which had a fair value of approximately $ 37.4 million including the embedded derivative . for each one cent per ounce change in realized silver price , revenue would vary ( plus or minus ) approximately $ 6,000 and for each one dollar per ounce change in realized gold price , revenue would vary ( plus or minus ) approximately $ 12,800. reserve estimates . the preparation of the company 's consolidated financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amount of assets and liabilities , disclosure of contingent assets and liabilities at the date of its financial statements , and the reported amounts of revenue and expenses during the reporting period . there can be no assurance that actual results will not differ from those estimates . the most critical accounting principles upon which the company 's financial status depends are those requiring estimates of recoverable ounces from proven and probable reserves and or assumptions of future commodity prices . there are a number of uncertainties inherent in estimating quantities of reserves , including many factors beyond the company 's control . ore reserve estimates are based upon engineering evaluations of samplings of drill holes and other openings . these estimates involve assumptions regarding future silver and gold prices , the geology of its mines , the mining methods it uses and the related costs it incurs to develop and mine its reserves . changes in these assumptions could result in material adjustments to the company 's reserve estimates . the company uses reserve estimates in determining the units-of-production depreciation and amortization expense , as well as in evaluating mine asset impairments . 47 impairments . the company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable . an impairment is considered to exist if total estimated future cash flows or probability-weighted cash flows on an undiscounted basis are less than the carrying amount of the assets , including property , plant and equipment , mineral property , development property , and any deferred costs . the accounting estimates related to impairment are critical accounting estimates because the future cash flows used to determine whether an impairment exists is dependent on reserve estimates and other assumptions , including silver and gold prices , production levels , and capital and reclamation costs , all of which are based on detailed engineering life-of-mine plans . depreciation and amortization . the company depreciates its property , plant and equipment , mining properties and mine development using the units-of-production method over the estimated life of the ore body based on its proven and probable recoverable reserves or on a straight-line basis over the useful life , whichever is shorter . story_separator_special_tag such cost estimates include , where applicable , ongoing care and maintenance and monitoring costs . changes in estimates are reflected in earnings in the period an estimate is revised . derivatives accounting . the company recognizes all derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value . changes in the value of derivative instruments are recorded each period in fair value adjustments , net . income taxes . the company computes income taxes using an asset and liability approach which results in the recognition of deferred tax liabilities and assets for the expected future tax consequences or benefits of temporary differences between the financial reporting bases and the tax bases of assets and liabilities , as well as operating loss and tax credit carryforwards , using enacted tax rates in effect in the years in which the differences are expected to reverse . in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized . management considers the scheduled reversal of deferred tax liabilities , projected future taxable income and tax planning strategies in making this assessment . a valuation allowance has been provided for the portion of the company 's net deferred tax assets for which it is more likely than not that they will not be realized . the company and its subsidiaries are subject to u.s. federal income tax as well as income tax of multiple state and foreign jurisdictions . the company has substantially concluded all u.s. federal income tax matters for years through 1999. federal income tax returns for 2000 through 2010 are subject to examination . the company 's practice is to recognize interest and or penalties related to income tax matters in income tax expense . the company had accrued $ 1.6 million in interest and penalties at december 31 , 2011 , related to an item under audit review in bolivia . 49 operating statistics and ore reserve estimates the company 's total production , excluding discontinued operations in 2011 was 19.1 million ounces of silver and 220,382 ounces of gold , compared to 16.8 million ounces of silver and 157,062 ounces of gold in 2010. total estimated proven and probable reserves at december 31 , 2011 were approximately 216.3 million ounces of silver and 2.3 million ounces of gold , compared to silver and gold ore reserves at december 31 , 2010 of approximately 227.1 million ounces and 2.5 million ounces , respectively . the following table shows the estimated amounts of proven and probable ore reserves and mineralized material at the following company locations at year-end 2011 : replace_table_token_32_th ( 1 ) tons are shown reflecting the company 's current 51 % managing equity interest in the joaquin property . 50 the following table presents production information by mine and consolidated sales information for the years ended december 31 : replace_table_token_33_th 51 replace_table_token_34_th ( 1 ) palmarejo commenced commercial production on april 20 , 2009. mine statistics do not represent normal operating results ( 2 ) the leach cycle at rochester requires 5 to 10 years to recover gold and silver contained in the ore. the company estimates the metallurgical recovery to be approximately 61 % for silver and 92 % for gold . current recovery may vary significantly from ultimate recovery . see critical accounting policies and estimates ore on leach pad . ( 3 ) current production ounces and recoveries reflect final metal settlements of previously reported production ounces . ( 4 ) see reconciliation of non-gaap cash costs to gaap production costs. 52 operating statistics from discontinued operations the following table presents information for broken hill which was discontinued july 30 , 2009 and cerro bayo which was discontinued august 9 , 2010 : replace_table_token_35_th ( 1 ) see reconciliation of non-gaap cash costs to gaap production costs. reconciliation of non-gaap cash costs to gaap production costs in this form 10-k , the company has disclosed certain non-u.s. gaap measures , such as cash costs , cash operating costs and related per ounce measures . these measures are used in the mining industry and by the company 's management to measure , across periods , the net cash flow generated by mining operations . the company can not assure investors that other mining companies will calculate these measures in the same manner that the company does . production costs is the closest comparable u.s. gaap measure for these measures . accordingly , we have provided in the tables below a reconciliation of cash costs and cash operating costs to production costs . the corresponding per ounce measures can be calculated by dividing cash costs or cash operating costs , as applicable , by the number of ounces of silver or gold produced at the business unit . cash costs reflect the direct and overhead cash costs arising from the physical activities involved in producing metal . these costs include the cost of mining , processing and other plant costs , third-party refining [ and smelting costs ] , marketing expenses , on-site general and administrative royalties and mining production taxes , but net of by-product revenues earned from selling metals other than the primary metal produced by the business unit . cash costs exclude certain amounts required to be included in production costs ( which amounts can be substantial ) , including [ third-party smelting costs , by-product credits , inventory adjustments and other non-cash charges ] . cash operating costs are calculated as cash costs less royalties and production taxes . 53 reconciliation of non-u.s. gaap cash costs to u.s. gaap production costs year ended december 31 , 2011 replace_table_token_36_th year ended december 31 , 2010 replace_table_token_37_th 54 reconciliation of non-u.s. gaap cash costs to u.s. gaap production costs year ended december 31 , 2009 replace_table_token_38_th ( 1 ) the palmarejo gold production royalty is
| results of discontinued operations effective july 1 , 2009 , the company completed the sale of its mineral interest in the broken hill mine to perilya broken hill ltd. for $ 55.0 million in cash . pursuant to u.s. gaap , the broken hill segment has been reported in discontinued operations for the year ended december 31 , 2009. the company recognized a gain , net of taxes , of $ 25.5 million on the sale in 2009 . 57 effective august 9 , 2010 , coeur sold its subsidiary , compañía minera cerro bayo ltd. ( minera cerro bayo ) , which controlled the cerro bayo mine in southern chile , to mandalay resources corporation ( mandalay ) . under the terms of the agreement , coeur received the following from mandalay in exchange for all of the outstanding shares of minera cerro bayo ; ( i ) $ 6.0 million in cash ; ( ii ) 17,857,143 common shares of mandalay ; ( iii ) 125,000 ounces of silver to be delivered in six equal quarterly installments commencing in the third quarter of 2011 , which had an estimated fair value of $ 2.3 million ; ( iv ) a 2.0 % net smelter royalty ( nsr ) on production from minera cerro bayo in excess of a cumulative 50,000 ounces of gold and 5,000,000 ounces of silver , which had an estimated fair value of $ 5.4 million ; and ( v ) existing value-added taxes collected from the chilean government in excess of $ 3.5 million . as part of the transaction , mandalay agreed to pay the next $ 6.0 million of reclamation costs associated with minera cerro bayo 's nearby furioso property . any reclamation costs above that amount will be shared equally by mandalay and the company . as a result of the sale , the company realized a loss on the sale of approximately $ 2.1 million , net of income taxes .
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certain product sales contracts with the usg include multiple performance obligations , which generally include the marketed story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and financing , includes forward-looking statements that involve risks and uncertainties . you should carefully review the `` cautionary note regarding forward-looking statements '' and `` risk factors '' sections of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . business overview we are a global life sciences company focused on providing to civilian and military populations a portfolio of innovative preparedness and response products and solutions that address accidental , deliberate and naturally occurring phts . we are currently focused on the following five distinct pht categories : cbrne , eid , travel health , emerging health crises , acute/emergency care ; and cdmo . we have a product portfolio of ten products ( vaccines , therapeutics , and drug-device combination products ) that contribute a substantial portion of our revenue . we also have two procured product candidates that are procured under special circumstances by certain government agencies , although they are not approved by the fda or any other health agency . additionally , we have a development pipeline consisting of a diversified mix of both pre-clinical and clinical stage product candidates ( vaccines , therapeutics , devices and combination products ) . finally , we have a fully-integrated portfolio of cdmo services . our cdmo service offerings cover development services , drug substance manufacturing and drug product manufacturing across pharmaceutical and biotechnology industries as well as the usg and non-governmental organizations . the majority of our revenue comes from the following products and procured product candidates : vaccines anthrax vaccines , including our av7909 ( anthrax vaccine adsorbed with adjuvant ) procured product candidate being developed as a next-generation anthrax vaccine for post-exposure prophylaxis and biothrax® ( anthrax vaccine adsorbed ) , the only vaccine licensed by the fda for the general use prophylaxis and post-exposure prophylaxis of anthrax disease ; acam2000® ( smallpox ( vaccinia ) vaccine , live ) , the only single-dose smallpox vaccine licensed by the fda for active immunization against smallpox disease for persons determined to be at high risk for smallpox infection ; vivotif® ( typhoid vaccine live oral ty21a ) , the only oral vaccine licensed by the fda for the prevention of typhoid fever ; and vaxchora® ( cholera vaccine , live , oral ) , the only single-dose oral vaccine approved by the fda and ema for the prevention of cholera . devices narcan® ( naloxone hcl ) nasal spray , the first needle-free formulation of naloxone approved by the fda and health canada , for the emergency treatment of known or suspected opioid overdose as manifested by respiratory and or central nervous system depression ; rsdl® ( reactive skin decontamination lotion kit ) , the only medical device cleared by the fda to remove or neutralize the following chemical warfare agents from the skin : tabun , sarin , soman , cyclohexyl sarin , vr , vx , mustard gas and t-2 toxin ; and trobigard® , a combination drug-device auto-injector procured product candidate that contains atropine sulfate and obidoxime chloride . it has not been approved by the fda or any similar health regulatory body , but is procured by certain authorized government buyers under special circumstances for potential use as a nerve agent countermeasure . therapeutics raxibacumab ( anthrax monoclonal ) , the first fully human monoclonal antibody therapeutic licensed by the fda for the treatment and prophylaxis of inhalational anthrax ; 53 anthrasil® ( anthrax immune globulin intravenous ( human ) ) , the only polyclonal antibody therapeutic licensed by the fda and health canada for the treatment of inhalational anthrax ; bat® ( botulism antitoxin heptavalent ( a , b , c , d , e , f , g ) - ( equine ) ) , the only heptavalent antibody therapeutic licensed by the fda and health canada for the treatment of botulism ; and vigiv ( vaccinia immune globulin intravenous ( human ) ) , the only polyclonal antibody therapeutic licensed by the fda and health canada to address certain complications from smallpox vaccination . contract development and manufacturing services our cdmo business unit consists of a fully integrated molecule-to-market cdmo services business , with offerings across development services , drug substance and drug product manufacturing and packaging and fill , finish services . our customers for such services include pharmaceutical and biotechnology organizations as well as governments and non-governmental organizations ranging from small to mid to large pharmaceutical and biotechnology companies whose programs range from clinical stage to commercial stage . we compete for cdmo service business with a number of biopharmaceutical product development organizations , contract manufacturers of biopharmaceutical products and university research laboratories . we also compete with in-house research , development and support service departments of other biopharmaceutical companies . story_separator_special_tag our opioid overdose reversal product , narcan® nasal spray and our travel health products , comprising vivotif and vaxchora , are sold commercially through wholesalers and distributors , physician-directed or standing order prescriptions at retail pharmacies , as well as to other state and local community healthcare agencies , practitioners and hospitals . we also generate revenue from our cdmo business unit , which is based on our established development and manufacturing infrastructure , technology platforms and expertise . our services include a fully integrated molecule-to-market cdmo services business offering across development services , drug substance and drug product for small to mid to large pharmaceutical and biotechnology industry and government agencies/non-governmental organizations . we have received contracts and grants funding from the usg and other non-governmental organizations to perform research and development activities , particularly related to programs addressing certain cbrne threats and eids . our revenue , operating results and profitability vary quarterly based on the timing of production and deliveries and the nature of our business to provide 55 large scale bundles of products and services as needs arise . during 2020 , our revenues have increased due largely to the contribution of cdmo arrangements with industry and government customers to combat the covid-19 pandemic . this increase in cdmo revenues has been offset by reduced sales of our vaccine products that target travelers which have declined due to the reduction of international travel caused by the covid-19 pandemic . we expect continued variability in our quarterly financial statements . cost of product sales and cdmo services the primary expenses that we incur to deliver our products and to perform cdmo services consist of fixed and variable costs . we determine the cost of product sales for products sold during a reporting period based on the average manufacturing cost per unit in the period those units were manufactured . fixed manufacturing costs include facilities , utilities and amortization of intangible assets . variable manufacturing costs primarily consist of costs for materials and personnel-related expenses for direct and indirect manufacturing support staff , contract manufacturing operations , sales-based royalties , shipping and logistics . in addition to the fixed and variable manufacturing costs described above , the cost of product sales depends on utilization of available manufacturing capacity . for our commercial sales , other associated expenses include sales-based royalties ( which include fair value adjustments associated with contingent consideration ) , shipping , and logistics . we use the same manufacturing facilities and methods of production for our own products as well as for fulfillment of our cdmo service contracts . we operate nine manufacturing facilities , five of which perform manufacturing activities for cdmo services customers . as a result , management reviews expenses associated with manufacturing our own products as well cdmo service contracts on an aggregate basis when analyzing the financial performance of its manufacturing and development facilities . our manufacturing process for our own products and our cdmo service business includes the production of bulk material and performing “ fill finish ” work for containment and distribution of biological products . for “ fill finish ” customers , we receive work in process inventory to be prepared for distribution . when producing bulk material , we generally procure raw materials , manufacture the product and retain the risk of loss through the manufacturing and review process until delivery . research and development expenses we expense research and development costs as incurred . our research and development expenses consist primarily of : ▪ personnel-related expenses ; ▪ fees to professional service providers for , among other things , analytical testing , independent monitoring or other administration of our clinical trials and obtaining and evaluating data from our clinical trials and non-clinical studies ; ▪ costs of cdmo services for clinical trial material ; and ▪ costs of materials used in clinical trials and research and development . in many cases , we plan to seek funding for development activities from external sources and third parties , such as governments and non-governmental organizations , or through collaborative partnerships . we expect our research and development spending will be dependent upon such factors as the results from our clinical trials , the availability of reimbursement of research and development spending , the number of product candidates under development , the size , structure and duration of any clinical programs that we may initiate , the costs associated with manufacturing and development of our product candidates on a large-scale basis for later stage clinical trials , and our ability to use or rely on data generated by government agencies . selling , general and administrative expenses selling , general and administrative expenses consist primarily of personnel-related costs and professional fees in support of our executives , sales and marketing , business development , government affairs , finance , accounting , information technology , legal , human resource functions and other corporate functions . other costs include facility costs not otherwise included in cost of product sales and cdmo services or research and development expense . income taxes uncertainty in income taxes is accounted for using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . we recognize in our financial statements the impact of a tax position if that position is more likely than not of being sustained on audit , based on the technical merits of the position . management believes that the assumptions and estimates related to the provision for income taxes are critical to the company 's results of operations . for the year ended december 31 , 2020 , income tax expense totaled $ 102.1 million . for every 1 % change in the 2020 effective rate , income tax expense would have changed by approximately $ 4.1 million . for additional information on our uncertain tax positions and income tax expense , please see note 56 12 , income taxes to our consolidated financial statements included in this report .
| results of operations year ended december 31 , ( in millions ) 2020 2019 $ change % change product sales net : anthrax vaccines $ 373.8 $ 172.8 $ 201.0 nm narcan nasal spray 311.2 280.4 30.8 11 % acam2000 200.3 242.6 ( 42.3 ) ( 17 ) % other 104.5 207.7 ( 103.2 ) ( 50 ) % total product sales , net 989.8 903.5 86.3 10 % contract development and manufacturing services 450.5 80.0 370.5 nm contracts and grants 115.1 122.5 ( 7.4 ) ( 6 ) % total revenues 1,555.4 1,106.0 449.4 41 % operating expenses : cost of product sales and contract development and manufacturing services 524.0 433.5 90.5 21 % research and development 234.5 226.2 8.3 4 % selling , general and administrative 303.3 273.5 29.8 11 % amortization of intangible assets 59.8 58.7 1.1 2 % total operating expenses 1,121.6 991.9 129.7 13 % < td
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this discussion includes `` forward-looking statements '' within the meaning of section 27a of the securities act and section 21e of the exchange act . all statements in this annual report on form 10-k other than statements of historical fact are forward-looking statements . these forward-looking statements involve known and unknown risks and uncertainties . our actual results may differ materially from those projected or assumed in such forward-looking statements . among the factors that could cause actual results to differ materially are the risk factors discussed under item 1a . all forward-looking statements and risk factors included in this document are made as of the date of this report , based on information available to us as of such date . we assume no obligation to update any forward-looking statement or risk factor . overview we are a global provider of innovative cash access and data intelligence services and solutions to the gaming industry . our services and solutions provide gaming establishment patrons access to cash through a variety of methods , including atm cash withdrawals , credit card cash access transactions , pos debit card transactions , check verification and warranty services and money transfers . in addition , we also provide products and services that improve credit decision-making , automate cashier operations and enhance patron marketing activities for gaming establishments . we also sell and service cash access devices such as redemption and jackpot kiosks to the gaming industry . we began our operations in july 1998 as a joint venture limited liability company among m & c international , entities affiliated with bank of america , n.a . and first data . in september 2000 , bank of america sold its entire ownership interest in us to m & c international and first data . in march 2004 , all 42 of our outstanding ownership interests were contributed to a holding company and all of first data 's ownership interest in us was redeemed . simultaneously , bank of america reacquired an ownership interest in us . in may 2004 , m & c international sold a portion of its ownership interest to a number of private equity investors , including entities affiliated with summit partners , and we converted from a limited liability company to a corporation . in september 2005 , we completed an initial public offering of our common stock . in 2007 , m & c international distributed its holdings of our common stock to its two principals , karim maskatiya and robert cucinotta . as of december 31 , 2009 , we believe both messrs. maskatiya and cucinotta had disposed of all of their holdings of our common stock . factors affecting comparability : our consolidated financial statements included in this report that present our financial condition and results of operations reflect the following transactions and events : on november 15 , 2011 , the company acquired substantially all of the assets of mca processing llc . mca is a provider of atm , debit card and credit card cash access services to gaming establishments and also manufactures , sells , licenses and services redemption kiosk devices . the results of operations of mca processing have been reflected in the applicable business segment financial information following this acquisition . on october 1 , 2011 , the durbin amendment , which imposes caps on the amount of debit card interchange fees , was implemented , and materially reduced the amount of interchange expense that we incurred for pin-based and signature based debit card transactions during the fourth quarter of 2011 as described in more detail in the trends section below . on march 1 , 2011 , gca and holdings entered into the new senior credit facility , consisting of a $ 210.0 million term loan facility and a $ 35.0 million revolving credit facility . all $ 210.0 million of available borrowings under the term loan facility and $ 4.0 million of available borrowings under the revolving credit facility were borrowed concurrent with the establishment of the new senior credit facility and the company used substantially all of these proceeds to repay indebtedness under the company 's existing senior secured credit facilities and the senior subordinated notes . in august 2010 , gca received notice from its then-largest customer , caesars , of its intent not to renew its cash access agreements with us , which agreements expired in november 2010. revenue derived from our contracts with caesars was $ 79.6 million for the year ended december 31 , 2010 , representing 13 % of our total revenue for the year ended december 31 , 2010. in may 2010 , we completed the acquisition of western money , a manufacturer of redemption kiosk devices . the results of operations of western money have been reflected in the applicable business segment financial information following this acquisition . ift , formerly known as quikplay , llc , was a joint venture that was formed on december 6 , 2000 , and owned 60 % by gca and 40 % by igt . igt is one of the largest manufacturers of gaming equipment in the united states . gca was the managing member of this entity and ift was consolidated in the company 's consolidated financial statements prior to april 19 , 2010 , at which time gca and igt dissolved ift . the dissolution of ift did not have a material impact on the condensed consolidated financial statements of the company . we announced on february 28 , 2008 that we intended to exit the arriva card , inc. ( `` arriva '' ) business . the results of operations for the arriva line of business have been classified to discontinued operations for the six months ended june 30 , 2009. the company determined that as of july 1 , 2009 , the results of operations for the arriva line of business were no longer material and the results of operations for future periods have been classified in continuing operations . story_separator_special_tag many of our cash access contracts enable us to pass through the amount of any increase in interchange or processing fees to our gaming establishment customers , who may in turn pass through these increases to patrons . in the past , the major card associations and payment networks have increased interchange rates at least annually , and they may do so in the future . we pay connectivity and processing fees to our network services providers . for our check services transactions , we pay a commission to the gaming establishment at which the transaction occurs . we incur warranty expense when checks that we have warranted through our central credit check warranty service or that telecheck has warranted through its check warranty service are dishonored upon presentment for payment . other cost of revenues ( exclusive of depreciation and amortization ) consists primarily of costs related to our western money products and services , our central credit service and our patron marketing activities . operating expenses consist primarily of salaries and benefits , armored carrier expenses , the cost of repair and maintenance on our cash access devices , professional fees , telecommunications expenses and bank fees . interest expense includes interest incurred on our borrowings and the amortization of deferred financing costs . interest expense also includes the cash usage fees associated with the cash used in our atms . our earnings are subject to taxation under the tax laws of the jurisdictions in which we operate . 45 story_separator_special_tag style= '' font-family : times ; margin-left:10pt ; text-indent : -10pt ; '' > loss on the early extinguishment of debt $ 943 defeasance costs associated with the repayment of senior subordinated notes 838 $ 1,781 for the year ended december 31 , 2011 , income tax expense was $ 9.6 million , a decrease of $ 9.2 million as compared to the year ended december 31 , 2010. the provision for income tax reflected an effective income tax rate of 51.2 % for 2011 as compared to 51.7 % for 2010. the effective tax rate for the year ended december 31 , 2011 was negatively impacted by the expiration of certain equity awards to former officers , the re-valuation of the company 's deferred tax assets due to a decrease in effective state rate , the increase to the valuation allowance on state net operating loss carry forwards , and an increase in the effect of stock options in proportion to lower pretax income amounts . the effective tax rate for the year ended december 31 , 2010 was negatively impacted as the result of one-time repatriation events , and the determination of the company 's inability to realize the foreign tax credit deferred tax asset . primarily as a result of the foregoing , net income was $ 9.1 million for the year ended december 31 , 2011 , a decrease of $ 8.4 million , or 47.8 % , as compared to the prior year . 48 year ended december 31 , 2010 compared to year ended december 31 , 2009 the following table sets forth the condensed consolidated results of operations and percentages of total revenue for the years ended december 31 , 2010 and december 31 , 2009 ( amounts in thousands ) : replace_table_token_7_th total revenues total revenues for the year ended december 31 , 2010 , were $ 605.6 million as compared to $ 667.7 million for the prior year , a decrease of $ 62.1 million , or 9.3 % , as compared to the year ended december 31 , 2009. segment changes in revenue are further discussed below . cash advance revenue for the year ended december 31 , 2010 , was $ 244.1 million , a decrease of $ 45.2 million , or 15.6 % , as compared to the year ended december 31 , 2009. this decrease was primarily due to lower credit usage by patrons at gaming establishments . this had a negative impact on our financial results as revenue generated from a credit card cash access transaction is generally more profitable than revenue generated from an atm transaction . atm revenue for the year ended december 31 , 2010 , was $ 314.6 million , a decrease of $ 11.3 million , or 3.5 % , as compared to the year ended december 31 , 2009. this decrease was primarily due to continued decline in attendance by patrons to gaming establishments . 49 check services revenue for the year ended december 31 , 2010 , was $ 28.4 million , a decrease of $ 10.2 million , or 26.4 % , as compared to the year ended december 31 , 2009. this decrease was primarily attributable to the decrease in the number of check services transactions by 1.4 million or 21.7 % largely driven by location closures . some of the locations that were closed were unprofitable . other revenues for the year ended december 31 , 2010 , were $ 18.5 million , an increase of $ 4.5 million , or 32.6 % , as compared to the year ended december 31 , 2009. this increase was primarily due to the inclusion of the operating results from western money that was acquired as of may 2010 , which was partially offset by the decrease in revenue from global recovery services and casino marketing services . we provide our cash access products and related services almost exclusively to gaming establishments for the purpose of enabling gaming patrons to access cash . as a result , our business depends on consumer demand for gaming . costs and expenses cost of revenues ( exclusive of depreciation and amortization ) for the year ended december 31 , 2010 , was $ 463.0 million , a decrease of $ 38.8 million , or 7.7 % , as compared to the year ended december 31 , 2009. this decrease was primarily correlated with revenue . there was a gross increase in interchange expense as a percentage of revenue of 5.4 % for the year ended december 31 , 2010.
| results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 the following table sets forth the condensed consolidated results of operations and percentages of total revenue for the years ended december 31 , 2011 and december 31 , 2010 ( amounts in thousands ) : replace_table_token_6_th total revenues total revenues , for the year ended december 31 , 2011 were $ 544.1 million as compared to $ 605.6 million for the prior year , a decrease of $ 61.5 million , or 10.2 % , as compared to the year ended december 31 , 2010. the decrease was primarily due to the loss of our largest customer , caesars , at the end of 2010. revenue from our lost contracts with caesars for the year ended december 31 , 2010 was approximately $ 73.9 million ( net of the revenue related to caesars contracts re-acquired in connection with the november 2011 mca asset purchase ) . cash advance revenue , for the year ended december 31 , 2011 was $ 203.9 million , a decrease of $ 40.3 million , or 16.5 % , as compared to the year ended december 31 , 2010. this decrease was primarily related to the loss of the net caesars business that accounted for $ 35.1 million , or 14.4 % , of the credit card cash advance revenue in 2010. atm revenue , for the year ended december 31 , 2011 , was $ 283.7 million , a decrease of $ 30.9 million , or 9.8 % , as compared to the year ended december 31 , 2010. this was primarily due to the loss of the net caesars business that accounted for $ 38.7 million , or 12.3 % , of the atm revenue in 2010 .
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55 brainstorm cell therapeutics inc. and subsidiary ( a development stage company ) notes to the financial statements u.s. dollars in thousands note 9 - short-term convertible loans ( cont . ) on january 27 , 2010 , the third party converted the entire accrued principal and interest of the note , into 1,016,109 shares of common stock . in july 2011 , the company issued to the lender an additional 309,977 shares of common stock of the company with regard to the above conversion . 56 brainstorm cell therapeutics inc. and subsidiary ( a development stage company ) notes to the financial statements u.s. dollars in thousands note 10 - commitments and contingencies a. on december 1 , 2004 , bct entered into a lease agreement for the lease of its facilities . the term of the lease was 36 months , with two options to extend . rent is paid on a quarterly basis in the amount of nis 28,373 ( approximately $ 8 ) per month . the facilities and vehicles of the company and bct are rented under operating leases that expire on various dates . aggregate minimum rental commitments under non-cancelable leases as of december 31 , 2011 are as follows : replace_table_token_16_th total facilities rent expenses for the year ended december 31 , 2011 and 2010 were $ 111 and $ 135 respectively . b. on march 20 , 2006 , the company entered into a termination agreement and general release ( the `` termination agreement `` ) with dr. yaffa beck , the company 's former president and chief executive officer who resigned her position as an officer and director of the company on november 10 , 2005. as of december 31 , 2011 , there was still an unpaid balance of $ 17 to dr. beck under this termination agreement . c. commitments to pay royalties to the chief scientist : bct obtained from the chief scientist of the state of israel grants for participation in research and development for the years 2007 through 2011 , and , in return , bct is obligated to pay royalties amounting to 3 % of its future sales up to the amount of the grant . the grant is linked to the exchange rate of the dollar and bears interest of libor per annum . through december 31 , 2011 , total grants obtained amounted to $ 1,472 . d. on february 17 , 2010 , bct entered into an agreement with hadasit medical research services and development ltd ( `` hadasit `` ) to conduct clinical trials in als patients . the agreement was revised in june 2011 according to which , in connection with the trials bct will pay hadasit $ 32,225 per patient totaling up to $ 773,400 , as well as $ 64,915 per month for rental and operation of two clean rooms . the company has the right to cease the rental of the clean rooms at any time upon 30 days prior notice . 57 brainstorm cell therapeutics inc. and subsidiary ( a development stage company ) notes to the financial statements u.s. dollars in thousands note 10 - commitments and contingencies ( cont . ) e. on april 17 , 2008 , chapman , spira & carson , llc ( “ csc ” ) filed a breach of contract complaint in the supreme court of the state of new york ( the “ court ” ) against the company . the complaint alleges that csc performed its obligations to the company under a consulting agreement entered into between the parties and that the company failed to provide csc with the compensation outlined in the consulting agreement . the complaint seeks compensatory damages in an amount up to approximately $ 897 , as well as costs and attorneys ' fees . on june 5 , 2008 , the company filed an answer with the court . the company believes csc 's claims are without merit and can not predict what impact , if any , this matter may have on the business , its financial condition and results of operations and cash flow . provision is included in story_separator_special_tag company overview we are a biotechnology company developing innovative stem cell therapeutic products based on technologies enabling the in-vitro differentiation of bone marrow stem cells into neural-like cells . we aim to become a leader in adult stem cell transplantation for neurodegenerative diseases . our technology entails exploiting the patient 's own bone marrow stem cells to generate glial-like cells that may provide an effective treatment for als , pd , ms and spinal cord injury . our core technology was developed in collaboration with prominent neurologist , prof. eldad melamed , former head of neurology of the rabin medical center and member of the scientific committee of the michael j. fox foundation for parkinson 's research , and expert cell biologist prof. daniel offen , of the felsenstein medical research center of tel aviv university . our team demonstrated formation of neurotrophic-factor secreting cells ( glial-like cells ) from in-vitro differentiated bone marrow cells that produce ntf including gdnf , bdnf and additional factors . moreover , in research conducted by our team , implantation of these differentiated cells into brains of animal models that had been induced to parkinsonian behavior markedly improved their condition . our aim is to provide neural-supporting stem cell transplants that are expected to maintain , preserve and possibly restore the damaged neurons , protecting them from further degeneration . our israeli subsidiary holds exclusive worldwide rights to commercialize the technology , through a licensing agreement with ramot , the technology transfer company of tel aviv university , israel . as a result of limited cash resources and the desire to take a faster path to clinical trials , since the fourth quarter of 2008 we have focused all of our efforts on als , and are currently not allocating resources towards pd , story_separator_special_tag 55 brainstorm cell therapeutics inc. and subsidiary ( a development stage company ) notes to the financial statements u.s. dollars in thousands note 9 - short-term convertible loans ( cont . ) on january 27 , 2010 , the third party converted the entire accrued principal and interest of the note , into 1,016,109 shares of common stock . in july 2011 , the company issued to the lender an additional 309,977 shares of common stock of the company with regard to the above conversion . 56 brainstorm cell therapeutics inc. and subsidiary ( a development stage company ) notes to the financial statements u.s. dollars in thousands note 10 - commitments and contingencies a. on december 1 , 2004 , bct entered into a lease agreement for the lease of its facilities . the term of the lease was 36 months , with two options to extend . rent is paid on a quarterly basis in the amount of nis 28,373 ( approximately $ 8 ) per month . the facilities and vehicles of the company and bct are rented under operating leases that expire on various dates . aggregate minimum rental commitments under non-cancelable leases as of december 31 , 2011 are as follows : replace_table_token_16_th total facilities rent expenses for the year ended december 31 , 2011 and 2010 were $ 111 and $ 135 respectively . b. on march 20 , 2006 , the company entered into a termination agreement and general release ( the `` termination agreement `` ) with dr. yaffa beck , the company 's former president and chief executive officer who resigned her position as an officer and director of the company on november 10 , 2005. as of december 31 , 2011 , there was still an unpaid balance of $ 17 to dr. beck under this termination agreement . c. commitments to pay royalties to the chief scientist : bct obtained from the chief scientist of the state of israel grants for participation in research and development for the years 2007 through 2011 , and , in return , bct is obligated to pay royalties amounting to 3 % of its future sales up to the amount of the grant . the grant is linked to the exchange rate of the dollar and bears interest of libor per annum . through december 31 , 2011 , total grants obtained amounted to $ 1,472 . d. on february 17 , 2010 , bct entered into an agreement with hadasit medical research services and development ltd ( `` hadasit `` ) to conduct clinical trials in als patients . the agreement was revised in june 2011 according to which , in connection with the trials bct will pay hadasit $ 32,225 per patient totaling up to $ 773,400 , as well as $ 64,915 per month for rental and operation of two clean rooms . the company has the right to cease the rental of the clean rooms at any time upon 30 days prior notice . 57 brainstorm cell therapeutics inc. and subsidiary ( a development stage company ) notes to the financial statements u.s. dollars in thousands note 10 - commitments and contingencies ( cont . ) e. on april 17 , 2008 , chapman , spira & carson , llc ( “ csc ” ) filed a breach of contract complaint in the supreme court of the state of new york ( the “ court ” ) against the company . the complaint alleges that csc performed its obligations to the company under a consulting agreement entered into between the parties and that the company failed to provide csc with the compensation outlined in the consulting agreement . the complaint seeks compensatory damages in an amount up to approximately $ 897 , as well as costs and attorneys ' fees . on june 5 , 2008 , the company filed an answer with the court . the company believes csc 's claims are without merit and can not predict what impact , if any , this matter may have on the business , its financial condition and results of operations and cash flow . provision is included in story_separator_special_tag company overview we are a biotechnology company developing innovative stem cell therapeutic products based on technologies enabling the in-vitro differentiation of bone marrow stem cells into neural-like cells . we aim to become a leader in adult stem cell transplantation for neurodegenerative diseases . our technology entails exploiting the patient 's own bone marrow stem cells to generate glial-like cells that may provide an effective treatment for als , pd , ms and spinal cord injury . our core technology was developed in collaboration with prominent neurologist , prof. eldad melamed , former head of neurology of the rabin medical center and member of the scientific committee of the michael j. fox foundation for parkinson 's research , and expert cell biologist prof. daniel offen , of the felsenstein medical research center of tel aviv university . our team demonstrated formation of neurotrophic-factor secreting cells ( glial-like cells ) from in-vitro differentiated bone marrow cells that produce ntf including gdnf , bdnf and additional factors . moreover , in research conducted by our team , implantation of these differentiated cells into brains of animal models that had been induced to parkinsonian behavior markedly improved their condition . our aim is to provide neural-supporting stem cell transplants that are expected to maintain , preserve and possibly restore the damaged neurons , protecting them from further degeneration . our israeli subsidiary holds exclusive worldwide rights to commercialize the technology , through a licensing agreement with ramot , the technology transfer company of tel aviv university , israel . as a result of limited cash resources and the desire to take a faster path to clinical trials , since the fourth quarter of 2008 we have focused all of our efforts on als , and are currently not allocating resources towards pd ,
| results of operations research and development , net : research and development expenses , net for the year ended december 31 , 2011 and 2010 were $ 1,689,000 and $ 1,045,000 , respectively . in addition , our grant from the office of the chief scientist increased by $ 48,000 to $ 388,000 for the year ended december 31 , 2011 from $ 340,000 for the year ended december 31 , 2010. the increase in research and development expenses , net for the year ended december 31 , 2011 is primarily due to : ( i ) in june 2011 , the company began clinical trials in als patients , in hadassah , under which the company paid $ 350,000 in 2011 ; ( ii ) development and clinical trials conducted in gmp in hadassah in the amount of $ 370,000 in the year ended december 31 , 2011 compared to $ 250,000 in the year ended december 31 , 2010 ; and ( iii ) an increase of $ 190,000 in payroll costs due to recruitment of four additional employees to conduct the clinical trials . general and administrative general and administrative expenses for the years ended december 31 , 2011 and 2010 were $ 2,205,000 and $ 1,544,000 , respectively . the increase in general and administrative expenses , for the year ended december 31 , 2011 , is mainly due to : ( i ) an increase of $ 515,000 in stock-based compensation expenses , to $ 1,076,000 in the year ended december 31 , 2011 ; and ( ii ) an increase of $ 140,000 in legal and audit expenses from $ 230,000 in the year ended december 31 , 2010 to $ 370,000 in the year ended december 31 , 2011 ; this increase was partially offset by a reduction of $ 60,000 in public and investor relations expenses from $ 120,000 in the year ended december 31 , 2010 to $ 60,000 in the year ended december 31 , 2011 .
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we recognized $ 82 million story_separator_special_tag business overview ncr is a leading global provider of omni-channel technology solutions that help businesses connect , interact and transact with their customers . our portfolio of self-service and assisted-service solutions are designed to allow businesses in the financial services , retail , hospitality , travel and telecommunications and technology industries to deliver a rich , integrated and personalized experience to consumers across physical and digital commerce channels . our offerings include automated teller machines ( atms ) , point of sale ( pos ) terminals and devices , self-service kiosks , omni-channel platform software and other software applications , and a complete suite of consulting , implementation , maintenance and managed services . we also resell third-party networking products and provide related service offerings in the telecommunications and technology sectors . our solutions create value for our customers by allowing them to address consumer demand for convenience , value and individual service across different commerce channels . we have three operating segments : software , services , and hardware . each of our operating segments derives its revenue in each of the sales theaters in which ncr operates . as of january 1 , 2016 , ncr began management of its business on a solution basis , changing from the previous model of management on a line of business basis . this change to our segment reporting for fiscal year 2016 and future periods is further described in note 1 , “ basis of presentation and significant accounting policies ” of the notes to consolidated financial statements in item 8 of part ii of this report . our solutions are based on a foundation of long-established industry knowledge and consulting expertise , value-added software , hardware technology and global customer support services . ncr 's reputation is founded upon over 132 years of providing quality products , services and solutions to our customers . at the heart of our customer and other business relationships is a commitment to acting responsibly , ethically and with the highest level of integrity . this commitment is reflected in ncr 's code of conduct , which is available on the corporate governance page of our website . 2016 overview as more fully discussed in later sections of this md & a , the following were significant themes and events for 2016 : revenue increased approximately 3 % from the prior year period , and increased 7 % excluding unfavorable foreign currency impacts and adjusting for the divestiture of our interactive printer solutions ( ips ) business . software-related revenue , which we measure by combining software license and maintenance revenue , cloud revenue and professional services revenue associated with software delivery , was $ 1,841 million and $ 1,747 million in 2016 and 2015 , respectively , including year-over-year unfavorable foreign currency impacts of approximately 1 % in 2016 . we generated cash flows from operations and free cash flow of $ 894 million and $ 628 million , respectively , in 2016 . the company repurchased approximately 10.0 million shares of its common stock for $ 250 million in the first half of 2016 and subsequently announced a new $ 300 million share repurchase program and a replacement for the company 's dilution offset share repurchase program . overview of strategic initiatives and trends the rise of digital commerce , mobile engagement and globalization have dramatically altered the relationship between business and consumer . the growing influence of big data , the internet of things and the cloud are driving the next generation of changes in consumer behavior . consumers increasingly expect businesses to provide a rich , integrated and personalized experience across all commerce channels , including in-store , online and mobile . ncr is at the forefront of this shift to an omni-channel experience , working to provide the solutions that will form the end-to-end platforms by which businesses connect , interact and transact with consumers . our long-term strategy is built on being a global technology solutions company that uses software and value-added endpoints , coupled with higher-margin services and a focus on cloud and mobile , to help our customers deliver on the promise of an omni-channel experience . to deliver on our strategy , we are focused on sales enablement , services transformation , evolving our software business model , investing in innovation and cultivating our culture and team . 24 sales enablement - providing our sales force with the training , tools and processes necessary for consultative selling , supported by a strong solutions management function that innovates the way in which we go to market , and expanding our organization of channel partners . services transformation - driving improved services performance by focusing on a higher mix of managed services , improving our productivity and efficiency , expanding our remote diagnostics and repair capabilities and creating greater discipline in our product lifecycle management . evolving our business model - continuing the shift in our business model to provide innovative end-to-end software platform solutions for our customers , with best in class software support while keeping an efficient cost structure to create competitive advantage . investing in innovation - optimizing our operating model and prioritizing investments in areas with the greatest potential for profitable growth , such as cloud solutions and professional , managed and other services . cultivating our culture and team - organizing and recruiting with an eye toward the future , and investing in , training and developing our employees to accelerate the delivery of our innovative solutions and to focus on the needs of our customers and changes in consumer behavior . we plan , in pursuing our strategy , to continue to manage our costs effectively , to selectively pursue strategic acquisitions that promote growth and improve gross margin , and to selectively penetrate market adjacencies in single and emerging growth industry segments . story_separator_special_tag after considering this item , research and development expenses decreased to 3.3 % in 2015 from 3.7 % in 2014 as a percentage of revenue due to the focus on cost reduction actions , including limits on discretionary spending , as we continue to focus on higher value offerings . restructuring-related charges in 2016 , the company recorded restructuring-related charges of $ 15 million related to the restructuring program announced in 2014. the charges consisted of severance and other employee related costs of $ 4 million , other exit costs of $ 9 million and asset-related charges of $ 2 million . in 2015 , the company recorded restructuring-related charges of $ 62 million related to the restructuring program announced in 2014. the charges consist of severance and other employee related costs of $ 20 million , other exit costs of $ 13 million and asset-related charges of $ 29 million . in 2014 , the company recorded restructuring-related charges of $ 104 million related to the restructuring program announced in july 2014. the charges consist of severance and other employee related costs of $ 86 million , other exit costs of $ 5 million and asset-related charges of $ 13 million . interest expense interest expense was $ 170 million in 2016 compared to $ 173 million in 2015 and $ 181 million in 2014 . interest expense in 2016 , 2015 and 2014 was primarily related to the company 's senior unsecured notes and borrowings under the company 's senior secured credit facility . other expense other ( expense ) , net was $ 50 million in 2016 compared to $ 57 million in 2015 and $ 35 million in 2014 . interest income was $ 4 million in 2016 , $ 5 million in 2015 and $ 6 million in 2014 . in 2016 , other ( expense ) , net included $ 40 million related to losses from foreign currency fluctuations and foreign exchange contracts , $ 8 million in bank-related fees , $ 6 million related to the loss on sale of the ips business and entity liquidations . in 2015 , other ( expense ) , net included $ 21 million related to losses from foreign currency fluctuations and foreign exchange contracts , $ 9 million in bank-related fees , and $ 34 million related to the loss on the then pending sale of the ips business . in 2014 , other ( expense ) , net included $ 32 million related to losses from foreign currency fluctuations and foreign exchange contracts , $ 7 million in bank-related fees , and $ 3 million related to the impairment of an investment partially offset by a $ 4 million gain on the sale of available for sale securities . income taxes our effective tax rate was 24 % in 2016 , ( 58 ) % in 2015 , and ( 35 ) % in 2014 . during 2016 , our tax rate was impacted by a less favorable mix of earnings , primarily driven by actuarial pension losses in foreign jurisdictions with a valuation allowance against deferred tax assets . during 2015 , there was no tax benefit recorded on the $ 427 million charge related to the settlement of the uk london pension plan due to a valuation allowance against deferred tax assets in the united kingdom . refer to note 9 , “ employee benefit plans ” of the notes to consolidated financial statements included in item 8 of part ii of this report for additional discussion on the settlement of the uk london pension plan . additionally , we favorably settled examinations with canada for tax years 2002 through 2006 that resulted in a tax benefit of $ 10 million in 2015. during 2014 , we favorably settled examinations with the internal revenue service ( irs ) for the 2009 and 2010 tax years that resulted in a tax benefit of $ 13 million . in addition , the 2014 tax rate was favorably impacted 29 by a $ 9 million reduction in the u.s. valuation allowance and a favorable mix of earnings by country , primarily driven by actuarial pension losses due to a change in the u.s. mortality table . during 2014 , the internal revenue services ( irs ) finalized an examination of our 2009 and 2010 income tax returns and commenced an examination of our 2011 , 2012 and 2013 income tax returns , which is ongoing . while we are subject to numerous federal , state and foreign tax audits , we believe that appropriate reserves exist for issues that might arise from these audits . should these audits be settled , the resulting tax effect could impact the tax provision and cash flows in future periods . during 2017 , the company expects to resolve certain tax matters related to u.s. and foreign jurisdictions . these resolutions could have a material impact on the effective tax rate in 2017 . we regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized . the determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based on the evaluation of positive and negative evidence . this evidence includes historical taxable income/loss , projected future taxable income , the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies . given current earnings and anticipated future earnings at certain subsidiaries , the company believes that there is a reasonable possibility sufficient positive evidence may become available that would allow the release of a valuation allowance within the next twelve months . ( loss ) income from discontinued operations in 2016 , loss from discontinued operations was $ 13 million , net of tax , primarily related to updates in estimates and accruals for litigation expenses related to the fox river reserve .
| results discussion revenue revenue decreased 3 % in 2015 from 2014 due to declines in the emea and apj theaters for all operating segments , partially offset by an increase in the americas theater for all operating segments . foreign currency fluctuations had a 6 % unfavorable impact on revenue for the year . digital insight generated $ 349 million of revenue from the date of acquisition , january 10 , 2014 , through december 31 , 2014 . 27 software revenue was flat with growth in cloud and software maintenance offset by declines in software license and professional services . services revenue decreased from 2014 driven primarily by declines in hardware maintenance services . hardware revenue was down from 2014 due to declines in atm revenue partially offset by growth in self-checkout and point-of-sale revenue . gross margin gross margin as a percentage of revenue was 23.1 % in 2015 compared to 26.3 % in 2014 . gross margin for the year ended december 31 , 2015 included $ 313 million in pension mark-to-market adjustments which primarily included the settlement of the uk london pension plan , $ 12 million related to restructuring and $ 63 million related to amortization of acquisition related intangible assets . gross margin for the year ended december 31 , 2014 included $ 85 million related to pension mark-to-market adjustments , $ 56 million related to restructuring and $ 63 million related to amortization of acquisition related intangible assets . excluding these items , gross margin was down slightly due to a less favorable mix of revenue . effects of pension , postemployment , and postretirement benefit plans ncr 's income from continuing operations for the years ended december 31 was impacted by certain employee benefit plans as reflected in the table below : replace_table_token_12_th in 2016 , pension expense was $ 103 million compared to $ 464 million in 2015 and $ 152 million in 2014 .
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the corresponding note is being repaid in 80 quarterly debt service story_separator_special_tag general our profitability depends primarily on our net interest income , which is the difference between interest and dividend income on interest-earning assets , principally loans , investment securities and interest-earning deposits in other institutions , and interest expense on interest-bearing deposits and borrowings from the federal home loan bank of dallas . net interest income is dependent upon the level of interest rates and the extent to which such rates are changing . our profitability also depends , to a lesser extent , on non-interest income , provision for loan losses , non-interest expenses and federal income taxes . home federal bancorp , inc. of louisiana had net income of $ 3.1 million in fiscal 2013 compared to net income of $ 2.8 million in fiscal 2012. historically , our business consisted primarily of originating single-family real estate loans secured by property in our market area . typically , single-family loans involve a lower degree of risk and carry a lower yield than commercial real estate , construction , commercial business and consumer loans . during fiscal 2009 , we hired three commercial loan officers and began to offer commercial real estate loans , commercial business loans and real estate secured lines of credit which typically have higher rates and shorter terms than single-family loans . although our loans continue to be primarily funded by certificates of deposit , which typically have a higher interest rate than passbook accounts , it is now our policy to require commercial customers to have a deposit relationship with us , which has increased our balance of now accounts in recent periods . the combination of these factors has resulted in higher interest rate spreads in fiscal 2013. due to the continued low interest rate environment , we have sold a substantial amount of our fixed rate single-family residential loan originations in recent periods . we have also sold investment securities available-for-sale to realize gains in the portfolio . because of a decrease in our cost of funds and the volume increase of interest earning assets , our net interest margin increased from 4.00 % to 4.06 % during fiscal 2013 compared to 2012 and our net interest income increased to $ 10.6 million for fiscal 2013 as compared to $ 9.7 million for fiscal 2012. we expect to continue to emphasize consumer and commercial lending in the future in order to improve the yield on our portfolio . in july , 2009 , we began offering security brokerage and advisory services at our agency office through tipton wealth management in our effort to transition to a full service community bank . 33 home federal bancorp 's operations and profitability are subject to changes in interest rates , applicable statutes and regulations and general economic conditions , as well as other factors beyond our control . business strategy our business strategy is focused on operating a growing and profitable community-oriented financial institution . our current business strategy includes : · continuing to grow and diversify our loan portfolio . we intend to grow and continue to diversify of loan portfolio by , among other things , emphasizing the origination of commercial real estate and business loans . at june 30 , 2013 , our commercial real estate loans amounted to $ 51.2 million , or 24.5 % of the total loan portfolio . our construction loans at june 30 , 2013 amounted to $ 16.9 million or 8.1 % of the total loan portfolio and commercial business loans amounted to $ 16.8 million or 8.0 % of the total loan portfolio . commercial real estate , commercial business , construction and development and consumer loans all typically have higher yields and are more interest sensitive than long-term single-family residential mortgage loans . we plan to continue to grow and diversify our loan portfolio , and we intend to continue to grow our holdings of commercial real estate and business loans . · diversify our products and services . we intend to continue to emphasize our commercial business products to provide a full-service banking relationship to our commercial customers . we have introduced mobile and internet banking and remote deposit capture , to better serve our commercial clients . additionally , we have developed new deposit products focused on expanding our deposit base to new types of customers . · managing our expenses . we have incurred significant additional expenses related to personnel and infrastructure in recent periods as we implemented our business strategy . our total non-interest expense increased $ 513,000 , or 6.3 % , in fiscal 2013 compared to 2012. our efficiency ratio for 2013 was 62.0 % compared to 62.9 % for fiscal 2012 . · enhancing core earnings . we expect to continue to emphasize commercial real estate and business loans which generally bear interest rates higher than residential real estate loans and sell a substantial part of our fixed rate residential mortgage loan originations . the average interest rate spread for the year ended june 30 , 2013 was 3.80 % as compared to 3.62 % for the year ended june 30 , 2012 . · expanding our franchise in our market area and contiguous communities . we intend to pursue opportunities to expand our market area by opening additional de novo banking offices and possibly , through acquisitions of other financial institutions and banking related businesses ( although we have no current plans , understandings or agreements with respect to any specific acquisitions ) . we expect to focus on contiguous areas to our current locations in caddo and bossier parishes . · maintain our asset quality . at june 30 , 2013 , our non-performing assets totaled $ 649,000 , or 0.23 % of total assets . we had no real estate owned and one troubled debt restructuring at june 30 , 2013. we intend to continue to stress maintaining high asset quality even as we continue to grow our institution and diversity our loan portfolio . story_separator_special_tag we have not purchased any loans since fiscal 2008. as part of implementing our business strategy , in recent periods we diversified the loan products we offer and increased our efforts to originate higher yielding commercial real estate loans and lines of credit and commercial business loans . in fiscal 2009 , we hired three commercial loan officers and began offering commercial real estate loans and lines of credit and commercial business loans which were deemed attractive due to their generally higher yields and shorter anticipated lives compared to single-family residential mortgage loans . as of june 30 , 2013 , home federal bank had $ 51.2 million of commercial real estate loans and $ 16.8 million of commercial business loans . although commercial loans are generally considered to have greater credit risk than other certain types of loans , we attempt to mitigate such risk by originating such loans in our market area to known borrowers . securities available-for-sale decreased $ 20.5 million , or 29.9 % , from $ 68.4 million at june 30 , 2012 to $ 48.0 million at june 30 , 2013. this decrease resulted primarily from the sale of securities , normal principal paydowns , and by market value declines in the portfolio , partially offset by new investment acquisitions of $ 31.5 million . during the past two years , there have been significant loan prepayments due to the heavy volume of loan refinancing . however , with interest rates at their cyclical lows , management is reluctant to invest in long-term , fixed rate mortgage loans for the portfolio and instead sold the majority of the long-term , fixed rate mortgage loan production . during the quarter ended june 30 , 2012 , $ 3.6 million of mortgage-backed securities designated as held-to-maturity were transferred to the investment securities available for sale category as management determined they no longer had the intent to hold the securities to maturity . new investment securities purchased during fiscal 2013 consisted of mortgage-backed securities . cash and cash equivalents decreased $ 31.2 million , or 89.4 % , from $ 34.9 million at june 30 , 2012 to $ 3.7 million at june 30 , 2013.the net decrease in cash and cash equivalents was attributable to a non-recurring deposit during the fourth quarter of fiscal 2012 which had a remaining balance of approximately $ 31.7 million at june 30 , 2012. this short-term deposit was fully withdrawn early in the first quarter of fiscal 2013. total liabilities decreased $ 11.1 million , or 4.5 % , from $ 246.3 million at june 30 , 2012 to $ 235.2 million at june 30 , 2013 due primarily to a decrease of $ 9.5 million , or 4.3 % , in deposits , and a decrease in advances from the federal home loan bank of $ 1.8 million , or 7.7 % . the decrease in deposits was attributable primarily to a decrease of $ 29.0 million in our money market accounts as the result of the effects of the $ 31.7 million short-term deposit as of june 30 , 2012 , described above . certificates of deposit increased $ 3.6 million , or 3.3 % , from $ 108.6 million at june 30 , 2012 to $ 112.3 million at june 30 , 2013. now accounts increased $ 4.6 million from $ 16.9 million at june 30 , 2012 to $ 21.5 million at june 30 , 2013. non-interest bearing deposit accounts increased $ 8.6 million from $ 20.6 million at june 30 , 2012 to $ 29.2 million at june 30 , 2013 and savings accounts increased $ 2.6 million from $ 6.9 million at june 30 , 2012 to $ 9.5 million at june 30 , 2013. at june 30 , 2013 , we held $ 12.7 million in brokered certificates of deposit . shareholders ' equity decreased $ 7.9 million , or 15.8 % , to $ 42.0 million at june 30 , 2013 , from $ 49.9 million at june 30 , 2012. the primary reasons for the decrease in shareholders ' equity from june 30 , 2012 , were the acquisition of treasury stock of $ 10.5 million , dividends paid of $ 632,000 and a decrease in the company 's accumulated other comprehensive income of $ 1.3 million . these decreases in shareholders ' equity were partially offset by net income of $ 3.1 million for the year ended june 30 , 2013 , proceeds from the issuance of common stock from the exercise of stock options of $ 769,000 and the vesting of restricted stock awards , stock options and release of employee stock ownership plan shares totaling $ 617,000. the change in accumulated other comprehensive income was primarily due to the change in net unrealized loss on securities available for sale due to recent declines in interest rates . the net unrealized loss on securities available-for-sale is affected by interest rate fluctuations . generally , an increase in interest rates will have an adverse impact while a decrease in interest rates will have a positive impact . 36 average balances , net interest income , yields earned and rates paid . the following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields , as well as the interest expense on average interest-bearing liabilities , expressed both in dollars and rates , and the net interest margin . tax-exempt income and yields have not been adjusted to a tax-equivalent basis . all average balances are based on monthly balances . management does not believe that the monthly averages differ significantly from what the daily averages would be . replace_table_token_26_th ( 1 ) includes loans held for sale for the years ended june 30 , 2013 and 2012 . ( 2 ) includes retained earnings and accumulated other comprehensive loss . ( 3 ) interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate on interest-bearing liabilities .
| general . net income amounted to $ 3.1 million for the year ended june 30 , 2013 , reflecting an increase of $ 287,000 compared to net income of $ 2.8 million for the year ended june 30 , 2012. this increase was due to a $ 1.2 million increase in net interest income after provision for loan losses and a $ 100,000 increase in non-interest income , offset by an increase of $ 513,000 in non-interest expense and an increase of $ 501,000 in the provision for income taxes . net interest income . net interest income amounted to $ 10.6 million for fiscal year 2013 , an increase of $ 903,000 , or 9.3 % , compared to $ 9.7 million for fiscal year 2012. the increase was due primarily to an increase of $ 432,000 in total interest income , and a $ 471,000 decrease in interest expense . the average interest rate spread increased from 3.62 % for fiscal 2012 to 3.80 % for fiscal 2013 while the average balance of net interest-earning assets increased from $ 241.7 million to $ 260.7 million during the same periods . the percentage of average interest-earning assets to average interest-bearing liabilities decreased slightly to 126.77 % for fiscal 2013 compared to 130.09 % for fiscal 2012. the increase in the average interest rate spread reflects the decline in interest rates paid on interest bearing liabilities .
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this discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying notes . the statements in this annual report may contain forward-looking statements relating to such matters as anticipated future financial performance , business prospects , legislative developments and similar matters . we note that a variety of factors could cause our actual results to differ materially from the anticipated results expressed in the forward looking statements such as intensified competition and or operating problems in our operating business projects and their impact on revenues and profit margins or additional factors as described under “ risk factors ” above . 71 executive overview we are a leading national non-bank lender and own and control certain portfolio companies under the newtek® brand ( our “ controlled portfolio companies , ” as defined below ) that provide a wide range of business and financial products to smbs . newtek 's products and services include : business lending , including origination of sba 7 ( a ) and sba 504 loans , electronic payment processing , managed technology solutions ( cloud computing ) , technology consulting , ecommerce , accounts receivable and inventory financing , the newtek advantage , personal and commercial insurance services , web services , data backup , storage and retrieval , and payroll and benefits solutions to smb accounts nationwide across all industries . we have an established and reliable platform that is not limited by client size , industry type , or location . as a result , we believe we have a strong and diversified client base across every state in the u.s. and across a variety of different industries . in addition , we have developed a financial and technology based business model that enables us and our controlled portfolio companies to acquire and process our smb clients in a very cost effective manner . this capability is supported in large part by newtracker® , our patented prospect management technology software , which is similar to , but we believe better than , the system popularized by salesforce.com . we believe that this technology and business model distinguishes us from our competitors . we consolidate the following wholly-owned subsidiaries : newtek small business finance , llc newtek asset backed securities , llc the whitestone group , llc wilshire colorado partners , llc wilshire dc partners , llc wilshire holdings i , inc. wilshire louisiana bidco , llc wilshire louisiana partners ii , llc wilshire louisiana partners iii , llc wilshire louisiana partners iv , llc wilshire new york advisers ii , llc wilshire new york partners iii , llc wilshire new york partners iv , llc wilshire new york partners v , llc wilshire partners , llc ccc real estate holdings , llc exponential business development co. , inc. newtek lsp holdco , llc newtek business services holdco 1 , inc. newtek business services holdco 2 , inc. newtek business services holdco 3 , inc. newtek business services holdco 4 , inc. newtek business services holdco 5 , inc. ( formerly banc-serv acquisition , inc. ) 72 we are an internally-managed , closed-end , non-diversified investment company that has elected to be regulated as a bdc under the 1940 act . in addition , for u.s. federal income tax purposes , we have elected to be treated as a ric under the code beginning in the 2015 tax year . as a bdc and a ric , we are also subject to certain constraints , including limitations imposed by the 1940 act and the code . we converted to a bdc in november 2014. as a result , previously consolidated subsidiaries are now recorded as investments in controlled portfolio companies , at fair value . nsbf is a consolidated subsidiary and originates loans under the sba 's 7 ( a ) program . our common shares are currently listed on the nasdaq global market under the symbol “ newt ” . nsbf has been granted plp status and originates , sells and services sba 7 ( a ) loans and is authorized to place sba guarantees on loans without seeking prior sba review and approval . being a national lender , plp status allows nsbf to expedite the origination of loans since nsbf is not required to present applications to the sba for concurrent review and approval . the loss of plp status could adversely impact our marketing efforts and ultimately our loan origination volume which could negatively impact our results of operations . as a bdc , our investment objective is to generate both current income and capital appreciation primarily through loans originated by our business finance platform and our equity investments in certain portfolio companies that we control . we target our debt investments , which are principally made through our business finance platform under the sba 7 ( a ) program , to produce a coupon rate of prime plus 2.75 % which enables us to generate rapid sales of loans in the secondary market . we typically structure our debt investments with the maximum seniority and collateral along with personal guarantees from portfolio company owners , in many cases collateralized by other assets including real estate . in most cases , our debt investment will be collateralized by a first lien on the assets of the portfolio company and a first or second lien on assets of guarantors , in both cases primarily real estate . all sba loans are made with personal guarantees from any owner ( s ) of 20 % or more of the portfolio company 's equity . the amount of new debt investments , particularly sba 7 ( a ) loans that we originate , will directly impact future investment income . in addition , future amounts of unrealized appreciation or depreciation on our investments , as well as the amount of realized gains or losses , will also fluctuate depending upon economic conditions and the performance of our investment portfolio . the changes in realized gains and losses and unrealized appreciation or depreciation could have a material impact on our operating results . story_separator_special_tag sba 7 ( a ) unguaranteed loan portfolio at december 31 , 2017 on a cost basis ( in thousands ) : replace_table_token_13_th 75 the following table sets forth distribution by primary collateral type of the company 's sba 7 ( a ) unguaranteed loan portfolio at december 31 , 2016 on a cost basis ( in thousands ) : replace_table_token_14_th the following table sets forth distribution by days delinquent of the company 's sba 7 ( a ) unguaranteed loan portfolio at december 31 , 2017 on a cost basis ( in thousands ) : replace_table_token_15_th the following table sets forth distribution by days delinquent of the company 's sba 7 ( a ) unguaranteed loan portfolio at december 31 , 2016 on a cost basis ( in thousands ) : replace_table_token_16_th 76 comparison of the year ended december 31 , 2017 and 2016 investment income replace_table_token_17_th interest income the increase in interest income was attributable to the average outstanding performing portfolio of sba non-affiliate investments increasing to $ 227,761,000 from $ 176,210,000 for the years ended december 31 , 2017 and 2016 , respectively , combined with an increase in the prime rate . during the year ended december 31 , 2016 the prime rate was 3.50 % . during the year ended december 31 , 2017 the prime rate was increased three times to 3.75 % , effective january 2017 , to 4.00 % , effective april 2017 and to 4.25 % , effective july 2017. the increase in the average outstanding performing portfolio resulted from the origination of new sba non-affiliate investments during the year . in addition , during the year ended december 31 , 2017 , we recognized $ 1,493,000 of interest income related to accrued non-performing interest owed by two borrowers who paid their accrued interest balance in full . dividend income replace_table_token_18_th dividend income decreased $ 826,000 year over year . during the year ended december 31 , 2017 , we earned $ 200,000 of dividend income from nbcs , $ 550,000 and $ 225,000 of dividend income from ipm and sidco , respectively , both new wholly-owned controlled portfolio companies that we invested in on april 6 , 2017. dividend income earned from upsw increased $ 300,000 year over year . these increases were offset by decreases in dividend income earned from nts , sbl and bsp . dividend income is dependent on portfolio company earnings . current period dividend income may not be indicative of future period dividend income . nsbf servicing portfolio and related servicing income the following table represents nsbf originated servicing portfolio and servicing income earned for the years ended december 31 , 2017 and 2016 : 77 replace_table_token_19_th ( 1 ) of this amount , the total average nsbf originated portfolio earning servicing income was $ 783,578,000 and $ 633,126,000 for the years ended december 31 , 2017 and 2016 , respectively . the increase in servicing income was attributable to the increase in total portfolio investments for which we earn servicing income . the portfolio earning servicing income increased $ 150,452,000 year over year . the increase was attributable to an increase in sba 7 ( a ) non-affiliate investments from 2016 to 2017 . other income other income relates primarily to legal , packaging , prepayment , and late fees earned from sba 7 ( a ) loans . the increase was related to an increase in legal and packaging fees earned as a result of the larger dollar volume of loans originated . expenses : replace_table_token_20_th salaries and benefits salaries and benefits increased $ 4,058,000 primarily due to an increase in headcount at nsbf . the additional headcount relates primarily to employees performing loan processing , loan closing or loan servicing functions as a result of the increase in loan originations . the increase in salaries and benefits was also related to a $ 386,000 increase in stock-based compensation expense year over year . interest expense the following is a summary of interest expense by facility for the years ended december 31 , 2017 and 2016 : replace_table_token_21_th the increase in interest expense year over year is primarily related to interest from the notes payable - securitization trusts , 2021 notes and notes payable - related parties . the increase from notes payable - securitization trusts was the result of an additional securitization transaction completed in november 2016 and december 2017. in april 2016 , we issued $ 40,250,000 78 of 2021 notes bearing interest at 7.00 % . during the year ended december 31 , 2017 , we incurred a full year of interest expense as compared to a partial year of interest expense in 2016. the increase from notes payable - related parties was related to the increase in the average outstanding balance year over year . change in fair value of contingent consideration a portion of our investment in ipm consisted of contingent consideration based on ipm attaining specific ebitda levels for 2017 and 2018. during the year ended december 31 , 2017 , we reduced the contingent consideration liability by $ 455,000 based on the probability of ipm attaining specific ebitda levels for 2017 and 2018. other general and administrative costs other general and administrative costs include managed it services , marketing , rent and other costs . in april 2016 , the company moved its headquarters to lake success , new york . as a result , the company vacated its spaces in west hempstead , new york and new york , new york . the company recorded a loss of $ 604,000 related to the remaining liabilities under the west hempstead lease , offset by future rental income , during the year ended december 31 , 2016. no such expense was incurred during the year ended december 31 , 2017. the company has sublet both spaces .
| overview our liquidity and capital resources are derived from our capital one facility , notes payable - related parties , 2021 notes , 2022 notes , securitization transactions and cash flows from operations , including investment sales and repayments , and income earned . our primary use of funds from operations includes investments in portfolio companies and payments of fees and other operating expenses we incur . we have used , and expect to continue to use , our borrowings and the proceeds from the turnover of our portfolio and from public and private offerings of securities to finance our investment objectives . we may raise additional equity or debt capital through both registered offerings off a shelf registration , including “ at-the-market ” , or atm , and private offerings of securities . public offerings atm program the atm equity distribution agreement provides that we may offer and sell up to 2,900,000 shares of common stock from time to time through the placement agents . during the year ended december 31 , 2017 , we sold 1,139,000 shares of our common stock at a weighted average price of $ 17.58 per share . proceeds , net of offering costs and expenses were $ 19,620,000 . the company may offer up to an additional 1,761,000 shares of common stock under the atm equity distribution agreement as of december 31 , 2017 . we used the net proceeds for funding investments in debt and equity securities in accordance with our investment objective and strategies and for general corporate purposes including funding investments , repaying outstanding indebtedness and other general corporate purposes . equity offerings in january 2017 we completed a public offering of 2,250,000 shares of our common stock at a public offering price of $ 15.25 per share and an additional 337,500 shares of common stock at a public offering price of $ 15.25 per share pursuant to the underwriter 's full exercise of the over-allotment option .
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a property is classified as held for sale when ( i ) management commits to a plan to sell and it is actively marketed ; ( ii ) it is available for immediate sale in its present condition and the sale is expected to be completed within one year ; and ( iii ) it is unlikely significant changes to the plan will be made or the plan will be withdrawn . the results of operations for properties sold during the period or classified as held for sale at the end of the current period are classified as discontinued operations in the current and prior periods . the property-specific components of earnings classified as discontinued operations include separately identifiable property-specific revenues , expenses , depreciation , and interest expense , if any . the gain or loss resulting from the eventual disposal of the held for sale properties is also classified within discontinued operations . real estate assets held for sale are measured at the lower of carrying amount or fair value less costs to sell and are presented separately in the accompanying consolidated balance sheets . subsequent to classification of story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes appearing elsewhere in this report . historical results and trends which might appear in the consolidated financial statements should not be interpreted as being indicative of future operations . we consider portions of this report to be “ forward-looking ” within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934 , both as amended , with respect to our expectations for future periods . forward-looking statements do not discuss historical fact , but instead include statements related to expectations , projections , intentions , or other items relating to the future ; forward-looking statements are not guarantees of future performances , results , or events . although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions , we can give no assurance our expectations will be achieved . any statements contained herein which are not statements of historical fact should be deemed forward-looking statements . reliance should not be placed on these forward-looking statements as they are subject to known and unknown risks , uncertainties , and other factors beyond our control and could differ materially from our actual results and performance . factors that may cause our actual results or performance to differ materially from those contemplated by forward-looking statements include , but are not limited to , the following : volatility in capital and credit markets , or other unfavorable changes in economic conditions , could adversely impact us ; short-term leases expose us to the effects of declining market rents ; we face risks associated with land holdings and related activities ; difficulties of selling real estate could limit our flexibility ; we could be negatively impacted by the condition of fannie mae or freddie mac ; compliance or failure to comply with laws , including those requiring access to our properties by disabled persons , could result in substantial cost ; competition could limit our ability to lease apartments or increase or maintain rental income ; development and construction risks could impact our profitability ; our acquisition strategy may not produce the cash flows expected ; competition could adversely affect our ability to acquire properties ; losses from catastrophes may exceed our insurance coverage ; investments through joint ventures and discretionary funds involve risks not present in investments in which we are the sole investor ; tax matters , including failure to qualify as a reit , could have adverse consequences ; we rely on information technology in our operations , and any breach , interruption or security failure of that technology could have a negative impact to our business and or financial condition ; we depend on our key personnel ; litigation risks could affect our business ; insufficient cash flows could limit our ability to make required payments for debt obligations or pay distributions to shareholders ; we have significant debt , which could have important adverse consequences ; we may be unable to renew , repay , or refinance our outstanding debt ; variable rate debt is subject to interest rate risk ; we may incur losses on interest rate hedging arrangements ; issuances of additional debt may adversely impact our financial condition ; failure to maintain our current credit ratings could adversely affect our cost of funds , related margins , liquidity , and access to capital markets ; 20 share ownership limits and our ability to issue additional equity securities may prevent takeovers beneficial to shareholders ; our share price will fluctuate ; and the form , timing and or amount of dividend distributions in future periods may vary and be impacted by economic or other considerations . these forward-looking statements represent our estimates and assumptions as of the date of this report , and we assume no obligation to update or supplement forward-looking statements because of subsequent events . executive summary we are primarily engaged in the ownership , management , development , acquisition and construction of multifamily apartment communities . as of december 31 , 2012 , we owned interests in , operated , or were developing 202 multifamily properties comprising 68,620 apartment homes across the united states as detailed in the following property portfolio table . in addition , we own other land parcels we may develop into multifamily apartment communities . property operations our results for the year ended december 31 , 2012 reflect an increase in rental revenue as compared to 2011 , which we believe was primarily due to a gradually improving economy , favorable demographics , a modest supply of new multifamily housing , and a decrease in home ownership rates which have resulted in increases in realized rental rates and average occupancy levels . same store revenues increased 6.5 % in 2012 , following a 5.5 % increase in 2011 . story_separator_special_tag ( 2 ) property owned through an unconsolidated joint venture in which we own a 20 % interest . 24 during the year ended december 31 , 2012 , we acquired the remaining non-controlling ownership interest in three fully consolidated joint ventures , consisting of 680 units located in houston , texas and charlotte , north carolina , for approximately $ 16.5 million . the apartment homes were previously included in our consolidated property count . during the year ended december 31 , 2012 , we acquired four land tracts and one of our unconsolidated joint ventures acquired two land tracts as follows : replace_table_token_12_th ( 1 ) land tract owned through an unconsolidated joint venture in which we own a 20 % interest . dispositions during the year ended december 31 , 2012 , we sold eleven operating properties and two of our unconsolidated joint ventures sold seven operating properties as follows : replace_table_token_13_th ( 1 ) property formerly owned through an unconsolidated joint venture in which we own a 20 % interest . ( 2 ) property formerly owned through an unconsolidated joint venture in which we own a 15 % interest . during january 2013 , we sold one operating property , camden live oaks , consisting of 770 apartment homes . 25 stabilized communities we generally consider a property stabilized once it reaches 90 % occupancy at the beginning of a period . during the year ended december 31 , 2012 , stabilization was achieved at four recently completed consolidated development properties and one completed development property owned by one of our unconsolidated joint ventures as follows : replace_table_token_14_th ( 1 ) property owned through an unconsolidated joint venture in which we own a 20 % interest . development and lease-up properties at december 31 , 2012 , we had two consolidated completed properties in lease-up as follows : replace_table_token_15_th our consolidated balance sheet at december 31 , 2012 included approximately $ 334.5 million related to properties under development and land . of this amount , approximately $ 196.1 million related to our projects currently under development . in addition , we had approximately $ 138.4 million primarily invested in land held for future development , which included approximately $ 85.9 million related to projects we expect to begin constructing during the next two years , and approximately $ 52.5 million invested in land tracts for which we may develop in the future . 26 communities under construction . at december 31 , 2012 , we had seven consolidated properties and one of our unconsolidated joint ventures had two properties in various stages of construction as follows : replace_table_token_16_th ( 1 ) property owned through an unconsolidated joint venture in which we own a 20 % interest . development pipeline communities . at december 31 , 2012 , we had the following communities undergoing development activities : replace_table_token_17_th ( 1 ) represents our best estimate of the total costs we expect to incur on these projects . however , forward-looking statements are not guarantees of future performance , results , or events . although we believe these expectations are based upon reasonable assumptions , future events rarely develop exactly as forecasted , and the best estimates routinely require adjustment . 27 land holdings . at december 31 , 2012 , we had the following land tracts : replace_table_token_18_th geographic diversification at december 31 , 2012 and 2011 , our real estate assets by various markets , excluding depreciation , investments in joint ventures and properties held for sale , were as follows : replace_table_token_19_th story_separator_special_tag and re-development pipelines reaching stabilization during the second and third quarters of 2010 and the completion and partial lease-up of two properties in our development pipeline during 2011 . property expenses from non-same store and development and lease-up communities increased approximately $ 25.7 million for the year ended december 31 , 2012 as compared to 2011 and increased approximately $ 7.9 million for 2011 as compared to 2010 . the increase in 2012 as compared to 2011 was primarily due to $ 17.9 million of expenses during 2012 relating to twelve joint venture communities we consolidated during january 2012 and one joint venture community we consolidated during december 2012 , $ 3.1 million of expenses related to the acquisition of seven properties during 2012 , and $ 3.8 million of expenses related to 30 four properties in our development pipeline reaching stabilization , and the partial lease-up of two properties in our development pipeline during 2012. the increase in 2011 as compared to 2010 was primarily due to approximately $ 7.1 million of expenses recognized during 2011 related to three joint venture communities we consolidated during the second half of 2010 and the completion and partial lease-up of two properties in our development pipeline during 2011 . other property analysis : other property revenues increased approximately $ 1.1 million for the year ended december 31 , 2012 as compared to 2011 and increased $ 0.8 million for the year ended december 31 , 2011 as compared to 2010 . the increase in 2012 was primarily due to revenues of approximately $ 1.4 million for the year ended december 31 , 2012 from above and below market lease amortization related to our 2012 acquisitions . the increase in 2011 as compared to 2010 was primarily related to increases in rental income from our non-multifamily rental properties . other property expenses decreased approximately $ 1.1 million for the year ended december 31 , 2012 as compared to 2011 and decreased $ 1.0 million for the year ended december 31 , 2011 as compared to 2010 . the decrease in 2012 was primarily related to decreases in property taxes expensed on four land holdings for projects which were approved during 2012 and the second half of 2011 for development activities . as a result , we started capitalizing expenses , including property taxes , on these development projects .
| results of operations changes in revenues and expenses related to our operating properties from period to period are due primarily to the performance of stabilized properties in the portfolio , the lease-up of newly constructed properties , acquisitions , and dispositions . where appropriate , comparisons of income and expense for communities included in continuing operations are made on a dollars-per-weighted average apartment home basis in order to adjust for such changes in the number of apartment homes owned during each period . selected weighted averages for the years ended december 31 are as follows : replace_table_token_20_th 28 property-level operating results the following tables present the property-level revenues and property-level expenses , excluding discontinued operations , for the year ended december 31 , 2012 as compared to 2011 and for the year ended december 31 , 2011 as compared to 2010 : replace_table_token_21_th * not a meaningful percentage . same store communities are communities we owned and were stabilized as of january 1 , 2011 , excluding communities under major redevelopment . non-same store communities are stabilized communities we have acquired or developed after january 1 , 2011 or communities which underwent major redevelopment after january 1 , 2011 . development and lease-up communities are non-stabilized communities we have acquired or developed after january 1 , 2011 , excluding communities under major redevelopment . other includes results from non-multifamily rental properties , above/below market lease amortization related to acquired communities , and expenses primarily relating to land holdings not under active development . properties held for sale are excluded from the above results . replace_table_token_22_th * not a meaningful percentage . same store communities are communities we owned and which were stabilized as of january 1 , 2010 , excluding communities under major redevelopment . non-same store communities are stabilized communities we have acquired or developed after january 1 , 2010 or communities which underwent major redevelopment after january 1 , 2010 .
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in calculating ebitdax for this purpose , earnings include realized gains ( losses ) from derivatives not designated as hedges but exclude unrealized gains ( losses ) from derivatives not designated as hedges . we were in compliance with all the financial covenants of the senior credit facility as of december 31 , 2012 . 8.875 % senior notes due 2019 on march 2 , 2011 , we sold $ 275 million of our 8.875 % senior notes 2019 notes ( the 2019 notes ) . the 2019 notes mature on march 15 , 2019 , unless earlier redeemed or repurchased . the 2019 notes are our senior unsecured obligations and rank equally in right of payment to all of our other existing and future indebtedness . the 2019 notes accrue interest at a rate of 8.875 % annually , and interest is paid semi-annually in arrears on march 15 and september 15. the 2019 notes are guaranteed by our subsidiary that also guarantees our senior credit facility . before march 15 , 2014 , we may on one or more occasions redeem up to 35 % of the aggregate principal amount of the 2019 notes at a story_separator_special_tag the following discussion should be read together with the consolidated financial statements and the notes to consolidated financial statements , which are included in this annual report on form 10-k in item 8 , and the information set forth in risk factors under item 1a . overview we are an independent oil and natural gas company engaged in the exploration , development and production of properties primarily in ( i ) south texas , which includes the eagle ford shale trend , ( ii ) northwest louisiana and east texas , which includes the haynesville shale , bossier shale and cotton valley trends and ( iii ) southwest mississippi and southeast louisiana which includes the tuscaloosa marine shale . we seek to increase shareholder value by growing our oil and natural gas reserves , production revenues and operating cash flow . in our opinion , on a long term basis , growth in oil and natural gas reserves and production on a cost-effective basis are the most important indicators of performance success for an independent oil and natural gas company . management strives to increase our oil and natural gas reserves , production and cash flow through exploration and development activities . we develop an annual capital expenditure budget which is reviewed and approved by our board of directors on a quarterly basis and revised throughout the year as circumstances warrant . we take into consideration our projected operating cash flow and externally available sources of financing , such as bank debt , when establishing our capital expenditure budget . we place primary emphasis on our cash flow from operating activities ( operating cash flow ) in managing our business . management considers operating cash flow a more important indicator of our financial success than other traditional performance measures such as net income because operating cash flow considers only the cash expenses incurred during the period and excludes the non-cash impact of unrealized hedging gains ( losses ) , non-cash general and administrative expenses and impairments . our revenues and operating cash flow depend on the successful development of our inventory of capital projects with available capital , the volume and timing of our production , as well as commodity prices for oil and natural gas . such pricing factors are largely beyond our control ; however , we employ commodity hedging techniques in an attempt to minimize the volatility of short term commodity price fluctuations on our earnings and operating cash flow . business strategy our business strategy is to provide long-term growth in reserves on a cost-effective basis . we focus on maximizing our return on capital employed and adding reserve value through the timely development of our eagle ford shale trend , haynesville shale , cotton valley taylor sand and tuscaloosa marine shale acreage . we regularly evaluate possible acquisitions of prospective acreage and oil and natural gas drilling opportunities . several of the key elements of our business strategy are the following : develop existing property base . we seek to maximize the value of our existing assets by developing and exploiting our properties with the lowest risk and the highest potential rate of return . we intend to develop our multi-year inventory of drilling locations on our acreage in the eagle ford shale trend , haynesville shale , cotton valley taylor sands and tuscaloosa marine shale in order to develop our oil and natural gas reserves . 34 increase our oil production . during the past several years we have changed our strategy by concentrating on increasing our crude oil production and reserves rather than natural gas by investing and drilling in the eagle ford shale trend and , more recently , tuscaloosa marine shale . we intend to take advantage of the current favorable sales price of oil compared to the relative sales price of natural gas , and continue to grow our oil production as a percentage of total production . expand acreage position in emerging shale plays . as of december 31 , 2012 , we have acquired approximately 135,000 net acres in the tuscaloosa marine shale trend in southeastern louisiana and southwestern mississippi . we continue to concentrate our efforts in areas where we can apply our technical expertise and where we have significant operational control or experience . to leverage our extensive regional knowledge base , we seek to acquire leasehold acreage with significant drilling potential in areas that exhibit similar characteristics to our existing properties . we continually strive to rationalize our portfolio of properties by selling marginal non-core properties in an effort to redeploy capital to exploitation , development and exploration projects that offer a potentially higher overall return . focus on maximizing cash flow margins . we intend to maximize operating cash flow by focusing on higher-margin oil development in the eagle ford shale trend and the tuscaloosa marine shale . story_separator_special_tag we currently hold approximately 32,000 gross ( 15,600 net ) acres as of december 31 , 2012. our net production volumes from our core haynesville shale wells totaled approximately 34,200 mcfe per day in 2012 , or approximately 40 % of our total production for the year . in 2013 , we estimate that we will spend approximately $ 18 million of completion costs associated with previously drilled wells in our core haynesville shale area . shelby trough / angelina river trend during the second half of 2010 , we spud our first haynesville and bossier shale wells in the shelby trough/angelina river trend area . we operate all of our drilling activities in this area , which is primarily located in nacogdoches , angelina and shelby counties , texas . we currently hold approximately 39,200 gross ( 28,300 net ) acres as of december 31 , 2012. our net production volumes from our shelby trough wells totaled approximately 4,300 mcfe per day in 2012 , or approximately 5 % of our total production for the year . in 2013 , we estimate that we will spend approximately $ 4 million on completion costs associated with a previously drilled well in the shelby trough/angelina river trend area . 36 story_separator_special_tag production and other taxes for the year 2011 include production tax of $ 3.9 million and ad valorem tax of $ 1.6 million . production tax in 2011 is net of $ 1.4 million of tax credits attributed to tgs credits for our wells in the state of texas . the higher production tax for 2012 compared to 2011 is attributable to the increasing portion of our production coming from the eagle ford shale oil wells which are not exempt from texas severance tax and the expiration of the louisiana tax exemption on certain of our horizontal natural gas wells . the tgs tax credits allow for reduced and in many cases the complete elimination of severance taxes in the state of texas for qualifying wells for up to ten years of production . we only accrue for such credits once we have been notified of the state 's approval . the louisiana horizontal wells are eligible for a two year severance tax exemption from the date of first production or until payout of qualified costs , whichever is first . our ad valorem taxes increased $ 0.9 million to $ 2.5 million in 2012 from $ 1.6 million in 2011. ad valorem tax is assessed on the value of properties as of the first day of the year and is highly influenced by commodity prices for the prior several months . the increase is attributed to the assessment of our new eagle ford shale oil wells . our production and other taxes for the year 2011 include production tax of $ 3.9 million and ad valorem tax of $ 1.6 million . production tax in 2011 is net of $ 1.4 million of tax credits attributed to tgs credits for our wells in the state of texas . during the year 2010 , production and other taxes included production tax of $ 1.1 million and ad valorem tax of $ 2.5 million . production tax in 2010 is net of $ 1.6 million of tax credits attributed to tgs credits for our wells in the state of texas and $ 0.4 million severance tax relief related to the horizontal wells we have drilled in the state of louisiana . the higher production tax for 2011 compared to 2010 is attributable to the increasing portion of our production coming from the eagle ford shale oil wells which are not exempt from texas severance tax . our ad valorem taxes decreased $ 0.9 million to $ 1.6 million in 2011 from $ 2.5 million in 2010. ad valorem tax is assessed on the value of properties as of the first day of the year and is highly influenced by commodity prices for the prior several months . the number of properties we owned decreased from january 1 , 2010 to january 1 , 2011 and the assessed values for our properties were lower year-to-year driven by decreased commodity prices . 39 transportation and processing our transportation and processing expense increased in 2012 compared to 2011. the increase in expense is partially a result of higher gathering costs related to our gas production from the eagle ford shale trend wells but more predominately related to the renegotiation of certain natural gas gathering and processing contracts . in return for paying higher gathering and processing fees , as compared to gas production from our haynesville shale wells , we are receiving higher pricing due to the existence of natural gas liquids in our natural gas thereby increasing our revenues . our transportation and processing expense increased in 2011 compared to 2010. the increase in expense is primarily a result of higher transportation costs related to our new natural gas production from the eagle ford shale trend wells offset by the cost savings from the sale of non-core properties in december 2010. exploration the increase in exploration expenses in 2012 compared to 2011 is attributable primarily to $ 12.8 million in dry hole expense related to the denkmann 33h-1 well drilled on our tuscaloosa marine shale acreage . drilling operations on the well have been suspended due to mechanical failure . exploration expense for 2012 also includes $ 5.9 million of amortization of leasehold costs . the decrease in exploration expenses in 2011 compared to 2010 is attributable primarily to a $ 0.8 million decrease in exploration labor costs and a $ 0.6 million decrease in seismic costs . exploration expense for 2011 includes $ 5.5 million of amortization of leasehold costs . replace_table_token_17_th nmnot meaningful . depreciation , depletion & amortization our dd & a expense increased in 2012 from 2011 as a result of higher production and more production coming from operating areas with higher dd & a rates , such as our eagle ford shale trend oil properties .
| results of operations for the year ended december 31 , 2012 , we reported net loss applicable to common stock of $ 90.2 million , or $ 2.48 per share ( basic and diluted ) , on operating revenues of $ 180.8 million . this compares to net loss applicable to common stock of $ 37.8 million , or $ 1.05 per share ( basic and diluted ) , for the year ended december 31 , 2011 and net loss applicable to common stock of $ 268.2 million , or $ 7.47 per share ( basic and diluted ) , for the year ended december 31 , 2010. the following table reflects our summary operating information for the periods presented in thousands except for price and volume data . because of normal production declines , increased or decreased drilling activity and the effects of acquisitions or divestitures , the historical information presented below should not be interpreted as indicative of future results . replace_table_token_15_th oil and natural gas revenue our oil and natural gas revenues decreased in 2012 compared to 2011 reflecting a decrease in production , partially offset by a net increase in average realized sales price . the decrease in net production compared to 2011 contributed approximately $ 49.5 million to the decrease in oil and natural gas revenue partially offset by the increase in average realized sales price compared to 2011 of approximately $ 29.6 million . we continued to focus on drilling oil wells in 2012 resulting in a corresponding decline in our natural gas production . the average realized sales price increase of 15 % in 2012 was led by the increased oil production . in response to depressed natural gas prices , we will continue to focus our resources on increasing oil production , which we are currently able to sell at a more favorable relative price .
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through a focus on research , marketing and innovation , we seek to develop new products that meet the needs of our consumers and commercial end-users , which we believe will increase the product positioning of our brands . we compete through a balance of innovation , a low-cost operating model and an efficient supply chain . we sell products in highly competitive markets , and compete against large international and national companies , regional competitors and against our own customers ' direct sourcing of private-label products . we sell our products primarily to markets located in north america , europe and australia . our brands include gbc ® , kensington ® , quartet ® , rexel , swingline ® , wilson jones ® , marbig , nobo and day-timer ® , among others . the majority of our office products are used by businesses . most of these end-users purchase our products from our reseller customers , which include commercial contract stationers , retail superstores , wholesalers , mail order and internet catalogs , mass merchandisers , club stores and dealers . we also supply our products directly to commercial and industrial end-users and to the educational market . historically we have targeted the premium-end of the product categories in which we compete . however , we also supply private label products for our customers where we believe we have an economic advantage or where it is necessary to merchandise a complete category . our leading brand positions provide the scale to enable us to invest in product innovation and drive market growth across our product categories . in addition , the expertise we use to satisfy the exacting technical specifications of our more demanding commercial customers is in many instances the basis for expanding our product range to include consumer products . our strategy centers on a combination of growing sales and market share and generating acceptable profitability and returns . specifically , we have substantially reduced our operating expenses and seek to leverage our platform for organic growth through greater consumer understanding , product innovation , marketing and merchandising , disciplined category expansion including broader product penetration and possible strategic transactions , and continued cost realignment . to achieve these goals , we plan to continue to execute the following strategies : ( 1 ) invest in research , marketing and innovation , ( 2 ) penetrate the full product spectrum of our categories and ( 3 ) opportunistically pursue strategic transactions . on november 17 , 2011 , the company announced the signing of a definitive agreement to merge the mead c & op business into the company in a transaction valued at approximately $ 860 million as of the date the transaction was announced . the mead c & op business is a leading manufacturer and marketer of school supplies , office products , and planning and organizing tools including the mead ® , five star ® , trapper keeper ® , at-a-glance ® , cambridge ® , day runner ® , hilroy , tilibra and grafons brands in the u.s. , canada and brazil . upon completion of the transaction , meadwestvaco shareholders will own 50.5 % of the combined company . the transaction is subject to approval by the company 's shareholders and the satisfaction of customary closing conditions and regulatory approvals , including a ruling from the u.s. internal revenue service on the tax-free nature of the transaction for meadwestvaco . the transaction is expected to be completed in the first half of 2012. the company will be the accounting acquirer in the merger and will apply purchase accounting to the assets and liabilities acquired upon consummation of the merger . in connection with this transaction , in the year ended december 31 , 2011 , the company has incurred expenses of $ 5.6 million . on june 14 , 2011 , the company announced the disposition of gbc-fordigraph business . the australia-based business was formerly part of the acco brands international segment and the results of operations are 19 included in the financial statements as a discontinued operation for all periods presented . the gbc-fordigraph business represented $ 45.9 million in annual net sales for the year ended december 31 , 2010. the company has received final proceeds of $ 52.9 million inclusive of working capital adjustments and selling costs . in connection with this transaction , in 2011 , the company recorded a gain on sale of $ 41.9 million ( $ 36.8 million after-tax ) . in june 2009 , the company completed the sale of its commercial print finishing business for final gross proceeds of $ 16.2 million , after final working capital adjustments . as a result of the adjustments , the company received net cash proceeds before expenses of $ 12.5 million and a $ 3.65 million note due from the buyer payable in installments , $ 1.325 million of which was paid in june , 2011 and $ 2.325 million that is due june , 2012. interest on the unpaid balance is payable at the rate of 4.9 percent per annum . the gross proceeds received are before fees and expenses related to the transactions and provisions arising from continuing litigation related to the transaction . the commercial print finishing business has been classified as a discontinued operation in our consolidated financial statements for all periods presented . for further information on the company 's discontinued operations see note 18 , discontinued operations , to our consolidated financial statements contained in item 8 of this report . management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements of acco brands corporation and the accompanying notes contained therein . unless otherwise noted , the following discussion pertains only to our continuing operations . overview of company performance acco brands ' results are dependent upon a number of factors affecting sales , including pricing and competition . story_separator_special_tag these funds , together with the $ 453.1 million in proceeds from the issuance of the senior secured notes , were used to ( i ) repay all outstanding borrowings under and terminate the company 's prior senior secured credit agreements , ( ii ) repay all outstanding borrowings under and terminate the company 's accounts receivable securitization program , ( iii ) terminate the company 's cross-currency swap agreement , ( iv ) repurchase approximately $ 29.1 million aggregate principal amount of its 7 5/8 % senior subordinated notes due august 15 , 2015 ( senior subordinated notes ) and ( v ) pay the fees , expenses and other costs relating to such transactions . on november 17 , 2011 , the company announced the signing of a definitive agreement to merge the mead c & op business into the company . subject to this transaction closing , the company has underwritten financing that will fund a $ 460 million dividend to meadwestvaco and refinance the company 's senior secured notes , which had a principal amount outstanding of $ 425.1 million as of december 31 , 2011 , and its $ 175.0 million revolving credit facility , together with transaction and refinancing expenses . 21 fiscal 2011 versus fiscal 2010 the following table presents the company 's results for the years ended december 31 , 2011 and 2010. replace_table_token_6_th net sales net sales increased $ 33.8 million , or 3 % , to $ 1.32 billion , primarily due to translation gains from the u.s. dollar weakening relative to the prior year , which favorably impacted sales by $ 39.8 million , or 3 % . underlying sales declined modestly as lower volume in the international and americas segments were partially offset by higher pricing and volumes gains in the computer products segment . cost of products sold cost of products sold includes all product sourcing , manufacturing and distribution costs , including depreciation related to assets used in the manufacturing and distribution process , inbound and outbound freight , shipping and handling costs , purchasing costs associated with materials and packaging used in the production processes . cost of products sold increased $ 16.2 million to $ 903.7 million . the increase reflects the impact of unfavorable currency translation of $ 25.6 million as well as higher commodity and fuel costs , which were partially offset by lower sales volume and improved manufacturing , freight and distribution efficiencies . gross profit management believes that gross profit and gross profit margin provide enhanced shareholder appreciation of underlying profit drivers . gross profit increased $ 17.6 million , or 4 % , to $ 414.7 million . the increase in gross profit was primarily due to the benefit from favorable currency translation of $ 14.2 million . gross profit margin increased to 31.5 % from 30.9 % , primarily due to improved freight and distribution efficiencies , particularly in europe . 22 sg & a ( advertising , selling , general and administrative expenses ) sg & a expenses include advertising , marketing , selling ( including commissions ) , research and development , customer service , depreciation related to assets outside the manufacturing and distribution processes and all other general and administrative expenses outside the manufacturing and distribution functions ( e.g. , finance , human resources , information technology , etc. ) . sg & a increased $ 12.7 million , or 5 % , to $ 293.9 million , of which currency translation contributed $ 7.0 million of the increase . sg & a as a percentage of sales increased to 22.3 % from 21.9 % . this increase was due to $ 5.6 million in costs associated with the pending acquisition of the mead c & op business . business rationalization charges of $ 4.5 million , primarily incurred in the first quarter of 2011 , were offset by savings during the rest of the 2011. operating income operating income increased $ 5.5 million , or 5 % , to $ 115.2 million , and as a percentage of sales , operating income increased modestly to 8.7 % from 8.5 % . the increase in operating income was driven by $ 7.0 million of favorable currency translation and improved gross margins , partly offset by the sg & a cost increases described above . interest expense , net , equity in earnings of joint ventures and other expense , net interest expense was $ 77.2 million compared to $ 78.3 million in the prior-year . the decrease in interest was due to repurchases of the company 's senior secured notes and senior subordinated notes totaling $ 34.9 million and $ 25.0 million , respectively , as well as lower borrowings under its revolving credit facility during the year . this reduction was partly offset by the acceleration of debt origination amortization costs resulting from bond repurchases of $ 1.2 million . other expense was $ 3.6 million compared to $ 1.2 million in the prior-year period . the increase was due to $ 3.0 million of premium paid on the repurchase of $ 34.9 million of the senior secured notes , partly offset by lower foreign exchange losses in the current year . income taxes for the year ended december 31 , 2011 , the company recorded income tax expense from continuing operations of $ 24.3 million on income before taxes of $ 42.9 million , which compares to an income tax expense from continuing operations of $ 30.7 million on income before taxes of $ 38.5 million in the prior year . the high effective tax rates for 2011 and 2010 are due to no tax benefit being provided on losses incurred in the u.s. and certain foreign jurisdictions where valuation reserves are recorded against future tax benefits .
| results acco brands americas net sales decreased $ 3.4 million to $ 684.9 million . foreign currency translation favorably impacted sales by $ 5.3 million . sales volume declined 3 % , primarily in the u.s. due to inventory management initiatives by certain customers . the decline was partially offset by higher pricing and increased volumes in latin america and canada . operating income decreased $ 5.6 million , or 10 % , to $ 50.7 million and included favorable foreign currency translation of $ 0.9 million . operating income margin decreased to 7.4 % from 8.2 % in the prior-year period primarily due to the deleveraging of fixed costs due to lower sales volume . 24 acco brands international results acco brands international net sales increased $ 23.9 million , or 6 % , to $ 443.2 million . the increase was driven by foreign currency translation , which increased sales by $ 30.0 million , or 7 % . sales volume declined 4 % due to weak european market demand , partially offset by european price increases and small volume gains in the asia-pacific region . operating income increased $ 14.1 million , or 45 % , to $ 45.6 million , including a $ 4.6 million benefit from foreign currency translation . operating income margin increased to 10.3 % from 7.5 % , mainly due to the substantial improvements in european operations , resulting from higher pricing , improved freight and distribution efficiencies , as well as sg & a savings . included in the net sg & a savings were $ 4.5 million of business rationalization charges within europe . computer products group results computer products net sales increased $ 13.3 million , or 8 % , to $ 190.3 million . the favorable impact from foreign currency translation increased sales by $ 4.5 million , or 3 % . the remainder of the increase primarily reflects volume gains from sales of new accessory products for smart phones and tablets .
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the corporation invests in taxable and tax-free debt securities , and equity story_separator_special_tag application of critical accounting policies : disclosure of the corporation 's significant accounting policies is included in note 1 to the consolidated financial statements . these policies are particularly sensitive requiring significant judgments , estimates and assumptions to be made by management . senior management has discussed the development of such estimates , and related management discussion and analysis disclosure , with the audit committee of the board of directors . the following accounting policies are the ones identified by management to be critical to the results of operations : allowance for loan losses – the allowance for loan losses is the estimated amount considered adequate to cover credit losses inherent in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses , charged against income . in determining the allowance for loan losses , management makes significant estimates and , accordingly , has identified this policy as probably the most critical for the corporation . management performs a monthly evaluation of the adequacy of the allowance for loan losses by asset class . consideration is given to a variety of factors in establishing this estimate including , but not limited to : current economic conditions , diversification of the loan portfolio , delinquency statistics , results of internal loan reviews , borrowers ' actual or perceived financial and managerial strengths , the adequacy of the underlying collateral ( if collateral dependent ) and other relevant factors . this evaluation is inherently subjective , as it requires material estimates that may be susceptible to significant change , including the amounts and timing of future cash flows expected to be received on impaired loans . the analysis has two components , specific and general allocations . expected cash flow or collateral values discounted for market conditions and selling costs are used to establish specific allocations . the bank 's historical loan loss experience and other qualitative factors derived from economic and market conditions are used to establish general allocations for the remainder of the portfolio . the allowance for loan losses was $ 9.7 million at december 31 , 2013. management monitors the adequacy of the allowance for loan losses on an ongoing basis and reports its adequacy assessment quarterly to the credit risk oversight committee of the board of directors . financial derivative – as part of its interest rate risk management strategy , the bank has entered into an interest rate swap agreement . a swap agreement is a contract between two parties to exchange cash flows based upon an underlying notional amount . under the swap agreement , the bank pays a fixed rate and receives a variable rate from an unrelated financial institution serving as counter-party to the agreement . the swap is designated as a cash flow hedge and is designed to minimize the variability in cash flows of the bank 's variable rate liabilities attributable to changes in interest rates . the swap in effect converts a portion of a variable rate liability to a fixed rate liability . the interest rate swap is recorded on the balance sheet at fair value as an asset or liability . to the extent the swap is effective in accomplishing its objective , changes in the fair value are recorded in other comprehensive income . to the extent the swap is not effective , changes in fair value are recorded in interest expense . cash flow hedges are determined to be highly effective when the bank achieves offsetting changes in the cash flows of the risk being hedged . the bank measures the effectiveness of the hedges on a quarterly basis and it has determined the hedges are highly effective . fair value is heavily dependent upon the market 's expectations for interest rates over the remaining term of the swaps . restricted stock - restricted stock , which is carried at cost , consists of stock of the federal home loan bank of pittsburgh ( fhlb ) and atlantic central bankers bank ( acbb ) . management evaluates the restricted stock for impairment in accordance with asc topic 320. management 's determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value . the determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as ( 1 ) the significance of the decline in net assets of the banks as compared to the capital stock amount for the banks and the length of time this situation has persisted , ( 2 ) commitments by the banks to make payments required by law or regulation and ( 3 ) the impact of legislative and regulatory changes on institutions and , accordingly , on the customer base of the banks . stock-based compensation – the corporation has two stock compensation plans in place consisting of an employee stock purchase plan ( espp ) and an incentive stock option plan ( isop ) . the corporation accounts for stock compensation plans in accordance with fasb accounting standards codification topic 718 , “ stock compensation. ” asc topic 718 requires compensation costs related to share-based payment transactions to be recognized in the financial statements ( with limited exceptions ) . the amount of compensation cost is measured on the grant-date fair value of the equity or liability instruments issued . compensation cost is recognized over the period that an employee provides services in exchange for the award . the corporation calculates the compensation cost of the options by using the black-scholes method to determine the fair value of the options granted . in calculating the fair value of the options , the corporation makes assumptions regarding the risk-free rate of return , the expected volatility of the corporation 's common stock , dividend yield and the expected life of the option . story_separator_special_tag other key performance measurements are presented above in item 6 , selected financial data . a more detailed discussion of the areas that had the greatest effect on the reported results follows . net interest income the most important source of the corporation 's earnings is net interest income , which is defined as the difference between income on interest-earning assets and the expense of interest-bearing liabilities supporting those assets . principal categories of interest-earning assets are loans and securities , while deposits , securities sold under agreements to repurchase ( repos ) , short-term borrowings and long-term debt are the principal categories of interest-bearing liabilities . for the purpose of this discussion , balance sheet items refer to the average balance for the year and net interest income is adjusted to a fully taxable-equivalent basis . this tax-equivalent adjustment facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the federal income taxes that would have been paid if this income were taxable at the corporation 's 34 % federal statutory rate . the components of net interest income are detailed in tables 1 , 2 and 3 . 2013 versus 2012 summary : tax equivalent net interest income ( table 1 ) declined by 2 % during 2013. the average balance of interest-earning assets declined during the year and the yield on these assets fell by 29 basis points ; therefore , tax-equivalent interest income declined ( see table 3 ) . likewise , table 3 also shows that the average balance of interest-bearing liabilities declined during the year and the cost of these deposits also fell by 29 basis points . as a result , tax-equivalent net interest income declined by $ 675 thousand and the net interest margin as a percentage of earning assets fell from 3.50 % in 2012 to 3.47 % in 2013. table 2 shows that changes in interest rates had a larger negative effect on net interest income than did the changes in the balance sheet . assets : table 3 shows the average balance and yield on the major asset classes on the corporation 's balance sheet . average interest earning assets and the yield on these assets declined during 2013. the low interest rate environment that continues to be supported by federal reserve actions continues to push asset yields down on both new assets and the repricing of existing assets . the investment portfolio averaged $ 152.6 million in 2013 compared to $ 134.7 million in 2012. despite the increase in the average balance , the yield on the portfolio declined from 2.96 % in 2012 to 2.68 % in 2013. the bank purchased $ 69.1 million of new securities in 2013 , primarily in the u.s. government agency mortgaged backed securities sector . average loan balances fell during the year , with every category showing a reduction from the 2012 averages except for residential mortgages . the commercial loan portfolio declined $ 34.3 million and the yield fell by 20 basis points during the year . the low interest rate environment continues to be an incentive for pre-payments and refinancing , and good quality credits are in demand by many lenders eager to increase volume . as a result , the bank has lost some balances to prices that it felt was unable to match . approximately 86 % of the commercial loan portfolio is variable rate with rates tied to short-term market rates like prime or libor . until there is an increase in short-term rates , the yield on the commercial loan portfolio is likely to decline . the bank retained more of its mortgage production in 2013 ; therefore , the average balance increased during the year . however , the yield on the mortgage portfolio declined year over year . the bank retained primarily shorter term mortgages and sold longer term mortgages in the secondary market . with a slight increase in mortgage rates during the year , refinancing activity slowed . the bank believes that mortgage activity in 2014 will see a shift from refinance to purchase activity . 13 consumer lending , including home equity products , continued to decline . home equity products declined , on average by approximately $ 7 million compared to 2012 and the yield fell by 32 basis points . the bank 's home equity loan products are fixed rate and the home equity line of credit products are variable rate . both products have seen new production rates decline , but the lower volume was the largest factor contributing to the decline in interest income on these products . liabilities : table 3 shows the average balance and cost of the major interest-bearing liabilities classes on the corporation 's balance sheet . the average balance of interest-bearing liabilities declined by $ 15.9 million in 2013 and the cost fell by 29 basis points . every category of interest-bearing deposits , except time deposits ( cds ) increased during the year . the interest-bearing checking and money management accounts showed the largest balance increases . the increase in interest checking and money management came primarily in the municipal account categories in the bank 's fully insured deposit products . the average balance of cds declined primarily due to a reduction in brokered cds . the reduction in brokered cds was due to action taken by the bank to “ call ” and payoff higher rate brokered cds , and by scheduled maturities . the cost of interest-bearing deposits fell from .70 % in 2012 to .50 % in 2013 driven down by an 18 basis point reduction on the rate of the money management product . the average balance of securities sold under agreements to repurchase declined by $ 19.2 million as the bank has been transitioning these accounts to a fully insured checking account product .
| summary : the corporation 's 2012 net interest income was virtually flat compared to 2011. tax equivalent net interest income for the year was $ 33.9 million compared to $ 34.4 million in 2011 , a decline of 1.3 % . despite an increase of $ 48.0 million in average earning assets for 2012 compared to 2011 , the margin was negatively affected by the low interest rate environment that pushed asset yields down faster than liability costs . as a result , the net interest margin as a percentage of earning assets fell to 3.50 % in 2012 compared to 3.73 % in 2011. the larger balance sheet increased net interest income by $ 248 thousand , but lower rates drove net interest income down by $ 680 thousand , resulting in a net decline of $ 432 thousand year over year . assets : average interest earning assets for 2012 grew by 5.2 % over the 2011 average . despite the growth , lower yielding assets resulted in a decline of $ 2.6 million in interest income compared to 2011. the assets produced a yield of 4.22 % compared to 4.73 % in 2011. the mix of assets and lower rates resulted in $ 2.7 million less tax equivalent interest income than in 2011. table 2 presents information on the affect that changes in volume ( balance sheet size ) and the changes in rates have on tax-equivalent interest income . table 3 presents information on the average balance and yields on average earning assets . throughout the year , the bank experienced strong deposit growth , but loan balances were down slightly and average investments increased minimally . therefore , interest-bearing deposits at banks ( the bank 's lowest yielding asset class ) absorbed the increase in funds and was $ 48.9 million more in 2012 than in the prior year .
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use of the words “ anticipates , ” “ believes , ” “ could , ” “ estimates , ” “ expects , ” “ intends , ” “ may , ” “ plans , ” “ potential , ” “ predicts , ” “ projects , ” “ should , ” “ will , ” “ would , ” “ will likely continue , ” “ will likely result ” and similar expressions that contemplate future events may identify forward-looking statements . the information contained in this section is not a complete description of our business or the risks associated with an investment in our common stock . we urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the sec , which are available on the sec 's website at http : //www.sec.gov . the section entitled “ risk factors ” set forth in part i , item 1a of this report , and similar discussions in our other sec filings , describe some of the important factors , risks and uncertainties that may affect our business , results of operations and financial condition and could cause actual results to differ materially from those expressed or implied by these or any other forward-looking statements made by us or on our behalf . you are cautioned not to place undue reliance on these forward-looking statements , which are based on current expectations and reflect management 's opinions only as of the date thereof . we do not assume any obligation to revise or update forward-looking statements . finally , our historic results should not be viewed as indicative of future performance . overview we are a leading online provider of aftermarket auto parts , including collision parts , engine parts , and performance parts and accessories . our user-friendly websites provide customers with a broad selection of skus , with detailed product descriptions and photographs . our proprietary product database maps our skus to product applications based on vehicle makes , models and years . we principally sell our products to individual consumers through our network of websites and online marketplaces . through automd.com , the company also educates consumers on the maintenance and service of their vehicles . our flagship consumer websites are located at www.autopartswarehouse.com , www.carparts.com , www.jcwhitney.com and www.automd.com and our corporate website is located at www.usautoparts.net . we believe our strategy of disintermediating the traditional auto parts supply chain and selling products directly to customers over the internet allows us to efficiently deliver products to our customers . industry-wide trends that support our strategy include : 1. number of skus required to serve the market . the number of automotive skus has grown dramatically over the last several years . in today 's market , unless the consumer is driving a high volume produced vehicle and needs a simple maintenance item , the part they need is not typically on the shelf at a brick-and-mortar store . we believe our user-friendly websites provide customers with a favorable alternative to the brick-and-mortar shopping experience by 24 offering a comprehensive selection of over 1.0 million skus with detailed product descriptions , attributes and photographs combined with the flexibility of fulfilling orders using both drop-ship and stock-and-ship methods . 2. u.s. vehicle fleet expanding and aging . the average age of u.s. vehicles , an indicator of auto parts demand , rose to a record-high 11.5 years as of january 2016 , according to ihs automotive , a market analytics firm that expects the average age to remain at , or near record-highs through 2020. ihs expects the number of vehicles that are 12 years or older to increase by 15 % by 2020. ihs found that the total number of light vehicles in operation in the u.s. has increased to record levels , with new vehicle registrations outpacing scrappage rates . we believe an increasing vehicle base and rising average age of vehicles will have a positive impact on overall aftermarket parts demand because older vehicles generally require more repairs . in many cases we believe these older vehicles are driven by do-it-yourself ( `` diy '' ) car owners who are more likely to handle any necessary repairs themselves rather than taking their car to the professional repair shop . 3. growth of online sales . management estimates that overall revenue from online sales of auto parts and accessories is projected to increase from approximately $ 5.5 billion in 2015 to $ 9.7 billion in 2018. improved product availability , lower prices and consumers ' growing comfort with digital platforms are driving the shift to online sales . we believe that we are well positioned for the shift to online sales due to our history of being a leading source for aftermarket automotive parts through online marketplaces and our network of websites . our history . we were formed in california in 1995 as a distributor of aftermarket auto parts and launched our first website in 2000. we reincorporated in delaware in 2006 and expanded our online operations , increasing the number of skus sold through our e-commerce network , adding additional websites , improving our internet marketing proficiency and commencing sales in online marketplaces . additionally , in august 2010 , through our acquisition of whitney automotive group , inc. ( referred to herein as “ wag ” ) , we expanded our product-lines and increased our customer reach in the diy automobile and off-road accessories market . international operations . in april 2007 , we established offshore operations in the philippines . our offshore operations allow us to access a workforce with the necessary technical skills at a significantly lower cost than comparably experienced u.s.-based professionals . our offshore operations are responsible for a majority of our website development , catalog management , and back office support . our offshore operations also house our main call center . we had 768 employees in the philippines as of january 2 , 2016 . story_separator_special_tag we generated adjusted ebitda , or net income before net interest expense , income tax provision , depreciation and amortization expense and amortization of intangible assets , plus share-based compensation expense , impairment loss and restructuring costs ( `` adjusted ebitda '' ) , of $ 14,024 in fiscal 2016 compared to $ 10,029 in fiscal 2015 . adjusted ebitda , which is not a generally accepted accounting principle ( gaap ) measure , is presented because management uses it as one measure of the company 's operating performance , as it assists in comparing the company 's operating performance on a consistent basis by removing the impact of stock compensation expense , as well as items that are not expected to be recurring . internally , this non-gaap measure is also used by management for planning purposes , including the preparation of internal budgets ; for allocating resources to enhance financial performance ; and for evaluating the effectiveness of operational strategies . the company also believes that such measure is used by rating agencies , securities analysts , investors and other parties in evaluating the company . it should not be considered , however , as an alternative to operating income , or as an alternative to cash flows as a measure of the company 's overall liquidity , as presented in the company 's consolidated financial statements . further , the adjusted ebitda measure shown may not be comparable to similarly titled measures used by other companies . refer to the table presented below for reconciliation of net loss to adjusted ebitda . for fiscal 2016 , automd generated net sales of $ 247 compared to $ 258 in fiscal 2015 . automd 's net loss was $ 3,576 for fiscal 2016 , which included a non-cash impairment charge of $ 1,130 relating to the impairment of certain automd 26 software , compared to a net loss of $ 2,288 for fiscal 2015 . automd 's adjusted ebitda was negative $ 1,354 in fiscal 2016 compared to negative $ 1,663 in fiscal 2015 . total revenues increased in fiscal 2016 compared to fiscal 2015 primarily due to growth in our online sales . our online sales , which include our e-commerce , online marketplace sales channels and online advertising , contributed 91.0 % of total revenues , and our offline sales , which consist of our kool-vue and wholesale operations , contributed 9.0 % of total revenues . our online sales for fiscal year 2016 increased by $ 11,395 , or 4.3 % , to $ 276,116 compared to $ 264,721 in fiscal 2015 primarily due to an increase in unique visitors as well as conversion , resulting in a 10.4 % increase in the total number of orders . our offline sales increased by $ 1,080 , or 4.1 % , to $ 27,451 compared to the same period last year due to an expanded drop ship customer base . like most e-commerce retailers , our success depends on our ability to attract online consumers to our websites and convert them into customers in a cost-effective manner . historically , marketing through search engines provided the most efficient opportunity to reach millions of online auto part buyers . we are included in search results through paid search listings , where we purchase specific search terms that will result in the inclusion of our listing , and algorithmic searches that depend upon the searchable content on our websites . algorithmic listings can not be purchased and instead are determined and displayed solely by a set of formulas utilized by the search engine . we have had a history of success with our search engine marketing techniques , which gave our different websites preferred positions in search results . search engines , like google , revise their algorithms from time to time in an attempt to optimize their search results . during the last few years , google has changed its search results ranking algorithm . in some cases our unique visitor count , and therefore our financial results , were negatively impacted by these changes . we continue to address the ongoing changes to the google methodology , and during the fiscal year 2016 , our unique visitor count increased by 1.2 million , or 1.0 % , to 117.9 million unique visitors compared to 116.7 million unique visitors in fiscal 2015 primarily due to an increase in paid traffic , partially offset by lower organic traffic . as in the past we expect google will continue to make changes in their search engine algorithms to improve their user experience . as we are significantly dependent upon search engines for our website traffic , if we are unable to address these ongoing changes and attract unique visitors , our business and results of operations will be harmed . total expenses , which primarily consisted of cost of sales and operating costs , increased in fiscal year 2016 compared to the same period in 2015 . components of our cost of sales and operating costs are described in further detail under — “ basis of presentation ” below . in 2016 , we made positive strides towards achieving our strategic goals and in 2017 we will continue to pursue these strategies to continue our positive sales growth , improve gross profit while reducing operating costs as percent of sales : we expect to continue positive e-commerce growth by providing unique catalog content and providing better content on our websites with the goal of improving our ranking on the search results . in addition , we intend to improve mobile enabled websites to take advantage of shifting consumer behaviors . we expect revenue trends to remain positive in 2017 .
| resulting in an increase in operating liabilities and reflecting a cash inflow of $ 7,767 for the fiscal year ended december 31 , 2016 . accounts payable and accrued expenses increased primarily due to an increase in accounts payable of $ 8,174 , partially offset by a decrease in accrued expenses of $ 407 . accounts payable and accrued expenses decreased to $ 32,790 at january 2 , 2016 compared to $ 33,109 at january 3 , 2015 resulting in a decrease in operating liabilities and reflecting a cash outflow of $ 319 for the fiscal year ended january 2 , 2016 . accounts payable and accrued expenses decreased primarily due to the decrease in accrued expenses of $ 480 , partially offset by an increase in accounts payable of $ 161. other current liabilities increased to $ 1,972 at december 31 , 2016 compared to $ 1,276 at january 2 , 2016 , resulting in an increase in operating liabilities and reflecting a cash inflow of $ 696 for the fiscal year ended december 31 , 2016 . other current liabilities increased primarily due to an increase in deferred warranty revenues . other current liabilities increased to $ 1,276 at january 2 , 2016 compared to $ 3,505 at january 3 , 2015 , resulting in an increase in operating liabilities and reflecting a cash inflow of $ 349 for the fiscal year ended january 2 , 2016 . other current liabilities increased due to an increase in customer deposits . investing activities for the fiscal years ended december 31 , 2016 , january 2 , 2016 and january 3 , 2015 , net cash used in investing activities was primarily the result of increases in property and equipment ( $ 6,353 , $ 7,780 and $ 5,556 respectively ) . property and equipment is primarily internally developed software .
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controls and procedures an evaluation was performed under the supervision and with the participation of our management , including our principal executive officer and principal financial officer , of the effectiveness of our disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the exchange act , as of the end of the period covered by this annual report on form 10-k. based on the foregoing , our management concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the exchange act is recorded , processed , summarized and reported within the time periods specified in the sec rules and forms and such information is accumulated and communicated to our management , including our principal executive officer and principal financial officer , to allow timely decisions regarding required disclosure . there was no change in our internal control over financial reporting that occurred during the year ended november 30 , 2019 that has materially affected , or is reasonably likely to materially affect , our internal control over financial reporting . report of management on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company . internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states . internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions ; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements ; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management 's authorization ; and providing reasonable assurance that unauthorized acquisition , use or disposition of our assets that could have a material effect on the financial statements would be prevented or detected on a timely basis . because of its inherent limitations , internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected . management conducted its evaluation of the effectiveness of our internal controls over financial reporting based on criteria established in internal control - integrated framework ( 2013 ) issued by the committee of sponsoring organizations of the treadway commission . based on this evaluation , management concluded that our internal control over financial reporting was effective as of november 30 , 2019. the effectiveness of our assessment of internal control over financial reporting as of november 30 , 2019 has been audited by pricewaterhousecoopers llp , an independent registered public accounting firm , as stated in their report which appears herein . item 9b . other information story_separator_special_tag , on registrant 's annual report on form 10-k for the year ended november 30 , 2018 , filed with the securities and exchange commission on january 23 , 2019. overview our operations primarily relate to the delivery of project milestones , including the achievement of various technical , environmental , sustainable development , economic and legal objectives , obtaining necessary permits , completion of feasibility studies , preparation of engineering designs and the financing to fund these objectives . in 2019 , we successfully delivered on the key goals established at the beginning of the year . highlights of our accomplishments include : advancement of the donlin gold project donlin gold llc continues to support the alaska department of natural resources ( adnr ) to advance permits and certificates for the project . adnr 's approval of the alaska dam safety certificates for the tailings storage facility and water retention and diversion structures requires a thorough multi-year stepwise process to deliver a final construction package to adnr . during july 2019 , donlin gold commenced a site investigation program in support of advancement of dam engineering from a feasibility level to a final construction package . the site investigation information will support a preliminary design package , detailed design package and ultimately the final construction package , each of which will be submitted to adnr for final approval and issuance of the dam safety certificates . this program consists of geotechnical core drilling , test pits , overburden drilling , packer tests , hydrogeologic test well installation and pumping tests , and geophysical surveys . safety training and camp preparations were completed in the third quarter . due to wildfires that affected the project area , the program was temporarily suspended in july for a period of five weeks , as all personnel were safely moved as a precautionary measure and to accommodate firefighting operations . there was no damage to donlin gold structures and equipment and the camp reopened in september . adnr 's division of mining , land , and water ( dmlw ) issued the easement land leases , land use permits , and material site authorizations for the proposed transportation facilities , and easement for the fiber optic cable on state lands on january 2 , 2020 , following the issuance of the preliminary decisions on january 28 , 2019 and the close of the public comment period for these decisions in march 2019. adnr 's division of oil and gas ( dog ) , is finalizing the row authorizations for the natural gas pipeline , following the issuance of the preliminary decision in march 2019. in 2018 , earthjustice , on behalf of orutsararmiut native council ( onc ) , akiak native community ira council , organized village of kwethluk , native village of kwigillingok , chuloonawick tribal council , and the yukon-kuskokwim river alliance , requested an informal review of the state of alaska 's 401 certification ( the “ certification story_separator_special_tag ” ) by the director of the division of water in the alaska department of environmental conservation ( adec ) . in october 2018 , the director responded to the request by deciding to conduct the informal review and reissued the certification on april 4 , 2019. on april 24 , 2019 , earthjustice requested a second informal review of the certification and the request was granted by adec on may 4 , 2019. a decision on the second informal review of the certification is expected by the end of the first quarter of 2020. the final approvals of the donlin gold reclamation and closure plan and final waste management permit were issued on january 18 , 2019. on february 7 , 2019 , earthjustice , on behalf of onc , akiak native community , chefornak traditional council , chevak traditional council , chuloonawick native village , native village of eek , kasigluk traditional council , kongiganak traditional council , organized village of kwethluk , native village of kwigillingok , native village of nightmute , sleetmute traditional council , tuluksak native community , and native village of tununak , filed an administrative appeal of the reclamation and closure plan approval . adnr denied the appeal of the donlin gold reclamation and closure plan on december 31 , 2019 and affirmed dmlw 's original decision . additionally , earthjustice , representing the same tribal entities in the appeal of the reclamation and closure plan approval , requested an informal review of the waste management permit , which was completed by adec 's division of water on june 25 , 2019 with their original decision upheld and with no further appeal . 46 novagold resources inc. donlin gold llc , with support from the project owners ( novagold and barrick ) are committed to growing strong and collaborative working relationships to preserve traditional lifestyles and support economic development for the benefit of calista and tkc shareholders ( owners of the mineral and surface rights , respectively ) and the yukon-kuskokwim ( y-k ) region . donlin gold llc and our native corporation partners held more than 200 engagement meetings in 2019 with individual stakeholders and community organizations and remained actively engaged in environmental sustainability projects in the y-k region . the donlin gold llc board must approve a construction program and budget before the donlin gold project can be developed . the timing of the required engineering work and the donlin gold llc board 's approval of a construction program and budget , the receipt of all required governmental permits and approvals , and the availability of financing , commodity price fluctuations , risks related to market events and general economic conditions among other factors , will affect the timing of and whether to develop the donlin gold project . among other reasons , project delays could occur as a result of public opposition , litigation challenging permit decisions , requests for additional information or analysis , limitations in agency staff resources during regulatory review and permitting , or project changes made by donlin gold llc . novagold and barrick continue to study ways to improve the project 's value and to reduce initial capital outlays through enhanced project design and execution , engagement of third-party operators for certain activities , and potential for future financing of some capital-intensive infrastructure . to date , these additional studies have identified key areas that have the potential to add value and maximize the future opportunity and longevity of the project . in 2020 , donlin gold llc has envisioned a drilling program in the resource area to follow-up on recent drilling and technical work . novagold and barrick will take all this work into account before reaching a construction decision and will advance the donlin gold project in a financially-disciplined manner with a strong focus on environmental stewardship and social responsibility . our share of funding for the donlin gold project in 2019 was $ 11.1 million for geotechnical fieldwork , permitting and community engagement efforts . our share of the 2020 work program and budget totals $ 20 million , including $ 11 million for the drilling program and $ 9 million for permitting and community engagement to continue to advance the project . we record our interest in the donlin gold project as an equity investment , which results in our 50 % share of donlin gold 's expenses being recorded in the income statement as an operating loss . the investment amount recorded on the balance sheet primarily represents unused funds advanced to donlin gold . maintained our strong financial position cash and term deposits decreased by $ 18.5 million in 2019 and totaled $ 148.5 million at november 30 , 2019. outlook our goals for 2020 include : ● advance the donlin gold project toward a construction/production decision . ● maintain a healthy balance sheet . ● maintain an effective corporate social responsibility program . we do not currently generate operating cash flows . at november 30 , 2019 , we had cash and cash equivalents of $ 67.5 million and term deposits of $ 81.0 million . at present , we believe that these balances are sufficient to cover anticipated funding of the donlin gold project and corporate general and administrative costs . additional capital will be necessary if a decision to commence engineering and construction is reached for the donlin gold project . future financings to fund construction are anticipated through debt , equity , project specific debt , and or other means . our continued operations are dependent on our ability to obtain additional financing or to generate future cash flows . however , there can be no assurance that we will be successful in our efforts to raise additional capital on terms favorable to us , or at all . for further information , see section item 1a , risk factors - our ability to continue the exploration , permitting , development , and construction of
| results of discontinued operations net loss from discontinued operations , net of tax of $ 81.3 million ( $ 0.25 per share ) in 2018 resulted primarily from the loss on the sale of galore creek , net of tax . liquidity , capital resources and capital requirements replace_table_token_11_th the u.s. dollar denominated term deposits are held at canadian chartered banks with high investment-grade ratings and have maturities of one year or less . 48 novagold resources inc. the net changes in total cash and cash equivalents and term deposits resulted from : replace_table_token_12_th net cash used in operating activities decreased by $ 4.3 million , primarily due to higher interest income and lower salaries and benefits . funding of donlin gold increased by $ 2.2 million due to the commencement of geotechnical fieldwork , partially offset by lower permitting costs . withholding taxes were paid on vested performance share units in the first quarter of 2019. no performance share units vested in 2018. net cash provided from discontinued operations of $ 102.4 million in 2018 included the receipt of $ 99.3 million in net cash proceeds on the sale of galore creek and $ 4.6 million of refunded cash deposits for galore creek reclamation bonding , partially offset by $ 1.5 million of galore creek project funding prior to the sale . total donlin gold funding of $ 11.1 million was $ 1.9 million lower than our original outlook of $ 13 million primarily due to the temporary suspension of geotechnical fieldwork as a result of summer wildfires in the project area . general and administrative spending of $ 10.1 million was lower than our original outlook of $ 11 million due to lower salaries and benefits . we have sufficient working capital available for the next twelve-month period to cover anticipated funding of the donlin gold project and corporate general and administrative costs .
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earnings/ ( loss ) per share we calculate basic and diluted earnings/ ( loss ) per common share in accordance with the provisions of asc 260-10 , earnings per share . basic earnings/ ( loss ) per common share equals net income/ ( loss ) divided by the weighted average number of common shares outstanding during the period . diluted earnings/ ( loss ) per common share equals net income/ ( loss ) divided by the weighted average number of common shares outstanding during the period , including the effect of outstanding stock options and other stock-based instruments , if their effect is dilutive story_separator_special_tag you should read the following management 's discussion and analysis in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this report . this discussion contains forward-looking statements that involve risks , uncertainties , and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors , including those set forth under item 1a , risk factors and elsewhere in this report . the results of swss , our security solutions division , which were previously reported as a separate business segment , are being presented as discontinued operations in the consolidated statements of operations and comprehensive income/ ( loss ) for all periods presented . see note 3 discontinued operations in the notes to consolidated financial statements and discontinued operations below on page 29 for additional information regarding these discontinued operations . unless otherwise indicated , any reference to income statement items in this management 's discussion and analysis of financial condition and results of operations refers to results from continuing operations . 2012 highlights our fiscal 2012 net sales of $ 412.0 million represented a increase of 20.4 % from our fiscal 2011 net sales . firearm sales accounted for 95.6 % of our total net sales for fiscal 2012. income from continuing operations for fiscal 2012 was $ 26.4 million , or $ 0.40 per fully diluted share , compared with income from continuing operations of $ 8.1 million , or $ 0.13 per fully diluted share , for fiscal 2011. our operating results for fiscal 2012 were affected by numerous factors , including the following : a 20.4 % increase in net sales resulted from higher order intake and increased production capacity to meet the large consumer demand for our polymer handguns and modern sporting rifles . that increase also was driven by generally higher consumer demand for firearms in 2012. we have accumulated a backlog of $ 439.0 million at april 30 , 2012. we continue to look for opportunities to address that backlog by further increasing our production capacity through additional capital spending and outsourcing . the introduction of new products in the last several years has had a positive impact on our business . in particular , increased volumes for smaller sized pistols and our m & p branded polymer products and modern sporting rifles had a positive impact on our net sales and gross margins during fiscal 2012 with increased consumer demand and customer acceptance . we completed the restructuring plan to move the production of our hunting products from rochester , new hampshire to our springfield , massachusetts facility resulting in $ 3.0 million in relocation costs , of which $ 2.5 million was attributed to cost of sales and $ 493,000 related to operating expenses . we incurred $ 317,000 higher consolidation costs in fiscal 2012 than in fiscal 2011 , of which $ 246,000 was higher in cost of sales and $ 71,000 was higher in operating expenses . the restructuring also resulted in a reduction of gross profit because of the negative impact on lost efficiencies in our hunting firearms . legal and consulting costs were $ 4.0 million , which is $ 5.9 million lower than the $ 9.9 million of costs incurred in the prior year related to the doj and sec investigations referenced in item 1a , risk factors. our business we are one of the world 's leading manufacturers of firearms . we sell our products under the smith & wesson brand , the m & p brand , the thompson/center brand , and the walther brand . we manufacture a wide array of handguns , modern sporting rifles , hunting rifles , black powder firearms , handcuffs , and firearm-related products and accessories for sale to a wide variety of customers , including gun enthusiasts , collectors , hunters , sportsmen , competitive shooters , individuals desiring home and personal protection , law enforcement and security agencies and officers , and military agencies in the united states and throughout the world . we are one of the largest manufacturers of handguns , modern sporting rifles , and handcuffs in the united states , and an active participant in the hunting rifle market . we manufacture our firearm products at our facilities in springfield , massachusetts and houlton , maine . we plan to continue to offer products that leverage the 160 year old smith & wesson brand and capitalize on the goodwill developed through our historic american tradition by expanding consumer awareness of products we produce . in addition , we pursue opportunities to license our name and trademarks to third parties for use in association with their products and services . 24 key performance indicators we evaluate the performance of our business based upon operating profit , which includes net sales , cost of sales , selling and administrative expenses , and certain components of other income and expense . we also use adjusted ebitdas ( earnings before interest , taxes , depreciation , amortization , and stock-based compensation expense , excluding large non-recurring items ) , which is a non-gaap financial metric , to evaluate our performance . we evaluate our various firearm products by such measurements as cost per unit produced , units produced per day , and incoming orders per day . story_separator_special_tag interest expense the following table sets forth certain information regarding interest expense for the fiscal years ended april 30 , 2012 , 2011 , and 2010 ( dollars in thousands ) : replace_table_token_7_th interest expense increased for fiscal 2012 compared with fiscal 2011 because of increased interest expense related to the 9.5 % senior notes , which bear interest at a rate of 9.5 % per annum compared with our former 4.0 % senior convertible notes ( the convertible notes ) , which bore interest at a rate of 4.0 % per annum . in december 2011 , we were required to repurchase $ 29.7 million of the convertible notes and we redeemed the remaining $ 334,000 of the convertible notes in january 2012. we also amortized an additional $ 563,000 of debt issuance costs that we wrote off in connection with reducing our line of credit in october 2011. interest expense increased for fiscal 2011 because of the early retirement of $ 50.0 million of the convertible notes , which resulted in a $ 476,000 write-off of debt refinancing costs . this debt was exchanged for $ 50.0 million of the 9.5 % senior notes , resulting in higher interest expense , primarily in the fourth quarter of fiscal 2011. the exchange of the convertible notes for the higher coupon 9.5 % senior notes was made because of the impending december 2011 date on which holders of the convertible notes could require us to repurchase their convertible notes as well as to remove the dilutive effects of the convertible notes . income tax expense the following table sets forth certain information regarding income tax expense for the fiscal years ended april 30 , 2012 , 2011 , and 2010 ( dollars in thousands ) : replace_table_token_8_th our income tax expense for fiscal 2012 included the effect of changes in temporary differences between book value and tax bases of assets and liabilities and net operating loss carryforwards . these amounts are reflected in the balance of our net deferred tax assets , which totaled $ 8.2 million , after valuation allowance , as of april 30 , 2012. we had federal net operating loss carryforwards amounting to $ 865,000 , $ 1.6 million , and $ 1.6 million as of april 30 , 2012 , 2011 , and 2010 , respectively . we obtained $ 8.2 million in additional loss carryforwards through our acquisition of swss on july 20 , 2009 , the majority of which was utilized in fiscal 2010. the net operating loss carryforwards at april 30 , 2012 expire in fiscal 2020. internal revenue code section 382 limits our utilization of these losses to approximately $ 108,000 in fiscal 2013 and each subsequent year . it is possible that future substantial changes in our ownership could occur that could result in a reduction in some or all of our loss carryforwards pursuant to internal revenue code section 382. if such an ownership change were to occur , there would be an annual limitation on the remaining tax loss carryforwards that could be utilized . adjustments to reserves and book versus tax difference on amortization of intangible assets increased the overall net deferred tax asset from $ 6.4 million as of april 30 , 2011 to $ 8.2 million as of april 30 , 2012. there were $ 19.4 million and $ 10.9 million of state net operating loss carryforwards as of april 30 , 2012 and 2011 , respectively . the state net operating loss carryforwards will expire between april 30 , 2015 and april 30 , 2032. there were $ 1.9 million and $ 1.7 million of state tax credit carryforwards as of april 30 , 2012 and 2011 , respectively . the state tax credit carryforwards will expire between april 30 , 2014 and april 30 , 2025 . 28 as of april 30 , 2012 , valuation allowances of $ 827,000 and $ 1.1 million were provided on our deferred tax assets for state net operating losses and state tax credits , respectively , that we do not anticipate using prior to their expiration and a $ 239,000 valuation allowance was provided on other state deferred tax assets for which we anticipate we will realize no benefit . as of april 30 , 2011 , valuation allowances of $ 26,000 , $ 445,000 , and $ 705,000 were provided on our deferred tax assets for a federal capital loss carryforwards , state net operating losses , and state tax credits , respectively . the increase in the valuation allowance on our deferred tax assets for state net operating losses and credits and other deferred tax assets related mainly to our discontinued operations in tennessee . no other valuation allowance was provided on our deferred federal income tax assets as of april 30 , 2012 or 2011 , as we believe that it is more likely than not that all such assets will be realized . in order to utilize the unreserved portion of our net operating loss carryforwards , the minimum level of annual taxable income that we would have to achieve must equal or exceed the amount of federal net operating carryforwards for fiscal 2013 through 2020. our management believes that achievement of that level of taxable income is more likely than not based on historical performance and future projections , including new product offerings , pricing decisions , marketing efforts and expected spending levels . income from continuing operations the following table sets forth certain information regarding income from continuing operations and the related per share data for the fiscal years ended april 30 , 2012 , 2011 , and 2010 ( dollars in thousands , except per share data ) : replace_table_token_9_th fiscal 2012 income from continuing operations compared with fiscal 2011 income from continuing operations of $ 26.4 million for fiscal 2012 was $ 18.4 million higher than the $ 8.1 million recorded in fiscal 2011. income from continuing operations increased primarily because of increased net sales volumes and corresponding gross profit .
| results of operations net sales the following table sets forth certain information regarding net product and services sales for the fiscal years ended april 30 , 2012 , 2011 , and 2010 ( dollars in thousands ) : replace_table_token_3_th fiscal 2012 net sales compared with fiscal 2011 net sales for fiscal 2012 increased 20.4 % over the prior fiscal year as we were able to address increased consumer demand because of increases in production capacity , particularly for handgun products , which saw a net sales increase of 25.1 % over the prior fiscal year , most noticeably on polymer pistol products . walther net sales declined 15.0 % from the prior fiscal year because of increased competition in small frame , concealed carry products , and rimfire products . net sales of modern sporting rifles rebounded in 2012 with net sales in this category increasing by 94.1 % million in the current fiscal year primarily because of strong demand for the sport model we introduced late in fiscal 2011 that hits an attractive price point . hunting firearms net sales were lower than in the prior fiscal year as a result of lower orders for black powder products , constrained bolt action rifle sales as we service the thompson/center arms venture rifle recall , and productivity and efficiency losses as we completed the move of our hunting production to our springfield , massachusetts facility . parts and accessories sales increased 8.7 % primarily because of the volume increases in our handgun category and modern sporting rifles . our order backlog as of april 30 , 2012 was $ 439.0 million , $ 252.3 million higher than at the end of fiscal 2011 and $ 240.5 million higher than at the end of the third quarter of fiscal 2012 , primarily as a result of backlog generated by new products and increased consumer demand for our handgun and modern sporting rifle products .
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we are aware that one or more story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( md & a ) is intended to help the reader understand our results of operations and financial condition . md & a is provided as a supplement to , and should be read in conjunction with , our audited consolidated financial statements and the accompanying notes to the consolidated financial statements and other disclosures included in this annual report on this form 10-k ( including the disclosures under “ item 1a . risk factors ” ) . our consolidated financial statements have been prepared in accordance with u.s. generally accepted accounting principles and are presented in u.s. dollars . overview revance therapeutics , inc. is a clinical-stage biotechnology company focused on the development , manufacturing , and commercialization of novel botulinum toxin products for multiple aesthetic and therapeutic indications . we are leveraging our proprietary portfolio of botulinum toxin type a compounds , formulated with our patented and proprietary peptide technology , to address unmet needs in large and growing neurotoxin markets . our proprietary peptide technology enables delivery of botulinum toxin type a through two investigational drug product candidates , daxibotulinumtoxina for injection ( rt002 ) , or rt002 injectable , and daxibotulinumtoxina topical gel ( rt001 ) , or rt001 topical . we are pursuing clinical development for rt002 injectable and planning to conduct additional preclinical development for rt001 topical . neither formulation of our product candidates contains albumin or any other animal or human-derived materials . we believe this reduces the risk of the transmission of certain viral diseases . we hold worldwide rights for all indications of rt002 injectable and rt001 topical , and the pharmaceutical rights to our proprietary peptide technology . rt002 injectable is a novel , injectable formulation of botulinum toxin type a designed to be a targeted and long-lasting injectable botulinum toxin treatment . we are studying rt002 injectable for aesthetic indications , such as glabellar ( frown ) lines and therapeutic indications , such as cervical dystonia and plantar fasciitis . we believe rt002 injectable has the potential to expand into additional aesthetic and therapeutic indications in the future . daxibotulinumtoxina for injection ( rt002 , or rt002 injectable ) we are developing rt002 injectable , and plan to commercialize rt002 for indications where deep delivery of the botulinum toxin is required and a long-lasting effect is desired . we believe rt002 injectable may provide targeted delivery of botulinum toxin to intended treatment sites , while potentially reducing the unwanted spread of botulinum toxin to adjacent areas . we believe , and our preclinical and clinical studies indicate , that this targeted delivery , enabled by our proprietary peptide technology , may permit safe administration of higher doses of botulinum toxin and may result in long-lasting effect . if approved , we believe rt002 injectable has the potential to address significant unmet need in this market . we are in phase 3 clinical development for rt002 injectable in north america for the treatment of glabellar lines . during the fourth quarter of 2016 , we initiated subject dosing in our sakura phase 3 program and expect to report topline results from our phase 3 program ( called sakura 1 and sakura 2 ) in the fourth quarter of 2017. in march 2016 , we reported results from belmont , a phase 2 active comparator clinical trial against the market leader botox® cosmetic . the 24-week data , which we reported in october 2015 , showed that rt002 injectable achieved its primary efficacy measurement at four weeks for all doses of rt002 injectable and that such efficacy was highly statistically significant as compared to placebo . in addition , the 40 unit dose of rt002 injectable demonstrated a 23.6-week median duration versus botox® cosmetic with an 18.8-week median duration . across all cohorts , rt002 injectable appeared to be generally safe and well-tolerated . we also initiated a phase 2 dose-escalating , open-label clinical study of rt002 injectable in the therapeutic indication of cervical dystonia , a muscle movement disorder . the phase 2 study is evaluating safety , preliminary efficacy , and duration of effect of rt002 injectable in subjects with moderate to severe isolated cervical dystonia symptoms of the neck . in december 2016 , we announced positive results from its phase 2 clinical trial . the topline interim data showed that rt002 injectable demonstrated median duration of > 24 weeks , displayed clinically significant impact on cervical dystonia signs and symptoms , and appeared to be generally safe and well-tolerated . the trial enrolled 37 subjects and follows three sequential treatment cohorts for up to a total of 24 weeks after treatment for each cohort . the trial 's first cohort of 12 subjects received a single dose of up to 200 units of rt002 injectable , the second cohort of 12 subjects received between 200 and 300 units , and the third 53 cohort received from 300 to 450 units . later-enrolled subjects in the second and third cohorts have yet to complete the trial 's 24-week protocol . we plan to share the 24-week results in the second quarter of 2017. we also initiated a phase 2 prospective , randomized , double-blinded , placebo-controlled trial of rt002 injectable in the therapeutic indication of plantar fasciitis . this study will evaluate the safety and efficacy of a single administration of rt002 injectable in reducing the signs and symptoms of plantar fasciitis . the study is expected to enroll approximately 60 subjects in the united states . the study 's primary efficacy endpoint is the improvement in the american orthopedic foot and ankle score ( aofas ) . subjects will be followed for 16 weeks post treatment . story_separator_special_tag depending on the stage of completion and level of effort related to each development phase undertaken , we may reflect variations in our research and development expense . we expense both internal and external research and development expenses as they are incurred . we typically share employees , consultants and infrastructure resources between the rt002 injectable and rt001 topical programs . we believe that the strict allocation of costs by product candidate would not be meaningful . as such , we generally do not track these costs by product candidate . stock-based compensation for research and development for the year ended december 31 , 2016 decreased by $ 1.0 million , compared to the same period in 2015 , primarily due to equity award modifications and offset by an increase in employee headcount . stock-based compensation for research and development for the year ended december 31 , 2015 increased by $ 4.2 million , compared to the same period in 2014 , primarily due to equity award modifications , an increase in employee headcount , and an increase in non-employee stock compensation expense . general and administrative expenses general and administrative expenses consist primarily of personnel costs , including stock-based compensation , for employees in our marketing , administration , finance , business development , and investor relations functions . other significant expenses include professional fees for accounting and legal services , including legal services associated with obtaining and maintaining patents and litigation . we expect that our general and administrative expenses will increase with the continued development of , and if approved , the commercialization of rt002 injectable . the following table presents our general and administration expenses for the periods indicated and related changes from the prior period : 56 replace_table_token_7_th general and administrative expenses for the year ended december 31 , 2016 increased by 16 % , compared to the same period in 2015 , primarily due to increased costs related to personnel , consulting costs , and legal matters . general and administrative expenses for the year ended december 31 , 2015 increased by 32 % , compared to the same period in 2014 , primarily due to increased costs related to personnel , legal matters , marketing , offset by a decrease in professional fees . since our ipo in february 2014 , we have incurred increased costs related to personnel and administrative activities to support the operation of a public company . stock-based compensation for general and administrative expenses increased for the periods presented primarily due to an increase in employee headcount . loss on impairment the following table presents our loss on impairment for the periods indicated and related changes from the prior period : replace_table_token_8_th we constructed a large capacity fill/finish line dedicated to the manufacture of rt001 topical and to support our regulatory license applications . we discontinued clinical development of rt001 topical for the treatment of crow 's feet and axillary hyperhidrosis in june 2016 , following results from our realise 1 phase 3 clinical trial . under generally accepted accounting principles in the united states , long-lived assets , such as our rt001 topical fill/finish line , are required to be reviewed for impairment whenever adverse events or changes in circumstances indicate a possible impairment . if business conditions or other factors indicate that the carrying value of the asset may not be recoverable , we may be required to record additional non-cash impairment charges . additionally , if the carrying value of our capital equipment exceeds current fair value as determined based on the discounted future cash flows of the related product , the capital equipment would be considered impaired and would be reduced to fair value by a non-cash charge to earnings , which could negatively affect our operating results . during the year ended december 31 , 2016 , we recorded a loss on impairment of $ 9.1 million related to our rt001 topical fill/finish line and certain other assets . we did not identify any indicators of impairment during the years ended december 31 , 2015 and 2014. net non-operating expense interest income interest income consists primarily of interest income earned on our cash , cash equivalents , money market fund , and investment balances . we expect interest income to vary each reporting period depending on our average cash , cash equivalents , money market fund , and investment balances during the period and market interest rates . interest expense interest expense primarily consists of the interest charges associated with our convertible notes , notes payable , financing obligations , capital lease obligations , and capitalized interest . notes payable under our term loan agreement with hercules , which matured and was fully paid off in march 2015 , bore interest at a rate which is the greater of ( i ) 9.85 % per annum or ( ii ) 9.85 % per annum plus the difference of the prime rate less 3.25 % . the interest charge on our convertible notes and capital lease obligations was fixed at the inception of the related transaction based on the incremental borrowing rate in effect on such date . our interest expense , includes cash and non-cash components with the non-cash components consisting of ( i ) interest 57 recognized from the amortization of debt issuance costs , which were capitalized on the consolidated balance sheets , that are generally derived from cash payments related to the issuance of convertible notes and notes payable , ( ii ) interest recognized from the amortization of debt discounts , which were capitalized on the consolidated balance sheets , derived from the issuance of warrants and derivatives issued in conjunction with convertible notes and notes payable , ( iii ) interest recognized on the 2013 convertible notes , or 2013 notes , which was not paid but instead converted into shares of common stock , ( iv ) interest capitalized for assets constructed for use in operations , ( v ) interest related to the extinguishment of debt , which is classified as a gain or loss on debt extinguishments
| results of operations revenue during the years ended december 31 , 2016 , 2015 and 2014 , we recognized revenue from license and royalty agreements and did not have any product revenue during those same years . the following table presents our revenue for the periods indicated and related changes from the prior period : replace_table_token_5_th our total revenue for the year ended december 31 , 2016 remained constant , compared to the same period in 2015 , due to revenue from the relastin ( over the counter skin cream ) product milestone . our total revenue for the year ended december 31 , 2015 decreased by 22 % , compared to the same period in 2014 , due to a decrease in license revenue in connection with an exclusive technology evaluation agreement with procter & gamble ( the `` procter & gamble agreement '' ) . in the year ended december 31 , 2014 , we recognized license revenue of $ 0.1 million , pursuant to the procter & gamble agreement , whereby we received an upfront payment in the amount of $ 0.3 million , which was initially recorded as deferred revenue and recognized over the estimated performance period . during the years ended december 31 , 2016 and 2015 , there was no license revenue recognized . 54 we recognized royalty revenue during the years ended december 31 , 2016 , 2015 , and 2014 related to the relastin asset purchase and royalty agreement . in august 2011 , we entered into the relastin asset purchase and royalty agreement to sell the business related to our relastin product line , to precision dermatology , inc. , or pdi . the relastin asset purchase and royalty agreement provides for a minimum royalty payment of $ 0.3 million per year , to be paid quarterly for up to 15 years from the execution date .
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these net operating loss carryforwards , if not used , will expire between 2013 and 2033. as of december 31 , 2012 , the company had $ 0.2 million of u.s. foreign story_separator_special_tag this report includes forward-looking statements based on the company 's current assumptions , expectations and projections about future events . when used in this report , the words believes , anticipates , may , expect , intend , estimate , project and similar expressions are intended to identify forward-looking statements , although not all forward-looking statements contain such words . in this report , the company discloses important factors that could cause actual results to differ materially from management 's expectations . for more information on these and other factors , see forward-looking information herein . the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with item 1a . risk factors , item 6. selected financial data and the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. business overview ametek 's operations are affected by global , regional and industry economic factors . however , the company 's strategic geographic and industry diversification , and its mix of products and services , have helped to limit the potential adverse impact of any unfavorable developments in any one industry or the economy of any single country on its consolidated operating results . in 2012 , the company established records for orders , backlog , sales , operating income , operating income margins , net income , diluted earnings per share and operating cash flow . contributions from recent acquisitions , combined with successful operational excellence initiatives , had a positive impact on 2012 results . the company also benefited from its strategic initiatives under ametek 's four growth strategies : operational excellence , new product development , global and market expansion , and strategic acquisitions and alliances . highlights of 2012 were : in 2012 , net sales were $ 3.3 billion , an increase of $ 344.3 million or 11.5 % from 2011 , on contributions from the 2011 and 2012 acquisitions . net income for 2012 was $ 459.1 million , an increase of $ 74.6 million or 19.4 % , compared with $ 384.5 million in 2011. during 2012 , the company completed the following acquisitions : in january 2012 , the company acquired o'brien corporation , a leading manufacturer of fluid and gas handling solutions , sample conditioning equipment and process analyzers . in may 2012 , the company acquired dunkermotoren gmbh , a leader in advanced motion control solutions for a wide range of industrial automation applications . in october 2012 , the company acquired micro-poise measurement systems ( micro-poise ) , a leading provider of integrated test and measurement solutions for the tire industry . in december 2012 , the company acquired aero components international ( aci ) , which expands the company 's global maintenance , repair and overhaul ( mro ) capabilities into fuel system repair . in december 2012 , the company acquired avtech avionics and instruments ( avtech ) , which broadens the company 's mro expertise in next generation avionics . in december 2012 , the company acquired sunpower , inc. , a leader in the development of stirling cycle cryocoolers and externally heated stirling engine technology for medical , scientific , telecommunication and space applications . in december 2012 , the company acquired crystal engineering , a manufacturer of high-end , portable pressure calibrators and digital test gauges for the oil and gas , power generation and other industrial markets . 22 higher earnings resulted in record cash flow provided by operating activities that totaled $ 612.5 million for 2012 , a $ 103.9 million or 20.4 % increase from 2011. the company continues to maintain a strong international sales presence . international sales , including u.s. export sales , were $ 1,707.6 million or 51.2 % of net sales in 2012 , compared with $ 1,501.1 million or 50.2 % of net sales in 2011. new orders for 2012 were a record at $ 3,535.1 million , an increase of $ 462.6 million or 15.1 % , compared with $ 3,072.5 million in 2011. as a result , the company 's backlog of unfilled orders at december 31 , 2012 was a record at $ 1,112.3 million . the company continued its emphasis on investment in research , development and engineering , spending $ 154.8 million in 2012 before customer reimbursement of $ 5.0 million . sales from products introduced in the last three years were $ 716.2 million or 21.5 % of net sales . on may 1 , 2012 , the company 's board of directors declared a three-for-two split of the company 's common stock . the stock split resulted in the issuance of one additional share for every two shares owned . the stock split was paid on june 29 , 2012 , to stockholders of record at the close of business on june 15 , 2012. additionally , the board of directors approved a 50 % increase in the quarterly cash dividend rate on the company 's common stock to $ 0.06 per common share from $ 0.04 per common share on a post-split basis . see note 2 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. results of operations the following table sets forth net sales and income by reportable segment and on a consolidated basis : replace_table_token_10_th ( 1 ) after elimination of intra- and intersegment sales , which are not significant in amount . ( 2 ) segment operating income represents net sales less all direct costs and expenses ( including certain administrative and other expenses ) applicable to each segment , but does not include interest expense . story_separator_special_tag impact of international statutory tax rate reductions and the ongoing benefits obtained from international tax planning initiatives . see note 9 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details . net income for 2012 was $ 459.1 million , an increase of $ 74.6 million or 19.4 % , compared with $ 384.5 million in 2011. diluted earnings per share for 2012 were $ 1.88 , an increase of $ 0.30 or 19.0 % , compared with $ 1.58 per diluted share in 2011. story_separator_special_tag the increase was primarily driven by higher acquisition-related expenses and an unfavorable impact from foreign currency . the effective tax rate for 2011 was 30.9 % , compared with 30.1 % in 2010. the effective tax rate for 2011 included the impact of the accelerated vesting of non-deductible restricted stock amortization . the effective tax rate for 2011 and 2010 included the impact of international statutory tax rate reductions and benefits obtained from a favorable mix of international taxable earnings . see note 9 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details . net income for 2011 was $ 384.5 million , an increase of $ 100.6 million or 35.4 % , compared with $ 283.9 million in 2010. diluted earnings per share for 2011 were $ 1.58 , an increase of $ 0.40 or 33.9 % , compared with $ 1.18 per diluted share in 2010. segment results eig 's net sales totaled $ 1,647.2 million for 2011 , an increase of $ 323.1 million or 24.4 % , compared with $ 1,324.1 million in 2010. the net sales increase was due to internal growth of approximately 16 % , excluding a favorable 1 % effect of foreign currency translation , primarily driven by increases in eig 's process , power and industrial businesses . the acquisitions of em test , reichert technologies and atlas accounted for the remainder of the net sales increase . eig 's operating income was $ 420.2 million for 2011 , an increase of $ 104.0 million or 32.9 % , compared with $ 316.2 million in 2010. eig 's operating margins were 25.5 % of net sales for 2011 , compared with 23.9 % of net sales in 2010. the increase in segment operating income and operating margins was driven by the leveraged impact of the group 's increase in internal sales growth noted above , as well as the benefit of the group 's lower cost structure through operational excellence initiatives . emg 's net sales totaled $ 1,342.7 million for 2011 , an increase of $ 195.9 million or 17.1 % , compared with $ 1,146.8 million in 2010. the net sales increase was due to internal growth of approximately 6 % , excluding a favorable 1 % effect of foreign currency translation , driven by increases in emg 's differentiated businesses . the acquisitions of coining , avicenna , haydon enterprises and tse accounted for the remainder of the net sales increase . emg 's operating income was $ 262.7 million for 2011 , an increase of $ 52.3 million or 24.9 % , compared with $ 210.4 million in 2010. emg 's operating margins were 19.6 % of net sales for 2011 , compared with 18.3 % of net sales in 2010. emg 's increase in operating income and operating margins was primarily due to the leveraged impact of the group 's increase in internal sales growth noted above , as well as the benefit of the group 's lower cost structure through operational excellence initiatives . 27 liquidity and capital resources cash provided by operating activities totaled $ 612.5 million in 2012 , an increase of $ 103.9 million or 20.4 % , compared with $ 508.6 million in 2011. the increase in cash provided by operating activities was primarily due to the $ 74.6 million increase in net income . free cash flow ( cash flow provided by operating activities less capital expenditures ) was $ 555.1 million in 2012 , compared with $ 457.8 million in 2011. ebitda ( earnings before interest , income taxes , depreciation and amortization ) was $ 842.7 million in 2012 , compared with $ 712.2 million in 2011. free cash flow and ebitda are presented because the company is aware that they are measures used by third parties in evaluating the company . ( see the notes to selected financial data included in item 6 in this annual report on form 10-k for a reconciliation of u.s. generally accepted accounting principles ( gaap ) measures to comparable non-gaap measures ) . cash used for investing activities totaled $ 803.7 million in 2012 , compared with $ 526.5 million in 2011. in 2012 , the company paid $ 747.7 million for seven business acquisitions , net of cash received , compared with $ 474.9 million paid for five business acquisitions , net of cash received , in 2011. additions to property , plant and equipment totaled $ 57.4 million in 2012 , compared with $ 50.8 million in 2011. cash provided by financing activities totaled $ 174.5 million in 2012 , compared with $ 31.9 million in 2011. in 2012 , net total borrowings increased by $ 177.9 million , compared with a net total borrowings increase of $ 99.1 million in 2011. in 2012 , the company repurchased 141,000 shares of its common stock for $ 4.6 million , compared with $ 59.3 million used for repurchases of 2.5 million shares of the company 's common stock in 2011. at december 31 , 2012 , $ 100.9 million was available under the board authorization for future share repurchases .
| segment results eig 's net sales totaled $ 1,872.6 million for 2012 , an increase of $ 225.4 million or 13.7 % , compared with $ 1,647.2 million in 2011. the net sales increase was due to internal growth of approximately 3 % , excluding an unfavorable 1 % effect of foreign currency translation , primarily driven by increases in eig 's oil and gas , aerospace and power businesses . the acquisitions of micro-poise , o'brien , tmc , em test and reichert technologies accounted for the remainder of the net sales increase . eig 's operating income was $ 497.1 million for 2012 , an increase of $ 76.9 million or 18.3 % , compared with $ 420.2 million in 2011. eig 's operating margins were 26.5 % of net sales for 2012 , compared with 25.5 % of net sales in 2011. the increase in segment operating income and operating margins was driven by the leveraged impact of the group 's increase in internal sales growth noted above , as well as the benefit of the group 's lower cost structure through operational excellence initiatives . emg 's net sales totaled $ 1,461.7 million for 2012 , an increase of $ 119.0 million or 8.9 % , compared with $ 1,342.7 million in 2011. the net sales increase was due to the acquisitions of dunkermotoren , coining and avicenna , partially offset by an internal sales decline of 1 % and an unfavorable 1 % effect of foreign currency translation . emg 's operating income was $ 292.2 million for 2012 , an increase of $ 29.5 million or 11.2 % , compared with $ 262.7 million in 2011. emg 's operating margins were 20.0 % of net sales for 2012 , compared with 19.6 % of net sales in 2011. emg 's increase in operating income and operating margins was primarily due to the benefit of the group 's lower cost structure through operational excellence initiatives .
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risk factors ” and “ cautionary statement regarding forward-looking statements , ” which describe important factors that could cause actual results to differ from expectations and non-historical information contained herein . in addition , the following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto of charter included in “ part ii . item 8. financial statements and supplementary data. ” overview we are the second largest cable operator in the united states and a leading broadband communications services company providing video , internet and voice services to approximately 27.2 million residential and business customers at december 31 , 2017 . in addition , we sell video and online advertising inventory to local , regional and national advertising customers and fiber-delivered communications and managed it solutions to large enterprise customers . we also own and operate regional sports networks and local sports , news and community channels and sell security and home management services in the residential marketplace . see “ part i. item 1. business — products and services ” for further description of these services , including customer statistics for different services . in the first half of 2017 , we completed the roll-out of spp to legacy twc and legacy bright house markets simplifying our offers and improving our packaging of products , allowing us to deliver more value to new and existing customers . as of december 31 , 2017 , approximately 60 % of our residential customers are in an spp package . in the second half of 2017 , we began converting the remaining legacy twc and legacy bright house analog markets to an all-digital platform enabling us to deliver more hd channels and higher internet speeds . the bulk of this all-digital initiative will take place in 2018. our corporate organization , as well as our marketing , sales and product development departments , are centralized . field operations are managed through eleven regional areas , each designed to represent a combination of designated marketing areas . in 2017 , we began migrating legacy twc and legacy bright house customer care centers to legacy charter 's model of using virtualized , u.s.-based in-house call centers . we are focused on deploying superior products and service with minimal service disruptions as we integrate our information technology and network operations . we intend to continue to insource the legacy twc and legacy bright house workforces in our call centers and in our field operations which we expect to lead to lower customer churn and longer customer lifetimes . our integration activities will continue in 2018 with the expectation that by 2019 we will have substantially integrated the practices and systems of legacy charter , legacy twc and legacy bright house . in 2018 , we will also launch our mobile product . as a result of growth costs for a new product line and implementing our operating strategy across legacy twc and legacy bright house , we can not be certain that we will be able to grow revenues or maintain our margins at recent historical rates . 30 the company realized revenue , adjusted ebitda and income from operations during the periods presented as follows ( in millions ; all percentages are calculated using whole numbers . minor differences may exist due to rounding ) . replace_table_token_6_th ( a ) income from operations for the year ended december 31 , 2016 has been reduced from what was previously reported by $ 899 million to reflect the adoption of pension accounting guidance , and on a pro forma basis , income from operations for the years ended december 31 , 2016 and 2015 have been reduced from what was previously reported by $ 915 million and $ 73 million , respectively . for more information , see note 22 to the accompanying consolidated financial statements contained in “ part ii . item 8. financial statements and supplementary data. ” adjusted ebitda is defined as consolidated net income ( loss ) plus net interest expense , income taxes , depreciation and amortization , stock compensation expense , loss on extinguishment of debt , ( gain ) loss on financial instruments , net , other pension benefits , other ( income ) expense , net and other operating ( income ) expenses , such as merger and restructuring costs , special charges and gain ( loss ) on sale or retirement of assets . see “ —use of adjusted ebitda and free cash flow ” for further information on adjusted ebitda and free cash flow . growth in total revenue , adjusted ebitda and income from operations was primarily due to the transactions . on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , total revenue growth was primarily due to growth in our internet and commercial businesses . revenue growth during 2017 was offset by lower advertising sales revenue due to a decrease in political and local advertising and an early contract termination benefit at legacy twc and legacy bright house in 2016. in addition to the items noted above , adjusted ebitda growth on a pro forma basis was affected by increases in programming costs and , in 2017 , offset by decreases in costs to service customers and other operating costs and expenses . income from operations on a pro forma basis was additionally affected by increases in depreciation and amortization as well as changes in merger and restructuring costs . approximately 91 % , 90 % and 91 % of our revenues for years ended december 31 , 2017 , 2016 and 2015 , respectively , are attributable to monthly subscription fees charged to customers for our video , internet , voice and commercial services provided by our cable systems . generally , these customer subscriptions may be discontinued by the customer at any time subject to a fee for certain commercial customers . story_separator_special_tag , determining whether the customer 's dwelling is capable of receiving service by our cable network ) ; customer premise activities performed by in-house field technicians and third-party contractors in connection with the installation , replacement and betterment of equipment and materials to enable video , internet or voice services ; and verifying the integrity of the customer 's network connection by initiating test signals downstream from the headend to the customer premise equipment , as well as testing signal levels at the utility pole or pedestal . judgment is required to determine the extent to which overhead costs incurred result from specific capital activities , and therefore should be capitalized . the primary costs that are included in the determination of the overhead rate are ( i ) employee benefits and payroll taxes associated with capitalized direct labor , ( ii ) direct variable costs associated with capitalizable activities , ( iii ) the cost of support personnel , such as care personnel and dispatchers , who assist with capitalizable installation activities , and ( iv ) indirect costs directly attributable to capitalizable activities . while we believe our existing capitalization policies are appropriate , a significant change in the nature or extent of our system activities could affect management 's judgment about the extent to which we should capitalize direct labor or overhead in the future . we monitor the appropriateness of our capitalization policies , and perform updates to our internal studies on an ongoing basis to determine whether facts or circumstances warrant a change to our capitalization policies . we capitalized direct labor and overhead of $ 1.7 billion , $ 991 million and $ 420 million , respectively , for the years ended december 31 , 2017 , 2016 and 2015 . valuation and impairment of property , plant and equipment . we evaluate the recoverability of our property , plant and equipment upon the occurrence of events or changes in circumstances indicating that the carrying amount of an asset may not be recoverable . such events or changes in circumstances could include such factors as the impairment of our indefinite life assets , changes in technological advances , fluctuations in the fair value of such assets , adverse changes in relationships with local franchise authorities , adverse changes in market conditions , or a deterioration of current or expected future operating results . a long-lived asset is deemed impaired when the carrying amount of the asset exceeds the projected undiscounted future cash flows associated with the asset . no impairments of long-lived assets to be held and used were recorded in the years ended december 31 , 2017 , 2016 and 2015 . we utilize the cost approach as the primary method used to establish fair value for our property , plant and equipment in connection with business combinations . the cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility , then adjusts the value in consideration of physical depreciation and functional and economic obsolescence as of the valuation date . the cost approach relies on management 's assumptions regarding current material and labor costs required to rebuild and repurchase significant components of our property , plant and equipment along with assumptions regarding the age and estimated remaining useful lives of our property , plant and equipment . useful lives of property , plant and equipment . we evaluate the appropriateness of estimated useful lives assigned to our property , plant and equipment , based on annual analysis of such useful lives , and revise such lives to the extent warranted by changing facts and circumstances . any changes in estimated useful lives as a result of this analysis are reflected prospectively beginning in the period in which the study is completed . our analysis of useful lives in 2017 did not indicate any significant changes in useful lives . the effect of a one-year decrease in the weighted average remaining useful life of our property , plant and equipment as of december 31 , 2017 would be an increase in annual depreciation expense of approximately $ 943 million . the effect of a one-year increase in the weighted average remaining useful life of our property , plant and equipment as of december 31 , 2017 would be a decrease in annual depreciation expense of approximately $ 1.4 billion . 33 depreciation expense related to property , plant and equipment totaled $ 7.8 billion , $ 5.0 billion and $ 1.9 billion for the years ended december 31 , 2017 , 2016 and 2015 , respectively , representing approximately 21 % , 19 % and 21 % of costs and expenses , respectively . depreciation is recorded using the straight-line composite method over management 's estimate of the useful lives of the related assets as listed below : cable distribution systems 8-20 years customer premise equipment and installations 3-8 years vehicles and equipment 4-9 years buildings and improvements 15-40 years furniture , fixtures and equipment 7-10 years intangible assets valuation and impairment of franchises . the net carrying value of franchises as of december 31 , 2017 and 2016 was approximately $ 67.3 billion ( representing 46 % of total assets ) and $ 67.3 billion ( representing 45 % of total assets ) , respectively . for more information and a complete discussion of how we value and test franchise assets for impairment , see note 6 to the accompanying consolidated financial statements contained in “ part ii . item 8. financial statements and supplementary data. ” we perform an impairment assessment of franchise assets annually or more frequently as warranted by events or changes in circumstances . we performed a qualitative assessment in 2017 . our assessment included consideration of a fair value appraisal performed for tax purposes in the beginning of 2017 as of a december 31 , 2016 valuation date ( the `` appraisal '' ) along with a multitude of factors that affect the fair value of our franchise assets .
| results of operations the following table sets forth the consolidated statements of operations for the periods presented ( dollars in millions , except per share data ) : replace_table_token_8_th revenues . total revenues grew $ 12.6 billion or 43.4 % in the year ended december 31 , 2017 as compared to 2016 and grew $ 19.2 billion or 197.3 % in the year ended december 31 , 2016 as compared to 2015 . revenue growth primarily reflects the transactions and increases in the number of residential internet and commercial business customers , price adjustments as well as growth in expanded basic video penetration offset by a decrease in limited basic video customers . the transactions increased revenues for the years ended 2017 and 2016 as compared to the corresponding prior periods by approximately $ 11.4 billion and $ 18.6 billion , respectively . on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , total revenue growth was 3.9 % and 7.0 % for the years ended december 31 , 2017 and 2016 as compared to the corresponding prior periods . 37 revenues by service offering were as follows ( dollars in millions ; all percentages are calculated using whole numbers . minor differences may exist due to rounding ) : replace_table_token_9_th video revenues consist primarily of revenues from basic and digital video services provided to our residential customers , as well as franchise fees , equipment and video installation revenue . residential video customers decreased by 292,000 in 2017 and , excluding the impacts of the transactions , increased by 42,000 in 2016 .
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although we believe that the expectations reflected in these forward-looking statements are reasonable , we caution that these expectations or predictions may not prove to be correct or we may not achieve the financial results , savings or other benefits anticipated in the forward-looking statements . these forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties , some of which may be beyond our control or can not be predicted or quantified , that could cause actual results to differ materially from those suggested by the forward-looking statements . many factors , including but not limited to those set forth in this annual report on form 10-k under part i , item 1a . risk factors , could cause our actual results , performance , achievements or industry results to be very different from the results , performance or achievements expressed or implied by these forward-looking statements . our business , financial condition or results of operations could also be materially and adversely affected by other factors besides those listed . forward-looking statements speak only as of the date the statements were made . we do not undertake any obligation to update or revise any forward-looking statements to reflect new information or future events , or for any other reason , even if experience or future events make it clear that any expected results expressed or implied by these forward-looking statements will not be realized . in addition , it is generally our policy not to make any specific projections as to future earnings , and we do not endorse projections regarding future performance that may be made by third parties . introduction we are a leader in consumer debt buying and recovery . we purchase portfolios of defaulted consumer receivables at deep discounts to face value based on robust , account-level valuation methods , and employ a suite of proprietary statistical and behavioral models when building account collection strategies . we use a variety of operational channels to maximize our collections from the portfolios that we purchase , including seeking to partner with individuals as they repay their obligations and work toward financial recovery . in addition , we provide bankruptcy support services to some of the largest companies in the financial services industry through our wholly owned subsidiary , ascension capital group , inc. ( ascension ) . while seasonality does not have a material impact on our business , collections are generally strongest in our first calendar quarter , slower in the second and third calendar quarters , and slowest in the fourth calendar quarter . relatively higher collections in the first quarter could result in a lower cost-to-collect ratio compared to the other quarters , as our fixed costs would be constant and applied against a larger collection base . the seasonal impact on our business may be influenced by our purchasing levels , the types of portfolios we purchase , and our operating strategies . collection seasonality can also impact our revenue recognition rate . generally , revenue for each pool group declines steadily over time , whereas collections can fluctuate from quarter to quarter based on seasonality , as described above . in quarters with lower collections ( like the fourth calendar quarter ) , revenue as a percentage of collections can be higher than in quarters with higher collections ( like the first calendar quarter ) . in addition , seasonality could have an impact on the relative level of quarterly earnings . in quarters with stronger collections , total costs are higher , as a result of the additional efforts required to generate those collections . since revenue for each pool group declines steadily over time , in quarters with stronger collections and higher costs ( like the first calendar quarter ) , all else being equal , earnings could be lower than in quarters with slower collections and lower costs ( like the fourth calendar quarter ) . additionally , in quarters where a greater percentage of collections come from our legal and agency outsourcing channels , cost to collect will be higher than if there were more collections from our internal collection sites . 22 market overview while there has been improvement in macroeconomic indicators during the last twelve months , a broad economic recovery has yet to fully materialize for the u.s. consumer . minimal job growth , uncertainty over state and federal taxes , and limited credit availability continue to challenge u.s. consumers , as demonstrated by weak consumer spending and volatile but rising consumer confidence levels . within the credit card space , delinquency levels have improved at a rate that may indicate a fundamental improvement in consumer financial strength . however , related measures , like personal bankruptcies and home foreclosures , remain elevated and indicate continued near-term pressure on the average consumer . despite this macroeconomic uncertainty through the fourth quarter of 2011 , most of our internal collection metrics were consistent with , or better than , what we observed during the same periods in 2009 and 2010. to illustrate , payer rates and average payment size , adjusted for changes in the mix of settlements-in-full versus payment plans , remained consistent . as compared to prior years , more of our consumers continue to opt to settle their debt obligations through payment plans as opposed to one-time settlements . settlements made through payment plans impact our recoveries in two ways . first , the delay in cash flows from payments received over extended time periods may result in a provision for portfolio allowance . when a long-term payment stream ( as compared to a one-time payment of the same amount ) is discounted using a pool group 's internal rate of return , or irr , the net present value is lower . story_separator_special_tag results of operations results of operations , in dollars and as a percentage of total revenue , were as follows ( in thousands , except percentages ) : replace_table_token_7_th story_separator_special_tag the year ended december 31 , 2010. the cost of legal collections decreased as a percent of gross collections through this channel to 41.6 % during the year ended december 31 , 2011 , from 45.4 % during the year ended december 31 , 2010 , as a result of improvements in our ability to more accurately and consistently identify those consumers with the financial means to repay their obligations . 27 the following table summarizes our legal collection channel performance and related direct costs ( in thousands , except percentages ) : replace_table_token_9_th ( 1 ) collections include approximately $ 2.3 million from our internal legal channel for the year ended december 31 , 2011. we had no collections through our internal legal channel during the year ended december 31 , 2010 . ( 2 ) in connection with our agreement with contracted attorneys , we advance certain out-of-pocket court costs . we capitalize these costs in our consolidated financial statements and provide a reserve and corresponding court cost expense for the costs that we believe will be ultimately uncollectible . this amount includes changes in our anticipated recovery rate of court costs expensed . this amount also includes court costs expensed through our internal legal channel of approximately $ 1.7 million for the year ended december 31 , 2011. we did not incur court costs through our internal legal channel during the year ended december 31 , 2010 . ( 3 ) other costs consist of costs related to counter claims and legal network subscription fees . other operating expenses other operating expenses increased $ 3.4 million , or 9.3 % , to $ 39.8 million during the year ended december 31 , 2011 , from $ 36.4 million during the year ended december 31 , 2010. the increase was primarily the result of an increase of $ 1.0 million in direct mail campaign expenses , an increase of $ 0.8 million in telephone expenses , an increase of $ 0.5 million in recruiting expenses , and a net increase in various other operating expenses of $ 1.1 million , all to support our growth . collection agency commissions during the year ended december 31 , 2011 , we incurred $ 14.2 million in commissions to third party collection agencies , or 29.7 % of the related gross collections of $ 47.7 million , compared to $ 20.4 million in commissions , or 30.0 % of the related gross collections of $ 68.0 million during the year ended december 31 , 2010. the decline in commissions and collections in this channel is part of our strategy to place more accounts internally to reduce our overall cost to collect . the decrease in the net commission rate as a percentage of the related gross collections was primarily due to the mix of accounts placed with the agencies . commissions , as a percentage of collections through this channel , vary from period to period depending on , among other things , the time from charge-off of the accounts placed with an agency . generally , freshly charged-off accounts have a lower commission rate than accounts that have been charged off for a longer period of time . general and administrative expenses general and administrative expenses increased $ 10.3 million , or 32.7 % , to $ 41.7 million during the year ended december 31 , 2011 , from $ 31.4 million during the year ended december 31 , 2010. the increase was primarily the result of an increase of $ 3.8 million in litigation and corporate legal expenses associated with governmental investigations or inquiries and litigation , an increase of $ 1.3 million in building rent , an increase of $ 0.9 million in consulting fees , an increase of $ 0.9 million in system maintenance costs and a net increase in other general and administrative expenses of $ 3.4 million , primarily to support our growth . 28 depreciation and amortization depreciation and amortization expense increased $ 1.5 million , or 45.7 % , to $ 4.7 million during the year ended december 31 , 2011 , from $ 3.2 million during the year ended december 31 , 2010. the increase was primarily due to increased depreciation expenses resulted from our acquisition of fixed assets in the current and prior years . cost per dollar collected the following table summarizes our cost per dollar collected ( in thousands , except percentages ) : replace_table_token_10_th ( 1 ) collections include approximately $ 2.3 million from our internal legal channel for the year ended december 31 , 2011. court costs expensed through our internal legal channel were approximately $ 1.7 million for the year ended december 31 , 2011. we had no collections and did not incur any court costs through our internal legal channel during the year ended december 31 , 2010 . ( 2 ) cost in collection sites represents only account managers and their supervisors ' salaries , variable compensation , and employee benefits . ( 3 ) other indirect costs represent non-collection site salaries and employee benefits , general and administrative expenses , other operating expenses and depreciation and amortization . included in other indirect costs were costs related to our internal legal channel of approximately $ 3.8 million and $ 0.3 million for the years ended december 31 , 2011 and 2010 , respectively . ( 4 ) represents all operating expenses , excluding stock-based compensation expense and bankruptcy servicing operating expenses . we include this information in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing business in the periods presented . refer to the items for reconciliation of operating expenses , excluding stock-based compensation expense and bankruptcy servicing operating expenses , to generally accepted accounting practices ( gaap ) total operating expenses in the table below .
| comparison of results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 revenues our revenues consist primarily of portfolio revenue and bankruptcy servicing revenue . portfolio revenue consists of accretion revenue and zero basis revenue . accretion revenue represents revenue derived from pools ( quarterly groupings of purchased receivable portfolios ) with a cost basis that has not been fully amortized . revenue from pools with a remaining unamortized cost basis is accrued based on each pool 's effective interest rate applied to each pool 's remaining unamortized cost basis . the cost basis of each pool is increased by revenue earned and decreased by gross collections and portfolio allowances . the effective interest rate is the internal rate of return derived from the timing and amounts of actual cash received and anticipated future cash flow projections for each pool . all collections realized after the net book value of a portfolio has been fully recovered , or zero basis portfolios , are recorded as revenue , or zero basis revenue or allowance reversal if applicable . we account for our investment in receivable portfolios utilizing the interest method in accordance with the authoritative guidance for loans and debt securities acquired with deteriorated credit quality . servicing fee 25 revenue is revenue primarily associated with bankruptcy servicing fees earned from our ascension subsidiary , a provider of bankruptcy services to the finance industry . the following tables summarize collections , revenue , end of period receivable balance and other related supplemental data , by year of purchase ( in thousands , except percentages ) : replace_table_token_8_th ( 1 ) does not include amounts collected on behalf of others . ( 2 ) gross revenue excludes the effects of net portfolio allowance or net portfolio allowance reversals . ( 3 ) revenue recognition rate excludes the effects of net portfolio allowance or net portfolio allowance reversals .
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142 ormat technologies , inc. and subsidiaries notes to consolidated financial statements note 3 — northleaf transaction northleaf transaction on april 30 , 2015 , ormat nevada inc. ( “ ormat nevada ” ) , a wholly-owned subsidiary of the company , closed the sale of story_separator_special_tag results of operations you should read the following discussion and analysis of our results of operations , financial condition and liquidity in conjunction with our consolidated financial statements and the related notes . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report including information with respect to our plans and strategies for our business , statements regarding the industry outlook , our expectations regarding the future performance of our business , and the other non-historical statements contained herein are forward-looking statements . see “ cautionary note regarding forward-looking statements. ” you should also review item 1a — “ risk factors ” for a discussion of important factors that could cause actual results to differ materially from the results described herein or implied by such forward-looking statements . general overview we are a leading vertically integrated company engaged primarily in the geothermal and recovered energy power business . with the objective of becoming a leading global provider of renewable energy , we are focused on several key initiatives , under our new strategic plan , as described in this annual report . we design , develop , build , sell , own , and operate clean , environmentally friendly geothermal and recovered energy-based power plants , usually using equipment that we design and manufacture . our geothermal power plants include both power plants that we have built and power plants that we have acquired , while we have built all of our recovered energy-based plants . we currently conduct our business activities in two business segments : ● the electricity segment — in this segment , we develop , build , own and operate geothermal and recovered energy-based power plants in the u.s. and geothermal power plants in other countries around the world , and sell the electricity they generate ; and ● the product segment — in this segment we design , manufacture and sell equipment for geothermal and recovered energy-based electricity generation , remote power units and other power generating units and provide services relating to the engineering , procurement , construction , operation and maintenance of geothermal and recovered energy-based power plants . both our electricity segment and product segment operations are conducted in the u.s. and the rest of the world . our current generating portfolio includes geothermal plants in the u.s. , guatemala , and kenya , as well as reg plants in the u.s. for the year ended december 31 , 2015 , our total revenues increased by 6.3 % ( from $ 559.5 million to $ 594.6 million ) over the previous year . for the year ended december 31 , 2015 , electricity segment revenues were $ 375.9 million , compared to $ 382.3 million for the year ended december 31 , 2014 , a decrease of 1.7 % , mainly as a result of approximately $ 30.0 million reduction related to the impact of lower oil and natural gas prices as well as lower revenues in the puna power plant having lower generation as a result of a hurricane . product segment revenues for the year ended december 31 , 2015 were $ 218.7 million , compared to $ 177.2 million for the year ended december 31 , 2014 , an increase of 23.4 % . during the years ended december 31 , 2015 and 2014 , our consolidated power plants generated 4,835,109 mwh and 4,450,910 mwh , respectively , an increase of 8.6 % for the year ended december 31 , 2015 , our electricity segment generated approximately 63.2 % of our total revenues ( 68.3 % in 2014 ) , while our product segment generated approximately 36.8 % of our total revenues ( 31.7 % in 2014 ) . 93 for the year ended december 31 , 2015 , approximately 86 % of our electricity segment revenues were from ppas with fixed energy rates which are not affected by fluctuations in energy commodity prices . we have variable price ppas in california and hawaii , which provide for payments based on the local utilities ' avoided cost , which is the incremental cost that the power purchaser avoids by not having to generate such electrical energy itself or purchase it from others , as follows : ● the energy rates under the ppas in california for each of the ormesa complex , heber 2 power plant in the heber complex and the g2 power plant in the mammoth complex change primarily based on fluctuations in natural gas prices ; and ● the prices paid for the electricity pursuant to the 25 mw ppa for the puna complex in hawaii change primarily due to variations in the price of oil . we reduced our economic exposure to fluctuations in the price of oil until december 31 , 2014 and in the price of natural gas until march 31 , 2015 , from june 1 , 2015 until december 31 , 2015 and recently from february 3 , 2016 until december 29 , 2016 , by entering into derivatives transactions . for the year ended december 31 , 2015 , we recorded a net gain of $ 1.2 million in electricity revenues related to these transactions . to comply with obligations under their respective ppas , certain of our project subsidiaries are structured as special purpose , bankruptcy remote entities and their assets and liabilities are ring-fenced . such assets are not generally available to pay our debt other than debt at the respective project subsidiary level . however , these project subsidiaries are allowed to pay dividends and make distributions of cash flows generated by their assets to us subject in some cases to restrictions in debt instruments , as described below . story_separator_special_tag for example , california 's state climate change law , ab 32 , which was signed into law in september 2006 , regulates most sources of ghg emissions and aims to reduce ghg emissions to 1990 levels by 2020. on october 20 , 2011 , the carb adopted cap-and-trade regulations to reduce california 's ghg emissions under ab 32. on april 29 , 2015 , california 's governor brown issued an executive order setting an interim target of 40 % below 1990 levels by 2030. in addition to california , twenty u.s. states have set ghg emissions reduction targets . regional initiatives are also being developed to reduce ghg emissions and develop trading systems for renewable energy credits . in the u.s. , approximately 40 states have adopted rps , renewable portfolio goals , or similar laws requiring or encouraging electric utilities in such states to generate or buy a certain percentage of their electricity from renewable energy sources or recovered heat sources . on april 12 , 2011 , sbx1-2 was signed into law , and increased california 's rps to 33 % by december 31 , 2020. in october 2015 , california 's governor signed sb 350. under the new bill , california 's rps have been increased to 50 % by 2030. in june 2015 , hawaii 's governor signed a bill that sets the state 's renewable energy goal at 100 % by 2045. these bills may facilitate additional sales and trading options when negotiating ppas and selling electricity from our existing power plants and any new power plants we may develop or acquire in these states . ● following the historical agreement signed at the cop21 un climate change conference held in paris , as well as other initiatives such as the american business act on climate pledge , the mission innovation initiative and , the breakthrough energy coalition , we believe that our global operations may benefit from increasing efforts by governments and businesses around the world to flight climate change and move towards a low carbon , resilient and sustainable future . these developments and governmental plans may create opportunities for us to acquire and develop geothermal power generation facilities internationally , as well as additional opportunities for our product segment . ● in june 2013 , the nevada state legislature passed three bills that were signed by nevada 's governor and were expected to support additional renewable energy development in the state . sb no . 123 required the retirement or elimination of not less than 800 mw of coal-fired electric generating capacity on or before december 31 , 2019 and the construction or acquisition of , or contracting for , 550 mw of anticipated natural gas resources and 350 mw of electric generating capacity from renewable energy facilities . the provisions of sb 123 have been fulfilled in part and indefinitely suspended in part : o three new solar pv projects totaling 215 mw and acquisitions by nevada power of 3 existing natural-gas-fired facilities generating about 496 mw of electric power fulfilled most of the sb 123 mandate . o approximately 135 mw of the sb 123 mandate has not been fulfilled , and the requirement to do so has been indefinitely suspended by new legislation adopted by the nevada legislature in 2015. that legislation , ab 498 , suspended the sb 123 mandate with respect to the portion of the mandate that has not been fulfilled . 95 final regulations have been adopted to implement other 2013 nevada legislation related to rps in nevada and the related quantification and qualification of different types of portfolio energy credits that may be used by nevada utilities to satisfy rps requirements . these regulations ( when fully effective ) are expected to align nevada 's rps with current rps standards in other states in the regional wregis market , such as by : o eliminating a 2.4 multiplier that previously applied to new solar pv distributed generation , o phasing out ( by 2025 ) nevada 's inclusion of energy efficiency credits which have previously counted for up to 25 % of nevada 's rps and phasing out recognition of the related pecs for purposes of nevada 's rps , and o diminishing the allowance for station usage pecs for geothermal projects under the nevada rps . ● on september 26 , 2014 , governor brown of california signed into law ab-2363 , which requires the cpuc to adopt , by december 31 , 2015 , a methodology for determining the costs of integrating eligible renewable energy resources . as of the date of this report no methodology has been adopted . ● outside of the u.s. , in november 2012 , the u.s. , brunei , and indonesia formed the asia-pacific comprehensive partnership and president obama announced the allocation of $ 6.0 billion for green energy development in asia . also , on june 30 , 2013 , president obama announced the “ power africa ” initiative pursuant to which the u.s. will invest $ 7.0 billion in sub-saharan africa over the following five years , with the aim of doubling access to power . sub-saharan africa includes three countries ( ethiopia , kenya and tanzania ) that have large geothermal potential as well as operating geothermal power plants . we accelerated our efforts to expand business development activities in those areas by , among other things , participating in new bids . in addition , we expect that a variety of governmental initiatives will create new opportunities for the development of new projects , as well as create additional markets for our products . these initiatives include the award of long-term contracts to independent power generators , the creation of competitive wholesale markets for selling and trading energy , capacity and related energy products and the adoption of programs designed to encourage “ clean ” renewable and sustainable energy sources . ● in the electricity segment , we expect intense competition from the solar and wind power generation industry to continue and increase .
| results of operations our historical operating results in dollars and as a percentage of total revenues are presented below . a comparison of the different years described below may be of limited utility due to ( i ) our recent construction or disposition of new power plants and enhancement of acquired power plants and ( ii ) fluctuation in revenues from our product segment . replace_table_token_10_th 103 replace_table_token_11_th comparison of the year ended december 31 , 2015 and the year ended december 31 , 2014 total revenues total revenues for the year ended december 31 , 2015 were $ 594.6 million , compared to $ 559.5 million for the year ended december 31 , 2014 , representing a 6.3 % increase from the prior period . this increase was attributable to our product segment , in which revenues increased by 23.4 % compared to the corresponding period in 2014. this increase was partially offset by a 1.7 % decrease in our electricity segment revenues over the corresponding period in 2014. electricity segment revenues attributable to our electricity segment for the year ended december 31 , 2015 were $ 375.9 million , compared to $ 382.3 million for the year ended december 31 , 2014 , representing a 1.7 % decrease from the prior period . this decrease was primarily attributable to a $ 30.0 million reduction in revenues generated by some of our power plants due to lower oil and gas prices and due to our puna power plant having lower generation due to a hurricane . this decrease was partially offset by the commencement of operations of the second phase of the mcginness hills power plant and don a. campbell power plant in nevada in february 2015 and september 2015 , respectively .
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the company uses the following inputs to determine the fair value of the asset retirement obligations based on the company 's experience with fulfilling obligations of this type and the company 's knowledge of market conditions : ( a ) labor costs ; ( b ) allocation of overhead costs ; ( c ) profit on labor and overhead costs ; ( d ) effect of inflation on estimated costs and profits ; ( e ) risk premium for bearing the uncertainty inherent in cash flows , other than inflation ; ( f ) time value of money represented by the risk-free interest rate commensurate with the timing of the associated cash flows ; and ( g ) nonperformance risk relating to the story_separator_special_tag in this annual report on form 10-k ( `` annual report '' ) , the term `` celanese '' refers to celanese corporation , a delaware corporation , and not its subsidiaries . the terms the `` company , '' `` we , '' `` our '' and `` us , '' refer to celanese and its subsidiaries on a consolidated basis . the term `` celanese us '' refers to the company 's subsidiary , celanese us holdings llc , a delaware limited liability company , and not its subsidiaries . the following discussion should be read in conjunction with the accompanying consolidated financial statements and notes to the consolidated financial statements , which are prepared in accordance with accounting principles generally accepted in the united states of america ( `` us gaap '' ) . investors are cautioned that the forward-looking statements contained in this section and other parts of this annual report involve both risk and uncertainty . several important factors could cause actual results to differ materially from those anticipated by these statements . many of these statements are macroeconomic in nature and are , therefore , beyond the control of management . see `` forward-looking statements '' below . forward-looking statements management 's discussion and analysis of financial condition and results of operations and other parts of this annual report contain certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by , and information currently available to , us . generally , words such as `` believe , '' `` expect , '' `` intend , '' `` estimate , '' `` anticipate , '' `` project , '' `` plan , '' `` may , '' `` can , '' `` could , '' `` might , '' `` will '' and similar expressions , as they relate to us are intended to identify forward-looking statements . these statements reflect our current views with respect to future events , are not guarantees of future performance and involve risks and uncertainties that are difficult to predict . further , certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate . see `` special note regarding forward-looking statements `` at the beginning of this annual report for further discussion . item 1a . risk factors of this annual report also contains a description of certain risk factors that you should consider which could significantly affect our financial results . in addition , the following factors could cause our actual results to differ materially from those results , performance or achievements that may be expressed or implied by such forward-looking statements . these factors include , among other things : changes in general economic , business , political and regulatory conditions in the countries or regions in which we operate ; the length and depth of product and industry business cycles particularly in the automotive , electrical , textiles , electronics and construction industries ; changes in the price and availability of raw materials , particularly changes in the demand for , supply of , and market prices of ethylene , methanol , natural gas , wood pulp and fuel oil and the prices for electricity and other energy sources ; the ability to pass increases in raw material prices on to customers or otherwise improve margins through price increases ; the ability to maintain plant utilization rates and to implement planned capacity additions and expansions ; the ability to reduce or maintain current levels of production costs and to improve productivity by implementing technological improvements to existing plants ; increased price competition and the introduction of competing products by other companies ; market acceptance of our technology ; the ability to obtain governmental approvals and to construct facilities on terms and schedules acceptable to us ; changes in the degree of intellectual property and other legal protection afforded to our products or technologies , or the theft of such intellectual property ; compliance and other costs and potential disruption or interruption of production or operations due to accidents , interruptions in sources of raw materials , cyber security incidents , terrorism or political unrest , or other unforeseen events or delays in construction or operation of facilities , including as a result of geopolitical conditions , the occurrence of acts of war or terrorist incidents or as a result of weather or natural disasters ; 34 potential liability for remedial actions and increased costs under existing or future environmental regulations , including those relating to climate change ; potential liability resulting from pending or future litigation , or from changes in the laws , regulations or policies of governments or other governmental activities in the countries in which we operate ; changes in currency exchange rates and interest rates ; our level of indebtedness , which could diminish our ability to raise additional capital to fund operations or limit our ability to react to changes in the economy or the chemicals industry ; and various other factors , both referenced and not referenced in this annual report . many of these factors are macroeconomic in nature and are , therefore , beyond our control . story_separator_special_tag equity in net earnings ( loss ) of affiliates decreased $ 65 million for the year ended december 31 , 2015 compared to the same period in 2014 primarily due to : a $ 48 million gain resulting from restructuring the debt of a subsidiary of infraserv gmbh & co. hoechst kg during the three months ended june 30 , 2014 , which did not recur in 2015. our equity investment in infraserv gmbh & co. hoechst kg is primarily owned by an entity included in our other activities segment , while our consumer specialties and acetyl intermediates segments also each hold an ownership percentage ; and 40 a decrease in equity in net earnings ( loss ) of affiliates of $ 27 million from our ibn sina strategic affiliate as a result of lower pricing for mtbe and methanol . our effective income tax rate for the year ended december 31 , 2015 was 41 % compared to 33 % for the year ended 2014 . the higher effective income tax rate for the year ended december 31 , 2015 was primarily attributable to an increase in the valuation allowance due to an increase in losses in jurisdictions with no tax benefit . the increase in losses primarily relates to a $ 123 million long-lived asset impairment recorded to fully write-off certain ethanol related assets at our acetyl facility in nanjing , china and a $ 174 million charge related to the termination of a raw materials contract with a supplier in singapore . see note 18 - other ( charges ) gains , net in the accompanying consolidated financial statements for further information . the tax impact of these events was partially offset by decreases in uncertain tax positions of $ 29 million due to audit closures and technical jurisdictional clarifications . 41 business segments advanced engineered materials replace_table_token_17_th year ended december 31 , 2016 compared to year ended december 31 , 2015 net sales increased for the year ended december 31 , 2016 compared to the same period in 2015 primarily due to : higher volume , primarily for pom in europe and asia , driven by new project launches and base business growth ; partially offset by : lower pricing in pom due to regional and customer mix . operating profit increased for the year ended december 31 , 2016 compared to the same period in 2015 primarily due to : higher net sales ; lower energy and raw material costs , primarily for methanol and polyester ; and cost savings of $ 18 million primarily due to productivity initiatives . equity in net earnings ( loss ) of affiliates decreased for the year ended december 31 , 2016 compared to the same period in 2015 primarily due to : a decrease in equity in net earnings ( loss ) of affiliates of $ 50 million from our ibn sina strategic affiliate as a result of lower pricing for mtbe and methanol ; partially offset by : an increase in equity in net earnings ( loss ) of affiliates from our polyplastics co. , ltd. ( `` polyplastics '' ) and korea engineering plastics co. , ltd. ( `` kepco '' ) strategic affiliates of $ 15 million and $ 9 million , respectively , primarily as a result of higher demand . on december 1 , 2016 , we acquired 100 % of the stock of the forli , italy based so.f.ter . s.p.a. ( `` softer '' ) , a leading thermoplastic compounder . the acquisition included its comprehensive product portfolio of engineering thermoplastics , including nylon and polypropylene polymers , and thermoplastic elastomers , as well as all of its manufacturing , technology and commercial facilities and customer agreements . the acquisition supports the strategic growth of the engineered materials 42 business . see note 4 - acquisitions , dispositions and plant closures in the accompanying consolidated financial statements for further information . year ended december 31 , 2015 compared to year ended december 31 , 2014 net sales decreased for the year ended december 31 , 2015 compared to the same period in 2014 primarily due to : an unfavorable currency impact resulting from a strong us dollar relative to the euro . operating profit increased for the year ended december 31 , 2015 compared to the same period in 2014 primarily due to : lower energy and raw material costs , primarily for ethylene and polypropylene , which more than offset the decrease in net sales ; partially offset by : an increase in net periodic benefit cost of $ 54 million . equity in net earnings ( loss ) of affiliates decreased for the year ended december 31 , 2015 compared to the same period in 2014 primarily due to : a decrease in equity in net earnings ( loss ) of affiliates of $ 27 million from our ibn sina strategic affiliate as a result of lower pricing for mtbe and methanol ; partially offset by : an increase in equity in net earnings ( loss ) of affiliates from our polyplastics and kepco strategic affiliates of $ 8 million and $ 6 million , respectively , primarily as a result of lower raw material costs . 43 consumer specialties replace_table_token_18_th year ended december 31 , 2016 compared to year ended december 31 , 2015 net sales decreased for the year ended december 31 , 2016 compared to the same period in 2015 primarily due to : lower acetate tow pricing due to lower global industry utilization ; partially offset by : higher acetate tow volume , primarily in europe , due to customer destocking in the first half of the prior year , which did not recur in the current year .
| results of operations financial highlights replace_table_token_9_th _ ( 1 ) defined as operating profit ( loss ) divided by net sales . replace_table_token_10_th 36 factors affecting business segment net sales the percentage increase ( decrease ) in net sales attributable to each of the factors indicated for each of our business segments is as follows : year ended december 31 , 2016 compared to year ended december 31 , 2015 replace_table_token_11_th year ended december 31 , 2015 compared to year ended december 31 , 2014 replace_table_token_12_th pension and postretirement benefit plan costs the increase ( decrease ) in pension and other postretirement plan net periodic benefit cost for each of our business segments is as follows : year ended december 31 , 2016 compared to year ended december 31 , 2015 replace_table_token_13_th ( 1 ) the decrease in recognized actuarial loss primarily relates to higher asset returns and a gain of $ 48 million reflecting the incorporation of the rp-2016 mortality tables into the actuarial assumptions for the us pension plans as of december 31 , 2016 , partially offset by a decrease in the weighted average discount rate used to determine benefit obligations from 4.0 % to 3.7 % . 37 replace_table_token_14_th year ended december 31 , 2015 compared to year ended december 31 , 2014 replace_table_token_15_th ( 1 ) primarily relates to the elimination of eligibility for current and future employees and the elimination of benefits for certain participants under a us postretirement health care plan in 2014 . ( 2 ) the decrease in recognized actuarial loss primarily relates to an increase in the weighted average discount rate used to determine benefit obligations from 3.7 % to 4.0 % and a gain of $ 62 million reflecting the incorporation of the rp-2015 mortality tables into the actuarial assumptions for the us pension plans as of december 31 , 2015 , partially offset by lower asset returns .
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as such , the effective portion of the gain or loss on the contracts is recorded as unrealized gains ( losses ) on derivatives included in the aoci component story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes 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 , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should read the risk factors section of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview our business is currently organized in two reportable segments , product development and integrated healthcare services . for the year ended december 31 , 2014 , our service revenues increased $ 357.5 million , or 9.4 % , to $ 4.2 billion at actual foreign exchange rates compared to 2013. our growth in service revenues excluding the impact of foreign currency fluctuations ( constant currency ) was $ 383.2 million , or 10.1 % , with $ 183.2 million , or 6.3 % , growth in the product development segment and $ 200.0 million , or 22.5 % , growth in the integrated healthcare services segment . for the year ended december 31 , 2014 , income from operations was $ 590.4 million ; net income attributable to quintiles transnational holdings inc. was $ 356.4 million ; and diluted earnings per share was $ 2.72. net new business was $ 5,602 million for the year ended december 31 , 2014. this net new business contributed to an ending backlog of $ 11,244 million at december 31 , 2014 . net new business and backlog are defined under net new business reporting and backlog in part i , item 1 , business of this annual report on form 10-k. product development product development provides services and expertise that allow biopharmaceutical companies to outsource the clinical development process from first-in-man trials to post-launch monitoring . our comprehensive service offerings provide the support and functional expertise necessary at each stage of development , as well as the systems and analytical capabilities to help our customers improve product development efficiency and effectiveness . product development is comprised of clinical solutions and services and consulting . clinical solutions and services provides services necessary to develop biopharmaceutical products . these services include project management and clinical monitoring functions for conducting multi-site trials ( generally phase ii-iv ) ( collectively core clinical ) . these also include clinical trial support services that improve clinical trial decision-making , such as global laboratories , data management , biostatistical , safety and pharmacovigilance , early clinical development trials ( generally phase i ) , and strategic planning and design services , which help improve decisions and performance . we also provide functional resourcing services that cover a range of areas . consulting provides strategy and management consulting services based on life science expertise and advanced analytics , as well as regulatory and compliance consulting services . integrated healthcare services integrated healthcare services provides a broad array of services including commercial services , such as providing contract pharmaceutical sales forces in key geographic markets , as well as a growing number of healthcare business services for the broader healthcare sector . our customized commercialization services are designed to accelerate the commercial success of biopharmaceutical and other health-related products . service offerings include commercial services ( sales representatives , strategy , marketing communications and other areas related to commercialization ) , real-world and late phase research ( drug therapy analysis , real-world research and 45 evidence-based medicine , including research studies to prove a drug 's value ) , other healthcare services ( comparative and cost-effectiveness research capabilities , decision support services , medication adherence and health outcome optimization services , and web-based systems for measuring quality improvement ) , and ehr implementation and advisory services . on july 1 , 2014 , we completed the acquisition of encore for approximately $ 91.5 million in cash ( net of approximately $ 2.2 million of acquired cash ) . industry outlook the potential of the cro market served by product development is primarily a function of two variables : biopharmaceutical r & d spending and the proportion of this spending that is outsourced ( outsourcing penetration ) . we expect outsourced clinical development to cros to increase 6 % -8 % annually from 2014 to 2017. of this annual growth , we believe that up to 2 % will be derived from increased r & d expenditures , with the remainder coming from increased outsourcing penetration . we estimate that overall outsourcing penetration in 2014 was 39 % . we believe that our customers will continue to outsource a greater part of their activities to transform their value chain away from a vertically integrated model and focus on their core competencies to lower risk and improve return , with a focus on selecting outsourcing partners that are able to demonstrate the ability to provide flexible and efficient delivery models that leverage patient data to help biopharmaceutical companies deliver more effective patient outcomes . we believe that increased demand will create new opportunities for biopharmaceutical services companies , particularly those with a global reach . integrated healthcare services historically has focused on biopharmaceutical companies seeking to commercialize their products . the total market served by integrated healthcare services is diverse , which makes it difficult to estimate the current amount of outsourced integrated healthcare services and the expected growth in such services . story_separator_special_tag the constant currency increase was primarily due to ( 1 ) expenses incurred related to a 49 $ 25.0 million fee paid in connection with the termination of our management agreement with affiliates of certain of our shareholders , and a $ 1.5 million fee paid in connection with the modification of an agreement for the business usage of an airplane owned by gfm , ( 2 ) severance accruals of approximately $ 10.0 million related to overhead cost reduction programs to be carried out in 2014 , ( 3 ) executive separation costs of approximately $ 5.3 million , ( 4 ) the impact from the business combinations completed in 2012 and 2013 , ( 5 ) increases in compensation and related expenses resulting primarily from annual merit increases , and ( 6 ) growth related increases in facilities costs and depreciation and amortization . these increases were partially offset by lower travel costs , lower share-based compensation and the fact that 2012 included expenses related to a bonus paid to certain option holders in connection with dividends paid to our shareholders ( totaling $ 11.3 million ) , which did not recur in 2013. the lower share-based compensation was as a result of the fact that expense from recent stock option grants was more than offset by a $ 13.6 million decline in expense related to the repricing of certain stock options in 2012 that did not recur in 2013. restructuring costs replace_table_token_11_th during 2014 , we recognized $ 9.0 million of restructuring charges , net of reversals for changes in estimates which was primarily related to our 2014 restructuring plans to better align our resources with our strategic direction , which resulted in a reduction of approximately 250 positions . we believe that these plans will result in annualized cost savings of approximately $ 20.0 to $ 25.0 million . during 2013 , we recognized $ 14.1 million of restructuring charges , net of reversals for changes in estimates which was primarily related to our february 2013 restructuring plan to migrate the delivery of services and to reduce anticipated overcapacity in selected areas , which resulted in a reduction of approximately 400 positions . we believe that this plan has resulted in annual cost savings of approximately $ 15.0 to $ 20.0 million . during 2012 , we recognized $ 18.7 million of restructuring charges , net of reversals for changes in estimates which was primarily related to our may 2012 restructuring plan to reduce staffing overcapacity and to rationalize non-billable support roles , which resulted in a reduction of approximately 280 positions , primarily in europe . we believe that this plan has resulted in annual cost savings of approximately $ 15.0 to $ 25.0 million . interest income and interest expense replace_table_token_12_th interest income includes interest received from bank balances and investments . interest expense during 2014 was lower than 2013 in part due to a decrease in the average rate of interest . the average rate of interest on the term loan under our senior secured credit facility during 2014 was lower than it was during 2013 due to a reduction in the interest rate pursuant to the terms and conditions in the credit agreement as well as from the refinancing transaction we completed in the fourth quarter of 2013. in addition to the lower average rate of interest , interest expense during 2014 also benefited from a decrease in the average debt outstanding as a result of the repayment of the $ 300.0 million term loan , which quintiles transnational holdings 50 inc. obtained in february 2012 and paid in full in may 2013 , the pay down of $ 50.0 million of outstanding indebtedness under our senior secured credit facilities in may 2013 , the mandatory prepayment of $ 33.8 million of outstanding indebtedness under our senior secured credit facilities in the first quarter of 2013 , and the $ 25.0 million prepayment of outstanding indebtedness under our senior secured credit facilities in december 2014. these repayments more than offset the impact on the average debt outstanding of the $ 275.0 million term loan issued under the receivables financing facility in december 2014 and the $ 150.0 million draw on our line of credit in 2014 , which was repaid with the proceeds of the receivables financing facility term loan . interest expense for 2013 was lower than 2012 primarily due to a decrease in the average debt outstanding in 2013 compared to 2012 resulting from the repayment of the $ 300.0 million term loan , which quintiles transnational holdings inc. obtained in february 2012 and paid in full in may 2013 , the pay down of $ 50.0 million of outstanding indebtedness under our senior secured credit facilities in may 2013 , and the mandatory prepayment of $ 33.8 million of outstanding indebtedness under our senior secured credit facilities in the first quarter of 2013 , offset by the increase that resulted from the $ 175.0 million term loan b-1 , which our wholly-owned subsidiary , quintiles transnational , obtained under the credit agreement governing our senior secured credit facilities in october 2012. in addition , the average rate of interest in 2013 on the term loans under our senior secured credit facilities was lower than it was in 2012 due to ( 1 ) a 50 basis point decrease in the interest rate on the term loan b-2 beginning in august 2013 , pursuant to the terms and conditions in the credit agreement , and ( 2 ) the reductions in the interest rate that resulted from the refinancing transactions in the fourth quarters of 2012 and 2013. loss on extinguishment of debt replace_table_token_13_th in december 2013 , we recognized a $ 3.3 million loss on extinguishment of debt on a portion of the debt retired related to the refinancing of our senior secured credit facilities . the loss on extinguishment of debt included $ 1.6 million of unamortized debt issuance costs , $ 1.6 million of unamortized discount and $ 25,000 of fees and expenses .
| results of operations year ended december 31 , 2014 compared to the year ended december 31 , 2013 and the year ended december 31 , 2013 compared to the year ended december 31 , 2012 backlog and net new business we began 2014 with backlog of $ 9,855 million , which was 13 % higher than at the beginning of 2013. backlog at december 31 , 2014 was $ 11,244 million . net new business grew 14 % in 2014 to $ 5,602 million from $ 4,899 million in 2013 , driven by growth in both product development and integrated healthcare services . product development 's net new business increased 16 % to $ 4,374 million in 2014 as compared to $ 3,772 million in 2013 , led by higher growth in net new business for functional resourcing services , which included the renewal of two five-year contracts for clinical services and data management services , growth in net new business for core clinical services in asia , as well as net new business generated from the novella acquisition and clinical trial support services , including early clinical development and lifecycle safety . integrated healthcare services ' net new business increased 9 % to $ 1,228 million in 2014 as compared to $ 1,127 million in 2013 , related primarily to growth in commercial services in north america , an increase in new business from real-world and late phase research services , and net new business from the encore acquisition . 47 net new business grew 9 % in 2013 to $ 4,899 million from $ 4,501 million in 2012 , driven by growth in both product development and integrated healthcare services .
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in our opinion , the consolidated financial statements referred to above present fairly , in all material respects , the financial position of accenture plc and its subsidiaries as of august 31 , 2013 and 2012 , and the results of their operations and their cash flows for each of the years in the three-year period ended august 31 , 2013 , in conformity with u.s. generally accepted accounting principles . also in our opinion , accenture plc maintained , in all material respects , effective internal control over financial reporting as of august 31 , 2013 , based on criteria established in internal control - integrated framework issued by the committee of sponsoring organizations of the treadway commission . kpmg llp chicago , illinois october 29 , 2013 f- 2 accenture plc consolidated balance sheets august 31 , 2013 and 2012 ( in thousands of u.s. story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis also contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “ disclosure regarding forward-looking statements ” and “ risk factors ” in this annual report on form 10-k. we use the terms “ accenture , ” “ we , ” the “ company , ” “ our ” and “ us ” in this report to refer to accenture plc and its subsidiaries . all references to years , unless otherwise noted , refer to our fiscal year , which ends on august 31. for example , a reference to “ fiscal 2013 ” means the 12-month period that ended on august 31 , 2013 . all references to quarters , unless otherwise noted , refer to the quarters of our fiscal year . we use the term “ in local currency ” so that certain financial results may be viewed without the impact of foreign currency exchange rate fluctuations , thereby facilitating period-to-period comparisons of business performance . financial results “ in local currency ” are calculated by restating current period activity into u.s. dollars using the comparable prior year period 's foreign currency exchange rates . this approach is used for all results where the functional currency is not the u.s. dollar . overview revenues are driven by the ability of our executives to secure new contracts and to deliver solutions and services that add value relevant to our clients ' current needs and challenges . the level of revenues we achieve is based on our ability to deliver market-leading service offerings and to deploy skilled teams of professionals quickly and on a global basis . our results of operations are affected by economic conditions , including macroeconomic conditions , credit market conditions and levels of business confidence . there continues to be significant volatility and economic and geopolitical uncertainty in markets around the world , as well as lower levels of spending on some of the types of services we provide in many of the industries we serve , all of which are impacting , and we expect will continue to impact , our business . these conditions have impacted the types of services our clients are demanding . clients are requesting a higher volume of outsourcing services and are placing a greater emphasis on cost savings initiatives and in some cases , slowing the pace and level of spending on existing contracts . these changing demand patterns are currently having an adverse impact on the timing of revenue and could in the future have a material adverse effect on our results of operations . we continue to monitor the impact of this volatility and uncertainty and seek to manage our costs in order to respond to changing conditions . revenues before reimbursements ( “ net revenues ” ) for the fourth quarter of fiscal 2013 were $ 7.09 billion , compared with $ 6.84 billion for the fourth quarter of fiscal 2012 , an increase of 3.7 % in u.s. dollars and 4.5 % in local currency . net revenues for fiscal 2013 were $ 28.56 billion , compared with $ 27.86 billion for fiscal 2012 , an increase of 3 % in u.s. dollars and 4 % in local currency . during the fourth quarter of fiscal 2013 , health & public service , products , financial services and communications , media & technology experienced year-over-year revenue growth in local currency , while resources was flat in local currency year-over-year . revenue growth in local currency was solid in outsourcing , while consulting revenues reflected modest growth during the fourth quarter of fiscal 2013. revenue growth in local currency during fiscal 2013 was lower than we expected due , in large part , to lower than expected demand , particularly in certain geographies experiencing challenging macroeconomic conditions , such as certain countries in europe and in brazil . we expect year-over-year revenues to range from a slight decline to a modest increase in the near term and continue to vary across operating groups and geographic regions , with growth in certain areas of our business partially offset by lower growth or declines in other areas . in our consulting business , net revenues for the fourth quarter of fiscal 2013 were $ 3.80 billion , compared with $ 3.74 billion for the fourth quarter of fiscal 2012 , an increase of 2 % in u.s. dollars and 3 % in local currency . net consulting revenues for fiscal 2013 were $ 15.38 billion , compared with $ 15.56 billion for fiscal 2012 , a decrease of 1 % in u.s. dollars and an increase of 1 % in local currency . three of our five operating groups , including health & public service , communications , media & technology and products , experienced quarterly year-over-year consulting revenue growth in local currency , while resources and financial services experienced declines in quarterly year-over-year consulting revenue . story_separator_special_tag our ability to grow our revenues and increase our margins could be adversely affected if we are unable to : keep our supply of skills and resources in balance with changes in the types or amounts of services clients are demanding , such as the increase in demand for various outsourcing services ; deploy our employees globally on a timely basis ; manage attrition ; recover increases in compensation ; and or effectively assimilate and utilize new employees . gross margin ( net revenues less cost of services before reimbursable expenses as a percentage of net revenues ) for the fourth quarter of fiscal 2013 was 33.2 % , compared with 32.9 % for the fourth quarter of fiscal 2012 . gross margin for fiscal 2013 was 32.9 % , compared with 32.3 % for fiscal 2012 . the increase in gross margin for fiscal 2013 was principally due to higher outsourcing contract profitability , partially offset by higher costs associated with investments in offerings . sales and marketing and general and administrative costs as a percentage of net revenues were 19.3 % for the fourth quarter of fiscal 2013 , compared with 19.1 % for the fourth quarter of fiscal 2012 . sales and marketing and general and administrative costs as a percentage of net revenues were 18.6 % for fiscal 2013 , compared with 18.4 % for fiscal 2012 . sales and marketing costs are driven primarily by : compensation costs for business-development activities ; investment in offerings ; marketing- and advertising-related activities ; and acquisition-related costs . general and administrative costs primarily include costs for non-client-facing personnel , information systems and office space . we continuously monitor these costs and implement cost-management actions , as appropriate . for fiscal 2013 compared to fiscal 2012 , sales and marketing costs as a percentage of net revenues increased approximately 30 basis points as a result of higher selling and other business development costs associated with generating new contract bookings and expanding our pipeline of business opportunities , as well as acquisition-related costs . our margins could 33 be adversely affected if our cost-management actions are not sufficient to maintain sales and marketing and general and administrative costs at or below current levels as a percentage of net revenues . operating expenses for fiscal 2013 included reorganization benefits of $ 274 million as a result of final determinations of certain reorganization liabilities established in connection with our transition to a corporate structure in 2001. for additional information , see note 3 ( reorganization ( benefits ) costs , net ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” operating income for the fourth quarter of fiscal 2013 was $ 984 million , compared with $ 940 million for the fourth quarter of fiscal 2012 . operating income for fiscal 2013 was $ 4,339 million , compared with $ 3,872 million for fiscal 2012 . operating margin ( operating income as a percentage of net revenues ) for the fourth quarter of fiscal 2013 was 13.9 % compared with 13.8 % for the fourth quarter of fiscal 2012 . operating margin for fiscal 2013 was 15.2 % , compared with 13.9 % for fiscal 2012 . the reorganization benefits of $ 274 million recorded during the second and third quarters of fiscal 2013 increased operating margin by 100 basis points . excluding the effects of the reorganization benefits , operating margin would have been 14.2 % for fiscal 2013 , an increase of 30 basis points compared with fiscal 2012 . the effective tax rate for fiscal 2013 was 18.1 % . the above noted reorganization benefits increased income before income taxes without any increase in income tax expense . in addition , during fiscal 2013 , we recorded a benefit of $ 243 million related to settlements of u.s. federal tax audits for fiscal years 2006 through 2009. absent these items , our effective tax rate for fiscal 2013 would have been 25.3 % compared with 27.6 % in fiscal 2012. diluted earnings per share were $ 4.93 for fiscal 2013 , compared with $ 3.84 for fiscal 2012 . absent the above noted reorganization benefits and tax benefit recorded during fiscal 2013 , diluted earnings per share would have been $ 4.21 for fiscal 2013 . our operating income and earnings per share are also affected by currency exchange-rate fluctuations on revenues and costs . most of our costs are incurred in the same currency as the related net revenues . where practical , we also seek to manage foreign currency exposure for costs not incurred in the same currency as the related net revenues , such as the cost of our global delivery network , by using currency protection provisions in our customer contracts and through our hedging programs . we seek to manage our costs taking into consideration the residual positive and negative effects of changes in foreign exchange rates on those costs . for more information on our hedging programs , see note 7 ( derivative financial instruments ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” bookings and backlog new contract bookings for the fourth quarter of fiscal 2013 were $ 8.40 billion , with consulting bookings of $ 3.86 billion and outsourcing bookings of $ 4.54 billion . new contract bookings for fiscal 2013 were $ 33.28 billion , with consulting bookings of $ 16.27 billion and outsourcing bookings of $ 17.01 billion . we provide information regarding our new contract bookings because we believe doing so provides useful trend information regarding changes in the volume of our new business over time . however , new bookings can vary significantly quarter to quarter depending in part on the timing of the signing of a small number of large outsourcing contracts .
| general and administrative costs general and administrative costs for fiscal 2012 were $ 1,811 million , a decrease of $ 9 million , or 1 % , from fiscal 2011 , and decreased as a percentage of net revenues to 6.5 % from 7.1 % during this period . the decrease as a percentage of net revenues was due to management of these costs at a growth rate lower than that of net revenues . in addition , during fiscal 2011 , we recorded a provision for litigation matters for $ 75 million , or 0.3 % of net revenues , which was partially offset by a reduction in the allowance for client receivables and unbilled services . 44 operating income and operating margin operating income for fiscal 2012 was $ 3,872 million , an increase of $ 401 million , or 12 % , over fiscal 2011 , and increased as a percentage of net revenues to 13.9 % from 13.6 % during this period . operating income and operating margin for each of the operating groups were as follows : replace_table_token_11_th _ ( 1 ) amounts in table may not total due to rounding . during fiscal 2012 , the results of each operating group benefited from our management of general and administrative costs at a growth rate lower than that of net revenues . in addition , during fiscal 2011 , each operating group recorded a portion of the $ 75 million provision for litigation matters , partially offset by a reduction in the allowance for client receivables and unbilled services . the commentary below provides additional insight into operating group performance and operating margin for fiscal 2012 , compared with fiscal 2011 , exclusive of these impacts . communications , media & technology operating income increased , primarily due to outsourcing revenue growth , principally related to a significant short-term increase from one contract .
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our discussion and analysis of financial condition and results of operations is divided by each of our segments along with corporate costs and other costs not specifically identifiable to a segment . for a reconciliation of segment operating income to consolidated operating income , see note 13 to the consolidated financial statements . 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 28 , 2017 is referred to as “ fiscal 2017 ” or “ fiscal year 2017. ” for the fiscal year ended february 28 , 2018 , we recorded net sales of $ 810.4 million compared to the prior year 's net sales of $ 863.5 million . of the total net sales for fiscal 2018 , approximately 52.0 % of our net sales were generated from the energy segment and approximately 48.0 % were generated from the metal coatings segment . net income for fiscal 2018 was $ 45.2 million compared to $ 61.3 million for fiscal 2017 . net income as a percentage of net sales was 5.6 % for fiscal 2018 as compared to 7.1 % for fiscal 2017 . earnings per share fell by 26.4 % to $ 1.73 per share for fiscal 2018 compared to $ 2.35 per share for fiscal 2017 , on a diluted basis . 15 story_separator_special_tag ( `` sab 118 '' ) allows us to provide a provisional estimate of the impacts of the tax act due to the complexities involved in accounting for the enactment of the tax act . sab 118 provides a measurement period that should not extend beyond one year from the enactment of the tax act to complete the accounting under asc 740 , income taxes . we have calculated our best estimate of the impact of the act in our year end income tax provision based on our understanding of the act and guidance available at the date of this filing . we recorded a $ 23.2 million reduction in tax expense related to the act in the fourth quarter of our fiscal year 2018 , the period in which the legislation was enacted . the provisional benefit related to the remeasurement of certain deferred tax assets and liabilities was $ 25.0 million . the provisional expense related to the one-time tax on the mandatory deemed repatriation of foreign earnings was $ 1.8 million . 17 westinghouse electric company bankruptcy case we had existing contracts with subsidiaries of westinghouse electric company ( “ wec ” ) . wec and the relevant subsidiaries ( the `` debtors '' ) filed relief under chapter 11 of the bankruptcy code on march 29 , 2017 in the united states bankruptcy court for the southern district of new york , jointly administered as in re westinghouse electric company , et al. , case no . 17-10751 ( the `` bankruptcy case '' ) . to date , wec has continued to operate under a debtor-in-possession financing facility and we continue to honor their executory contracts . the company has been collecting on post-petition amounts due and owed . on february 22 , 2018 , the united states bankruptcy court for the southern district of new york approved the debtors ' modified first amended disclosure statement for the joint chapter 11 plan of reorganization . in the disclosure statement , the debtors estimated a 98.9 % to 100 % distribution on allowed general unsecured claims . we have approximately $ 12 million of such claims filed with the court , which includes 100 % of our pre-petition claims . the total claims filed exceed the book value of our exposure . at time of the bankruptcy case , we were subcontractors on various wec engagements , including the vc summer and vogtle bridge projects . the ownership of vc summer halted work earlier in the year and , during the third quarter of fiscal 2018 , we de-booked $ 11.0 million from backlog related to this project . also during the third quarter of fiscal 2018 , we received a notice of cancellation for the vogtle bridge project , which negatively impacted our sales and margin for the second half of fiscal year 2018 by approximately $ 6.1 million and $ 1.2 million , respectively . 18 year ended february 28 , 2017 compared with year ended february 29 , 2016 backlog we ended fiscal 2017 with a backlog of $ 317.9 million , a small increase as compared to fiscal 2016 . the company 's backlog as of year end pertains to the energy segment 's operations . the book-to-ship ratio remained relatively flat compared to fiscal 2016 . the book-to-ship ratio was 0.99 to 1 for fiscal 2017 and 1.02 to 1 for fiscal 2016 . the following table reflects bookings and shipments for fiscal 2017 and 2016 . backlog table ( in thousands ) replace_table_token_7_th net sales our total net sales for fiscal 2017 decreased by $ 25.9 million , or 2.9 % , as compared to fiscal 2016 . the following table reflects the breakdown of revenue by segment ( in thousands ) : replace_table_token_8_th our energy segment recorded net sales for fiscal 2017 of $ 488.0 million as compared to fiscal 2016 net sales of $ 487.0 million . the increase of 0.2 % represented relatively flat growth from the prior year . our metal coatings segment , which consisted of forty-one metal coating facilities as of february 28 , 2017 , generated net sales of $ 375.5 million , a 6.7 % decrease from the prior year 's net sales of $ 402.4 million . the decline was a result of a volume decrease in steel processed caused by softness in the solar , petrochemical , and the oil and gas markets which offset higher pricing during the year . operating income operating income for the energy segment decreased $ 3.9 million , or 6.9 % , for fiscal 2017 , to $ 52.6 million as compared to $ 56.5 million for fiscal 2016 . story_separator_special_tag on march 21 , 2017 , we executed the amended and restated credit agreement ( the “ 2017 credit agreement ” ) with bank of america and other lenders . the 2017 credit agreement amended the credit agreement entered into on march 27 , 2013 by the following : ( i ) extending the maturity date until march 21 , 2022 , ( ii ) providing for a senior revolving credit facility in a principal amount of up to $ 450 million , with an additional $ 150 million accordion , ( iii ) including a $ 75 million sublimit for the issuance 20 of standby and commercial letters of credit , ( iv ) including a $ 30 million sublimit for swing line loans , ( v ) restricting indebtedness incurred in respect of capital leases , synthetic lease obligations and purchase money obligations not to exceed $ 20 million , ( vi ) restricting investments in any foreign subsidiaries not to exceed $ 50 million in the aggregate , and ( vii ) including various financial covenants and certain restricted payments relating to dividends and share repurchases as specifically set forth in the 2017 credit agreement . the balance due on the $ 75.0 million term facility under the previous credit agreement was paid in full as a result of the execution of the 2017 credit agreement . the financial covenants , as defined in the 2017 credit agreement , require us to maintain on a consolidated basis a leverage ratio not to exceed 3.25:1.0 and an interest coverage ratio of at least 3.00:1.0. the 2017 credit agreement will be used to finance working capital needs , capital improvements , dividends , future acquisitions , letter of credit needs and share repurchases . interest rates for borrowings under the 2017 credit agreement are based on either a eurodollar rate or a base rate plus a margin ranging from 0.875 % to 1.875 % depending on our leverage ratio ( as defined in the 2017 credit agreement ) . the eurodollar rate is defined as libor for a term equivalent to the borrowing term ( or other similar interbank rates if libor is unavailable ) . the base rate is defined as the highest of the applicable fed funds rate plus 0.50 % , the prime rate , or the eurodollar rate plus 1.0 % at the time of borrowing . the 2017 credit agreement also carries a commitment fee for the unfunded portion ranging from 0 .175 % to 0 .30 % per annum , depending on our leverage ratio . the effective interest rate was 3.33 % as of february 28 , 2018 . as of february 28 , 2018 , we had $ 162.0 million of outstanding debt against the revolving credit facility provided and letters of credit outstanding in the amount of $ 22.4 million , which left approximately $ 265.6 million of additional credit available under the 2017 credit agreement . 2011 senior notes on january 21 , 2011 , the company entered into a note purchase agreement ( the “ 2011 agreement ” ) , pursuant to which the company issued $ 125.0 million aggregate principal amount of its 5.42 % unsecured senior notes ( the “ 2011 notes ” ) , through a private placement ( the “ 2011 note offering ” ) . amounts under the agreement are due in a balloon payment on the january 2021 maturity date . pursuant to the 2011 agreement , the company 's payment obligations with respect to the 2011 notes may be accelerated under certain circumstances . 2008 senior notes on march 31 , 2008 , the company entered into a note purchase agreement ( the “ note purchase agreement ” ) pursuant to which the company issued $ 100.0 million aggregate principal amount of its 6.24 % unsecured senior notes ( the “ 2008 notes ” ) through a private placement ( the “ 2008 note offering ” ) . amounts are due under the agreement in seven annual installments of $ 14.3 million commencing in march of 2012 through the march 2018 maturity date . on march 31 , 2018 , we made the final principal payment of $ 14.3 million to fully settle the 2008 senior notes on the scheduled maturity date . the 2008 notes and the 2011 notes each provide for various financial covenants requiring the company , among other things , to a ) maintain on a consolidated basis net worth equal to at least the sum of $ 116.9 million plus 50.0 % of future net income ; b ) maintain a ratio of indebtedness to ebitda ( as defined in note purchase agreement ) not to exceed 3.25:1.00 ; c ) 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 ) not at any time permit the aggregate amount of all priority indebtedness ( as defined in the note purchase agreement ) to exceed 10.0 % of consolidated net worth ( as defined in the note purchase agreement ) . as of february 28 , 2018 , the company was in compliance with all of its debt covenants . other exposures 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 , steel and nickel based alloys in the energy segment and zinc and natural gas in the metal coatings segment . we attempt to minimize these increases through escalation clauses in customer contracts for copper , aluminum , steel and nickel based alloys , when market conditions allow and through fixed cost contract purchases on zinc . in addition to these measures , we attempt to recover other cost increases through improvements to our manufacturing process , supply chain management , and through increases in prices where competitively feasible .
| results of operations year ended february 28 , 2018 compared with year ended february 29 , 2017 backlog we ended fiscal 2018 with a backlog of $ 265.4 million , a decrease of $ 52.5 million or 16.5 % compared to fiscal 2017 . the company 's backlog as of year end pertains solely to the energy segment 's operations . the book-to-ship ratio declined in fiscal 2018 as compared to fiscal 2017 . the book-to-ship ratio was 0.92 to 1 for fiscal 2018 and 0.99 to 1 for fiscal 2017 . the following table reflects bookings and shipments for fiscal 2018 and 2017 . backlog table ( in thousands ) replace_table_token_5_th net sales our total net sales for fiscal 2018 decreased by $ 53.1 million , or 6.2 % , as compared to fiscal 2017 . the following table reflects the breakdown of revenue by segment ( in thousands ) : replace_table_token_6_th our energy segment recorded net sales for fiscal 2018 of $ 421.0 million , a decrease of 13.7 % compared to fiscal 2017 net sales of $ 488.0 million . the decrease in net sales for fiscal 2018 was caused by several factors including reduced turnarounds in the u.s. refinery market , continued softness in the petrochemical market , negative impacts from the atlantic hurricane activity , cancellations and delays in the release of several large projects in the u.s. and overseas . in addition , net sales were negatively impacted by the effects on the nuclear market from the westinghouse electric company bankruptcy filed on march 29 , 2017. our metal coatings segment , which consisted of forty-five metal coating facilities as of february 28 , 2018 , generated net sales of $ 389.4 million , a 3.7 % increase from the prior year 's net sales of $ 375.5 million . the increase was attributable to incremental revenues from our acquisitions during the year and increased prices .
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for arrangements that include sales-based royalties or earn-out payments , including milestone payments based on the level of sales , and the license or purchase agreement is deemed to be the predominant item to which the royalties or earn-out payments relate , we recognizes revenue at the later of ( a ) when the related sales occur , or ( b ) when the performance obligation to which some or all of the royalty or earn-out payment has been allocated has been satisfied ( or partially satisfied ) . allocation of consideration as part of the accounting for these arrangements , we must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract . estimated selling prices for license rights are calculated using the residual approach . for all other performance obligations , we use a cost-plus margin approach . timing of recognition significant management judgment is required to determine the level of effort required under an arrangement and the period over which we expect to complete our performance obligations under an arrangement . we estimate the performance period or measure of progress at the inception of the arrangement and re-evaluate it each reporting period . this re-evaluation may shorten or lengthen the period over which revenue is recognized . changes to these estimates are recorded on a cumulative catch up basis . if we can not reasonably estimate when our performance obligations either are completed or become inconsequential , then revenue recognition is deferred until we can reasonably make such estimates . revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method . revenue is recognized for licenses or sales of functional intellectual property at the point in time the customer can use and benefit from the license . for performance obligations that are services , revenue is recognized over time proportionate to the costs that we have incurred to perform the services using the cost-to-cost input method . research and development costs and related accrual research and development expenses include internal and external costs . internal costs include salaries and employment related expenses , facility costs , administrative expenses and allocations story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of our operations together with its financial statements and the notes thereto appearing elsewhere in this report . this discussion contains forward-looking statements reflecting our current expectations , whose actual outcomes involve risks and uncertainties . actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors , including those discussed in the sections entitled “ risk factors ” , “ cautionary statement regarding forward-looking statements ” and elsewhere in this report . overview we are a pharmaceutical company developing therapeutics utilizing our proprietary long-term drug delivery platform , proneura , for the treatment of select chronic diseases for which steady state delivery of a drug provides an efficacy and or safety benefit . proneura consists of a small , solid implant made from a mixture of ethylene-vinyl acetate , or eva , and a drug substance . the resulting product is a solid matrix that is administered subdermally , normally in the inner upper arm , in a brief , outpatient procedure and is removed in a similar manner at the end of the treatment period of several months . these procedures may be performed by trained health care providers , or hcps , including licensed and surgically qualified physicians , nurse practitioners , and physician 's assistants in a hcp 's office or other clinical setting . our first product based on our proneura technology was our probuphine® ( buprenorphine ) implant , which was approved in the united states , canada and the european union , or eu , for the maintenance treatment of opioid use disorder in clinically stable patients taking 8 mg or less a day of oral buprenorphine . following reacquisition of the rights to probuphine from our former licensee in mid-2018 , we endeavored to build our infrastructure and grow our commercial capabilities with the limited resources at our disposal . while we made important progress in laying the groundwork during 2019 to transition into a company with full commercial potential , and also among other things manage the challenges of the restrictive product label , the risk evaluation and mitigation strategy , or rems , program and the complexity of the distribution channel , the emergence of the covid-19 pandemic in early 2020 and the resultant restrictions and lockdown of facilities severely impacted our ability to continue to expand our commercial operations . with limited financial resources and insufficient sales revenue during the first three quarters of 2020 , we made the decision to discontinue selling probuphine in the u.s. and wind down our commercialization activities , and to pursue a plan that will enable us to focus on our current , early-stage proneura-based product development programs . probuphine continues to be commercialized in canada and the eu by other companies who have either licensed or acquired the rights from titan . we operate in only one business segment , the development of pharmaceutical products . we make available free of charge through our website , www.titanpharm.com , our periodic reports as soon as reasonably practicable after we electronically file such material with , or furnish it to , the sec . critical accounting policies and the use of estimates the preparation of our financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes . actual results could differ materially from those estimates . story_separator_special_tag for arrangements that include sales-based royalties or earn-out payments , including milestone payments based on the level of sales , and the license or purchase agreement is deemed to be the predominant item to which the royalties or earn-out payments relate , we recognizes revenue at the later of ( a ) when the related sales occur , or ( b ) when the performance obligation to which some or all of the royalty or earn-out payment has been allocated has been satisfied ( or partially satisfied ) . allocation of consideration as part of the accounting for these arrangements , we must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract . estimated selling prices for license rights are calculated using the residual approach . for all other performance obligations , we use a cost-plus margin approach . 24 timing of recognition significant management judgment is required to determine the level of effort required under an arrangement and the period over which we expect to complete our performance obligations under an arrangement . we estimate the performance period or measure of progress at the inception of the arrangement and re-evaluate it each reporting period . this re-evaluation may shorten or lengthen the period over which revenue is recognized . changes to these estimates are recorded on a cumulative catch up basis . if we can not reasonably estimate when our performance obligations either are completed or become inconsequential , then revenue recognition is deferred until we can reasonably make such estimates . revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method . revenue is recognized for licenses or sales of functional intellectual property at the point in time the customer can use and benefit from the license . for performance obligations that are services , revenue is recognized over time proportionate to the costs that we have incurred to perform the services using the cost-to-cost input method . inventories inventories are recorded at the lower of cost or net realizable value . cost is based on the first in , first out method . we regularly review inventory quantities on hand and write down to its net realizable value any inventory that we believe to be impaired . the determination of net realizable value requires judgment including consideration of many factors , such as estimates of future product demand , product net selling prices , current and future market conditions and potential product obsolescence , among others . share-based payments we recognize compensation expense for all share-based awards made to employees , directors and consultants . the fair value of share-based awards is estimated at the grant date based on the fair value of the award and is recognized as expense , net of estimated pre-vesting forfeitures , ratably over the vesting period of the award . we use the black-scholes option pricing model to estimate the fair value method of our awards . calculating stock-based compensation expense requires the input of highly subjective assumptions , including the expected term of the share-based awards , stock price volatility , and pre-vesting forfeitures . we estimate the expected term of stock options granted for the years ended december 31 , 2020 and 2019 based on the historical experience of similar awards , giving consideration to the contractual terms of the share-based awards , vesting schedules and the expectations of future employee behavior . we estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock . the assumptions used in calculating the fair value of stock-based awards represent our best estimates , but these estimates involve inherent uncertainties and the application of management judgment . as a result , if factors change and we use different assumptions , our stock-based compensation expense could be materially different in the future . in addition , we are required to estimate the expected pre-vesting forfeiture rate and only recognize expense for those shares expected to vest . we estimate the pre-vesting forfeiture rate based on historical experience . if our actual forfeiture rate is materially different from our estimate , our stock-based compensation expense could be significantly different from what we have recorded in the current period . income taxes we make certain estimates and judgments in determining income tax expense for financial statement purposes . these estimates and judgments occur in the calculation of certain tax assets and liabilities , which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes . as part of the process of preparing our financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves us estimating our current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes . we assess the likelihood that we will be able to recover our deferred tax assets . we consider all available evidence , both positive and negative , expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance . if it is not more likely than not that we will recover our deferred tax assets , we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable . clinical trial accruals we also record accruals for estimated ongoing clinical trial costs . clinical trial costs represent costs incurred by cros and clinical sites . these costs are recorded as a component of research and development expenses . under our agreements , progress payments are typically made to investigators , clinical sites and cros .
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 revenues replace_table_token_1_th product revenues from continuing operations for the year ended december 31 , 2020 consisted of sales of our probuphine product materials to molteni and knight for the eu and canada , respectively . revenue from sale of probuphine in the u.s. has been reclassified to discontinued operations for all periods presented ( see note 11 to the financial statements included in this report for more information ) . license revenue for the year ended december 31 , 2020 reflects royalties received on sales of probuphine by knight in canada . license revenue for the year ended december 31 , 2019 reflects amortization of deferred revenue related to the sale to molteni of the european intellectual property rights to our probuphine product . the increase in grant revenue was due to our increased activities related to the nida grant for the development of a nalmefene implant . operating expenses replace_table_token_2_th cost of goods sold from continuing operations reflects costs and expenses associated with sales of our probuphine product to molteni and knight for the eu and canada , respectively . cost of goods sold related to the sale of probuphine in the u.s. has been reclassified to discontinued operations for all periods presented ( see note 11 to the financial statements included in this report for more information ) . the increase in research and development costs from continuing operations was primarily associated with increased activities related to non-clinical studies required for the planned ind submission as part of our nida grant for the development of a nalmefene implant . other research and development expenses include internal operating costs such as research and development personnel-related expenses , non-clinical and clinical product development related travel expenses , and allocation of facility and corporate costs .
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we are a public accounting firm registered with the public company accounting oversight board ( united states ) ( `` pcaob `` ) and are required to be independent with respect to the company in accordance with the u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . we conducted our audits in accordance with the standards of the pcaob . those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated 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 a difference include , but are not limited to , those discussed under item 1a . risk factors 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 . overview organization we are a diversified , global company that provides products , services and solutions to enhance the quality , energy efficiency and comfort of air in homes and buildings , transport and protect food and perishables and increase industrial productivity and efficiency . our business segments consist of climate and industrial , both with strong brands and highly differentiated products within their respective markets . we generate revenue and cash primarily through the design , manufacture , sale and service of a diverse portfolio of industrial and commercial products that include well-recognized , premium brand names such as ingersoll-rand ® , trane ® , thermo king ® , american standard ® , aro ® , and club car ® . to achieve our mission of being a world leader in creating comfortable , sustainable and efficient environments , we continue to focus on growth by increasing our recurring revenue stream from parts , service , controls , used equipment and rentals ; and to continuously improve the efficiencies and capabilities of the products and services of our businesses . we also continue to focus on operational excellence strategies as a central theme to improving our earnings and cash flows . trends and economic events we are a global corporation with worldwide operations . as a global business , our operations are affected by worldwide , regional and industry-specific economic factors , as well as political factors , wherever we operate or do business . our geographic and industry diversity , and the breadth of our product and services portfolios , have helped mitigate the impact of any one industry or the economy of any single country on our consolidated operating results . given the broad range of products manufactured and geographic markets served , management uses a variety of factors to predict the outlook for the company . we monitor key competitors and customers in order to gauge relative performance and the outlook for the future . we regularly perform detailed evaluations of the different market segments we are serving to proactively detect trends and to adapt our strategies accordingly . in addition , we believe our order rates are indicative of future revenue and thus a key measure of anticipated performance . in those industry segments where we are a capital equipment provider , revenues depend on the capital expenditure budgets and spending patterns of our customers , who may delay or accelerate purchases in reaction to changes in their businesses and in the economy . current economic conditions continue to show mixed trends in each of the segments in which we participate . heating , ventilation , and air conditioning ( hvac ) equipment replacement and aftermarket continue to experience strong demand . in addition , residential and commercial new construction have seen continued momentum in the united states which is positively impacting the results of our hvac businesses . however , non-residential markets in both europe and asia remain mixed . global industrial markets appear to be improving with positive signs in our shorter-cycle businesses . going forward , we expect moderate growth within our climate segment and market improvements in our industrial segment , each benefiting from operational excellence initiatives , new product launches and continued productivity programs . we believe we have a solid foundation of global brands that are highly differentiated in all of our major product lines . our growing geographic and industry diversity coupled with our large installed product base provides growth opportunities within our service , parts and replacement revenue streams . in addition , we are investing substantial resources to innovate and develop new products and services which we expect will drive our future growth . significant events tax cuts and job act in december 2017 , the u.s. enacted the tax cuts and jobs act ( the “ act ” ) which makes widespread changes to the internal revenue code . the act , among other things , reduced the u.s. federal corporate tax rate from 35 % to 21 % , requires companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously not subject to u.s. tax and creates new income taxes on certain foreign sourced earnings . the sec issued staff accounting bulletin no . 118 ( sab 118 ) which provides guidance on accounting for the tax effects of the act and allows for adjustments to provisional amounts during a measurement period of up to one year . in accordance with sab 118 , we have made reasonable estimates related to ( 1 ) the remeasurement of u.s. deferred tax balances for the reduction in the tax rate ( 2 ) the liability for the transition tax and ( 3 ) the taxes accrued relating 22 to the change in permanent reinvestment assertion for unremitted earnings of certain foreign subsidiaries . story_separator_special_tag the jct concluded its review without objection in december 2015 and the settlement was finalized with the irs in december 2015. pursuant to the agreement with the irs , we agreed to pay withholding tax and interest of $ 412 million in respect to the 2002-2006 years . we owed no additional tax with respect to intercompany debt and related matters for the years 2007-2011. no penalties were applied to any of the tax years 2002 through 2011. the resolution resulted in a net cash outflow in 2015 of approximately $ 364 million , consisting of $ 230 million in tax and $ 134 million of interest , net of a tax benefit of $ 48 million . 24 story_separator_special_tag the primary driver of the increase related to improved pricing in our compression technologies and small electric vehicle businesses . in addition , overall volumes increased but were partially offset by a decline in large compressor volumes in our compression technologies business . segment results were also positively impacted by overall favorable foreign currency exchange rate movements . operating income/margin operating margin decreased to 11.7 % for the year ended december 31 , 2017 , compared to 11.9 % for the same period of 2016 . the decrease was primarily the result of material inflation in excess of pricing improvements ( 0.7 % ) and the timing of investment and restructuring spending ( 0.7 % ) . these amounts were partially offset by productivity benefits in excess of other inflation ( 0.6 % ) and increased volume and favorable product mix ( 0.6 % ) . our operating income and operating margin by segment are as follows : replace_table_token_8_th climate operating margin decreased to 14.1 % for the year ended december 31 , 2017 , compared to 14.6 % for the same period of 2016 . the decrease was primarily the result of material inflation in excess of pricing improvements ( 0.9 % ) and the timing of investment and restructuring spending ( 0.8 % ) . these amounts were partially offset by productivity benefits in excess of other inflation ( 0.9 % ) and increased volumes and favorable product mix ( 0.3 % ) . 26 industrial operating margin increased to 11.8 % for the year ended december 31 , 2017 compared to 10.1 % for the same period of 2016 . the increase was primarily due to increased volumes and favorable product mix ( 0.9 % ) and productivity benefits in excess of other inflation ( 0.4 % ) , the non-recurrence of capitalized costs related to new product engineering and development that were reclassified to the income statement ( 0.4 % ) , pricing improvements in excess of material inflation ( 0.2 % ) and favorable foreign currency exchange rate movements ( 0.1 % ) . these amounts were partially offset by the timing of investment and restructuring spending ( 0.3 % ) . unallocated corporate expense unallocated corporate expense for the year ended december 31 , 2017 increased by 13.0 % or $ 30.4 million , compared with the same period of 2016 . the increase in expenses primarily relates to costs associated with acquisition efforts , higher employee benefit costs and stock-based compensation as well as planned incubator investments in technologies that benefit our business . interest expense interest expense for the year ended december 31 , 2017 decreased by $ 5.7 million compared with the same period of 2016 . the decrease relates primarily to changes in short-term financing arrangements and other items . other income/ ( expense ) , net the components of other income/ ( expense ) , net , for the years ended december 31 are as follows : replace_table_token_9_th other income / ( expense ) , net includes the results from activities other than normal business operations such as interest income and foreign currency gains and losses on transactions that are denominated in a currency other than an entity 's functional currency . in addition , we include the components of net periodic benefit cost for pension and post retirement obligations other than the service cost component as a result of the adoption of asu 2017-07. other activity , net include costs associated with trane u.s. inc. ( trane ) for the settlement and defense of asbestos-related claims , insurance settlements on asbestos-related matters and the revaluation of its liability for potential future claims . other activity , net for the year ended december 31 , 2016 includes a charge of $ 16.4 million for the settlement of a lawsuit originally filed by a customer in 2012. the lawsuit related to a commercial hvac contract entered into in 2001 , prior to our acquisition of trane . the charge represents the settlement and related legal costs recognized during the fourth quarter of 2016. provision for income taxes the 2017 effective tax rate was 5.7 % which is lower than the u.s. statutory rate of 35 % primarily due to the remeasurement of our net u.s. deferred tax liabilities , the premium paid related to the early retirement of certain intercompany debt obligations , the recognition of a claim for refund related to previously paid interest and the recognition of excess tax benefits from employee shared based payments as a result of the adoption of asu 2016-09 on january 1 , 2017. in the aggregate , these items decreased the effective tax rate by 37.9 % . this decrease was partially offset by the transition tax cost , a change in permanent reinvestment assertion on the unremitted earnings of certain foreign subsidiaries and a non-cash charge related to the establishment of a valuation allowance on certain net deferred tax assets in brazil . in the aggregate these items increased the effective tax rate by 13.7 % . in addition , the reduction was also driven by earnings in non-u.s. jurisdictions , which in aggregate , have a lower effective tax rate .
| results of operations our climate segment delivers energy-efficient products and innovative energy services . it includes trane ® and american standard ® heating & air conditioning which provide heating , ventilation and air conditioning ( hvac ) systems , and commercial and residential building services , parts , support and controls ; energy services and building automation through trane building advantage and nexia ; and thermo king ® transport temperature control solutions . our industrial segment delivers products and services that enhance energy efficiency , productivity and operations . it includes compressed air and gas systems and services , power tools , material handling systems , aro ® fluid management equipment , as well as club car ® golf , utility and consumer low-speed vehicles . segment operating income is the measure of profit and loss that our chief operating decision maker uses to evaluate the financial performance of the business and as the basis for performance reviews , compensation and resource allocation . for these reasons , we believe that segment operating income represents the most relevant measure of segment profit and loss . we define segment operating margin as segment operating income as a percentage of net revenues . on january 1 , 2017 , we adopted accounting standards update ( asu ) no . 2016-09 , `` compensation-stock compensation ( topic 718 ) : improvements to employee share-based payment accounting '' ( asu 2016-09 ) which simplifies several aspects of the accounting for employee share-based payment transactions . the standard makes several modifications to the accounting for forfeitures , employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies . in addition , asu 2016-09 clarifies the statement of cash flows presentation for certain components of share-based awards . we applied the cash flow presentation requirements retrospectively . on january 1 , 2017 , we adopted asu no .
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multi-family residential — this category of loans is primarily secured by story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with “ item 6. selected financial data ” and our consolidated financial statements and the accompanying notes included item 8 of this annual report on form 10-k. this discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate . certain risks , uncertainties and other factors , including those set forth in “ item 1a . risk factors ” and elsewhere in this annual report on form 10-k , may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis . we assume no obligation to update any of these forward-looking statements . overview we are a texas state banking organization with corporate offices in dallas , texas . through our wholly owned subsidiary , veritex community bank , a texas state chartered bank , we provide relationship-driven commercial banking products and services tailored to meet the needs of small to medium-sized businesses and professionals . beginning at our inception in 2010 , we initially targeted customers and focused our acquisitions primarily in the dallas metropolitan area , which we consider to be dallas and the adjacent communities in north dallas . our current primary market includes the broader dallas-fort worth metroplex and the houston metropolitan area . as we continue to grow , we may expand to other metropolitan banking markets in texas . our business is conducted through one reportable segment , community banking , which generates the majority of our revenues from interest income on loans , customer service and loan fees , gains on sale of government guaranteed loans and mortgage loans and interest income from securities . we incur interest expense on deposits and other borrowed funds and noninterest expense , such as salaries and employee benefits and occupancy expenses . we analyze our ability to maximize income generated from interest earning assets and interest expense of our interest-bearing liabilities through net interest margin . net interest margin is a ratio calculated as net interest income divided by average interest earning assets . net interest income is the difference between interest income on interest-earning assets , such as loans and securities , and interest expense on interest-bearing liabilities , such as deposits and borrowings , which are used to fund those assets . changes in the market interest rates and interest rates we earn on interest-earning assets and pay on interest-bearing liabilities , as well as the volume and types of interest-earning assets , and interest-bearing and noninterest-bearing liabilities , are usually the largest drivers of periodic changes in net interest spread , net interest margin and net interest income . fluctuations in market interest rates are driven by many factors , including governmental monetary policies , inflation , deflation , macroeconomic developments , changes in unemployment , the money supply , political and international conditions and conditions in domestic and foreign financial markets . periodic changes in the volume and types of loans in our loan portfolio are affected by , among other factors , economic and competitive conditions in texas and , specifically , in the dallas-fort worth metroplex and houston metropolitan area , as well as developments affecting the real estate , technology , financial services , insurance , transportation , manufacturing and energy sectors within our target market and throughout the state of texas . recent developments impact of covid-19 the covid-19 pandemic has created a global public health crisis that has resulted in unprecedented uncertainty , volatility and disruption in financial markets and in governmental , commercial and consumer activity in the united states and globally , including the markets that we serve . governmental responses to the pandemic have included orders closing businesses not deemed essential and directing individuals to observe social distancing and shelter in place . these actions , together with responses to the pandemic by businesses and individuals , have resulted in rapid decreases in commercial and consumer activity , temporary closures of many businesses that have led to a loss of revenues and a rapid increase in unemployment , material decreases in business valuations , disrupted global supply chains , market downturns and volatility , changes in consumer behavior related to pandemic fears , related emergency response legislation and an expectation that the policy of the federal reserve will maintain a low interest rate environment for the foreseeable future . possible additional waves of covid-19 and the uncertainty of the timing of a widely-available vaccine may adversely affect the re-opening process . 46 we have taken deliberate actions to ensure that we have the balance sheet strength to serve our clients and communities during the covid-19 pandemic , including increasing our liquidity and reserves supported by a strong capital position . our commercial and consumer customers are experiencing varying degrees of financial distress due to the pandemic and related governmental actions taken in response to the pandemic . in order to protect the health of our customers and employees , and to comply with applicable governmental directives , we have implemented our operational response and preparedness plan , which includes , among other things , dispersion of critical operation processes , increased monitoring focused on higher risk operations , enhanced remote access security and further restricted internet access , enhanced security around wire transfer execution and flexible scheduling provided to employees who are unable to work from home . on march 27 , 2020 , the cares act was enacted . the cares act contains substantial tax and spending provisions intended to address the impact of the covid-19 pandemic , including the sba ppp , a loan program administered by the sba . story_separator_special_tag a summary of the impact of the adoption of asu 2016-13 on our financial statements is as follows : net decrease in retained earnings of $ 15.5 million as of january 1 , 2020 for the cumulative effect of adopting asc 326. on january 1 , 2020 , the amortized cost basis of assets purchased with credit deterioration were adjusted to reflect the addition of $ 19.7 million to the allowance for credit losses . the remaining noncredit discount ( based on the adjusted amortized cost basis ) will be accreted into interest income at the effective interest rate as of january 1 , 2020. increase in the allowance for credit losses of $ 39.1 million as of january 1 , 2020. increase in our allowance for credit losses on unfunded commitments of $ 840 thousand as of january 1 , 2020. the allowance for credit losses on unfunded commitments is recorded in accounts payable and other liabilities in the condensed consolidated balance sheets . 49 anticipated 2021 trends this discussion of trends expected to impact our business in 2021 is based on information presently available and reflects certain assumptions , including the current economic and interest rate environment . differences in actual economic conditions compared with our assumptions could have an adverse impact on our results . see “ special cautionary notice regarding forward-looking statements ” and part i , item 1a , “ risk factors ” of this annual report on form 10-k for additional factors that could cause results to differ materially from those contemplated by the following forward-looking statements . we anticipate the following trends or events related to our business in fiscal year 2021 : continued return of capital through quarterly dividends and share repurchases . continued emphasis on credit quality and relationship banking . continued focus on net interest margin and the impact of interest rates on loans and deposit repricing continued leverage of our strong capital through accretive organic growth and possible strategic acquisition opportunities . expected improvement in economic forecasts , specifically texas unemployment and year over year texas gdp growth , which are significant inputs into our cecl model driving the allowance for credit loss . potential branch restructures , consolidations or closures to continue with our branch-light business model . results of operations for the fiscal years ended december 31 , 2020 and december 31 , 2019 general net income available to common stockholders for the year ended december 31 , 2020 was $ 73.9 million , a decrease of $ 16.9 million , or 18.6 % , from net income available to common stockholders of $ 90.7 million for the year ended december 31 , 2019. basic earnings per share ( “ eps ” ) for the year ended december 31 , 2020 was $ 1.48 , a decrease of $ 0.23 from $ 1.71 for the year ended december 31 , 2019. diluted earnings per share for the year ended december 31 , 2020 was $ 1.48 , a decrease of $ 0.20 from $ 1.68 for the year ended december 31 , 2019. net interest income our operating results depend primarily on our net interest income , calculated as the difference between interest income on interest-earning assets , such as loans and securities , and interest expense on interest-bearing liabilities , such as deposits and borrowings . fluctuations in market interest rates impact the yield and rates paid on interest sensitive assets and liabilities . changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact net interest income . the variance driven by the changes in the amount and mix of interest-earning assets and interest-bearing liabilities is referred to as a “ volume change. ” changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds are referred to as “ rate changes. ” to evaluate net interest income , we measure and monitor ( 1 ) yields on our loans and other interest-earning assets , ( 2 ) the costs of our deposits and other funding sources , ( 3 ) our net interest spread and ( 4 ) 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 . because noninterest-bearing sources of funds , such as noninterest-bearing deposits and stockholders ' equity , also fund interest-earning assets , net interest margin includes the benefit of these noninterest-bearing sources . for the year ended december 31 , 2020 , net interest income totaled $ 265.8 million compared to net interest income of $ 285.1 million for the year ended december 31 , 2019 , a decrease of $ 19.3 million , or 6.8 % . this decrease was due to a $ 56.9 million , or 15.0 % , decrease in interest income offset by a $ 37.6 million decrease in interest expense . interest income was $ 321.9 million , compared to $ 378.8 million for the years ended december 31 , 2020 and 2019 , respectively . the primary drivers of decreased interest income was a $ 54.2 million decrease in interest income on loans held for investment , including mw and ppp . interest earned on average loans outstanding for the year ended december 31 , 2020 decreased $ 54.2 million , or 15.9 % . the decline in interest earned on average loans was the result of a decrease in yields earned on loan balances . average loan balances , excluding ppp loans , grew from $ 5.9 billion for the year ended december 31 , 2019 to $ 6.1 billion for the year ended december 31 , 2020 , an increase of $ 204.5 million , or 3.5 % . in the consolidated appropriations act , 2021 , congress appropriated $ 25.0 billion for existing ppp borrowers to obtain a second round of ppp funding .
| financial position and results of operations the covid-19 pandemic had a material impact on our allowance for credit losses during 2020. given that forecasted economic scenarios have deteriorated significantly since the pandemic was declared in early march of 2020 , our need for additional reserve for credit loss increased significantly . refer to our further discussion of the allowance for credit losses below as well as in note 1 , “ summary of significant accounting policies , ” and note 6 , “ loans and allowance for credit losses , ” in the accompanying notes to the consolidated financial statements . should economic conditions worsen , we could experience further increases in our allowance for credit losses and record additional credit loss expense . we could also see an increase in our ratio of past due loans to total loans , although the execution of our loan deferment program might temporarily improve this ratio . it is possible that our asset quality measures could worsen at future measurement periods if the effects of the covid-19 pandemic are further prolonged . our fee income could be reduced due to the covid-19 pandemic . in keeping with guidance from regulators , we are working with customers affected by the covid-19 pandemic to waive fees from a variety of sources , including , but not limited to , insufficient funds and overdraft fees , atm fees and account maintenance fees . these reductions in fees are thought , at this time , to be temporary in conjunction with the length of the expected economic crisis related to the covid-19 pandemic . at this time , we are unable to project the materiality of such an impact , but recognize the breadth of the economic impact is likely to impact our fee income in future periods . our interest income could also be reduced due to the covid-19 pandemic .
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you should review the “ risk factors ” section of this annual report , and elsewhere in this report , for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . our fiscal year ends on april 30. references to fiscal 2020 are to the fiscal year ended april 30 , 2020. business update regarding covid-19 as a result of the covid-19 pandemic , the company in march 2020 put in place a number of protective measures in response to the covid-19 outbreak . these measures included the canceling of all commercial air travel and all other non-critical travel , requesting that employees limit non-essential personal travel , eliminating all but essential third-party access to our facilities , enhancing our facility janitorial and sanitary procedures , encouraging employees to work from home to the extent their job function enables them to do so , encouraging the use of virtual employee meetings , and providing staggered shifts and social distancing measures for those employees associated with manufacturing operations . the current covid-19 pandemic has presented substantial health and economic risks , uncertainties and challenges to our business , the global economy and financial markets . it is not currently possible to predict how long the pandemic will last or the time it will take for economies to return to prior levels . the extent to which covid-19 impacts our business , operations , financial results and financial condition , and those of our suppliers and customers will depend on future developments which are highly uncertain and can not be predicted with certainty or clarity , including the duration and continuing severity of the outbreak and additional government actions to contain covid-19 . the volatility caused in the stock markets by the pandemic may make it difficult for the company to raise capital . in march 2020 , one of the company 's customers cancelled a portion of their contract due to the outbreak of covid-19 . the company has delayed the deployment of its pb3 powerbouy® in chile from april , 2020 to september , 2020 due to travel restrictions imposed by the u.s. and chile . for additional information on various uncertainties and risks posed by the covid-19 pandemic , see part i , item 1a “ risk factors ” of this report . as a result of the covid-19 pandemic , on march 27 , 2020 , the u.s. government passed into law the coronavirus aid , relief and economic security act , or the ( “ cares act ” ) . on may 3 , 2020 , the company signed a paycheck protection program ( “ ppp ” ) loan with santander bank , n.a . ( “ santander ” ) as the lender for $ 890,347 in support through the small business association ( “ sba ” ) under the ppp loan . the ppp loan is unsecured and evidenced by a note in favor of santander as the lender ( the “ note ” ) and governed by a loan agreement with santander ( the “ loan agreement ” ) . the company received the proceeds on may 5 , 2020. the sba allows loan forgiveness for costs incurred and paid for a ) payroll costs , b ) interest on any real or personal property mortgage incurred prior to february 15 , 2020 , c ) rent on any lease in force prior to february 15 , 2020 , and d ) utility payments for which service began before february 15 , 2020. additional information on the company 's liquidity and going concern can be found in note 1 to the consolidated financial statements and under part i , item 1a “ risk factors ” of this report . overview we aspire to transform the world through innovative ocean-energy solutions . we are a marine power solutions provider that designs , manufactures , sells and services our products while working closely with partners that provide payloads , integration services , and marine installation capabilities . our solutions provide distributed offshore power which is persistent , reliable , and economical along with power and communications for remote surface and subsea applications . our mission and purpose is to utilize our proprietary , state-of-the-art technologies to reduce the global carbon footprint by providing renewable solutions for reliable electrical power and , in so doing , drive demand for our products and services , thus realizing positive stockholder returns . 30 we also continue to develop and commercialize our proprietary systems that generate electricity by harnessing the renewable energy of ocean waves for our powerbuoy , and solar power for our newest product , the hybrid powerbuoy . the pb3 powerbuoy® uses proprietary technologies that convert the kinetic energy created by the heaving motion of ocean waves into electricity . based on feedback from our current customers , discussions with potential future customers in the offshore oil and gas , defense and security , science and research and communications , as well as government applications in fishery protection , together with our market research and publicly available data , we believe that numerous markets have a direct need for our solutions . while our recent projects have been in the oil and gas industry , we believe there is an increasing need for our products and solutions in areas such as fishery protection , offshore windfarm support , marine surveillance , and ocean-based laboratories . we believe that having demonstrated the capability of our solutions we can advance our product and services and gain further adoption from our target markets . our marketing efforts are focused on offshore locations that require a cost- efficient solution for renewable , reliable and persistent power and communications , either by supplying electric power to payloads that are integrated directly with our product or located in its vicinity , such as on the seabed and in the water column . story_separator_special_tag therefore , we believe end-users relying on pb3 for power may be able to proactively plan their logistics , payload scheduling and other operational activities based on such data , ● constant source of energy . the annual occurrence of waves at certain specific sites can be relatively constant and defined with relatively high accuracy . based on our studies and analyses of various sites of interest , we believe that we will be able to deploy our pb3 in locations where the waves could produce usable electricity for the majority of the year . based on our market research and publicly available data , including but not limited to the u.s. department of energy ( “ doe ” ) 2019 powering the blue economy report , the westwood energy world rov operations forecast 2019-2023 , and the world bank database , we believe that numerous markets have a direct need for our pb3 including offshore oil and gas , defense and security , science and research and communications , as well as government applications in fishery protection . depending on payload power requirements , sensor types and other considerations , we have found that our pb3 could satisfy several application requirements within these markets . we believe that the pb3 consistently generates sufficient power to meet the requirements of many potential customer applications within our target markets , and that the hybrid could provide ample power in geographies where wave conditions may not be sufficient to allow the pb3 to generate sufficient power on its own for load center requirements . hybrid powerbuoy® the company has created a hybrid powerbuoy® that is a solar powered and liquid-fueled surface buoy , compared to the wave power generating pb3 . the hybrid is powered primarily through solar panels with liquid-fueled back-up and is capable of providing reliable power in remote offshore locations , regardless of ocean wave conditions . we believe this product is to be highly complementary to the pb3 by providing the company the opportunity to address a broader spectrum of customer deployment needs , including low-wave environments , with the potential for greater product integration within each customer project . it is primarily intended for shorter term deployment applications such as electric remotely operated vehicle ( “ erov ” ) or ( “ rov ” ) and auv inspections and short-term maintenance , topside surveillance and communications , and subsea equipment and controls . the hybrid is anticipated to be quickly deployable and cost-effective solution . the design has a high payload capacity for communications and surveillance , with the capability of being tethered to subsea payloads such as batteries , or with a conventional anchor mooring system . the hybrid generates power from both an array of solar panels and an efficient , clean burning 1kw stirling engine fueled by liquid propane ( or biofuel for generation 2 ) . this energy is stored in onboard batteries which power the aforementioned subsea and topside payloads . the company has designed the hybrid with a stirling engine backup system to outperform traditional diesel buoys , which we believe have more frequent service and refueling intervals and higher carbon intensities . we believe the hybrid will be able to operate over a broader range of temperature and ocean wave conditions than existing diesel buoys . 32 the towable , boat-shaped hull design of the hybrid is appropriate for deployment anywhere in the world . power is generated independent of wave activity , making it a perfect solution for providing power through extreme weather and in heaving seas , or in calm , low wave environments and is complimentary to the pb3 . as with the pb3 , the control system uses sensors and an onboard computer to continuously monitor the hybriud subsystems . we believe that this ability to optimize and manage the electric power output of the hybrid is a significant advantage of our technology . in the event of extended cloudy periods , the control system automatically switches electricity generation from the solar panels to the backup engine . however , the load center ( either the on-board payload or one in the vicinity of the hybrid may continue to receive power from the on-board ess . when more suitable solar power generation conditions return , the control system automatically stops the backup up engine and ess replenishment recommences by way of solar electricity generation . the hybrid is designed for use with a single point umbilical and mooring but can be adapted for a 3-point mooring installation for use as a temporary replacement for pb3 installations during planned maintenance or repairs . the hybrid can be transported over land to the deployment port using conventional transportation methods . once at port , the hybrid can be lifted into the water or onboard a vessel using a readily available crane of appropriate capacity . the hybrid may then be towed to site using a standard vessel ( if the location is within an appropriate distance from the port ) , or the hybrid may be carried aboard a vessel to its offshore location and craned into the water at site . the hybrid is then attached to the single point mooring system , which is installed during a separate operation , after which a brief commissioning process places the hybrid into operation . the hybrid is configured with a nominal 30 kilowatt-hours of battery energy storage and approximately 1 megawatt-hour of stored energy in the propane system . while the batteries are primarily charged through solar power generation , the propane powered stirling engine system on the hybrid can be considered reserve energy storage , with propane having a much higher energy storage density than lithium-ion batteries . it can be utilized when needed based on load demand and will provide approximately 1megawatt-hour of stored energy capacity .
| results of operations this section should be read in conjunction with the discussion below under “ - liquidity and capital resources. ” fiscal years ended april 30 , 2020 and 2019 the following table contains selected statement of operations information , which serves as the basis of the discussion of our results of operations for the years ended april 30 , 2020 and 2019 : replace_table_token_4_th revenues revenues for the fiscal years ended april 30 , 2020 and 2019 were approximately $ 1.7 million and $ 0.6 million , respectively . the increase of approximately $ 1.1 million over 2019 was mainly attributable to a new contract signed in fiscal year 2020 with egp . cost of revenues our cost of revenues consists primarily of incurred material , labor and manufacturing overhead expenses , such as engineering expense , equipment depreciation and maintenance and facility related expenses , and includes the cost of equipment to customize the powerbuoy® supplied by third-party suppliers . cost of revenues also includes powerbuoy® system delivery and deployment expenses and may include anticipated losses at completion on certain contracts . cost of revenues for the fiscal years ended april 30 , 2020 and 2019 were approximately $ 1.8 million and $ 1.3 million , respectively . the increase of approximately $ 0.5 million , or 37 % , over 2019 was mostly due to higher upfront spending and material costs on the new egp contract signed in fiscal 2020 as compared to the same period in the fiscal 2019 . 37 engineering and product development costs our engineering and product development costs consist of salaries and other personnel-related costs and the costs of products , materials and outside services used in our product development and unfunded research activities .
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for awards subject to time‑based vesting , we recognize stock‑based compensation expense , on a straight‑line basis over the requisite service period , which is generally the vesting term of the award . for awards subject to performance‑based vesting conditions , we recognize stock‑based compensation expense when it is probable that the performance condition will be achieved . f-12 marinus pharmaceuticals , inc. and subsidiary notes to consolidated financial statements clinical trial expenses as part of the process of preparing our financial statements , we are required to estimate our expenses resulting from our obligations under contracts with vendors , clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials . the financial terms of these contracts are subject to negotiations , which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts . our objective is to reflect the appropriate trial expenses in our financial statements by matching those expenses with the period in which services are performed and efforts are expended . we account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial . we determine accrual estimates based on estimates of services received and efforts expended that take into account discussion with applicable personnel and outside service providers as to the progress or state of consummation of trials . during the course of a clinical trial , we adjust our clinical expense recognition if actual results differ from its estimates . we make estimates of our accrued expenses as of each balance sheet date based on the facts and circumstances known at that time . our clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third‑party vendors . 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 may result in reporting amounts that are too high or too low for any particular period . for the years ended december 31 , 2019 and 2018 there were no material adjustments to our prior period estimates of accrued expenses for clinical trials . recent accounting pronouncements in february 2016 , the financial accounting standards board ( fasb ) established accounting standards codification ( asc ) topic 842 , leases ( asc 842 ) , by issuing accounting standards update ( asu ) no . 2016-02 , which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements . asc 842 was subsequently amended by asu no . 2018-01 , land easement practical expedient for transition to topic 842 ; asu no . 2018-10 , codification improvements to topic 842 , leases ; and asu no . 2018-11 , targeted improvements . the new standard establishes a right-of-use model that requires a lessee to recognize a right-of-use ( rou ) asset and lease liability on the balance sheet for all leases with a term longer than 12 months , and l eases are classified as finance or operating , with classification affecting the pattern and classification of expense recognition in the income statement . we adopted asc 842 in the first quarter of 2019 utilizing the modified retrospective transition method on the effective date . consequently , financial information has not been updated and the disclosures required under the new standard have not been provided for dates and periods before january 1 , 2019. upon adoption , we elected the package of practical expedients , which permitted us not to reassess under the new standard our prior conclusions about lease identification , lease classification and initial direct costs . we did not elect the use-of-hindsight practical expedient nor the practical expedient pertaining to land easements , the latter not being applicable to us . the adoption of asc 842 on january 1 , 2019 resulted in the recognition of right-of-use assets of $ 2.5 million and lease liabilities for operating leases of $ 3.4 million on our consolidated balance sheets , with no material impact to our consolidated statements of operations , cash flows or stockholders ' equity . the operating lease liabilities were determined based on the present value of the remaining minimum rental payments and the operating lease asset was determined based on the value of the lease liability , adjusted for the lease incentive of $ 0.9 million . see note 6 for further information regarding the impact of the adoption of asc 842 on our consolidated financial statements . f-13 marinus story_separator_special_tag . you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing at the end of this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read “ cautionary note regarding forward-looking statements ” and item 1a . risk factors of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical stage pharmaceutical company focused on developing and commercializing innovative therapeutics to treat patients suffering from rare seizure disorders . story_separator_special_tag general and administrative expenses are expensed when incurred . we expect that our general and administrative expenses will increase in the future as a result of employee hiring and our scaling-up of operations commensurate with supporting more advanced clinical trials and in preparation for 69 commercial infrastructure . these increases will likely include increased costs for insurance , hiring of additional personnel , outside consultants , legal counsel and accountants , among other expenses . interest income interest income consists principally of interest income earned on cash and cash equivalent and investment balances . story_separator_special_tag > the timing of , and the costs involved in , obtaining regulatory approvals for ganaxolone or any other future product candidates ; · the cost of commercialization activities if ganaxolone or any other future product candidates are approved for sale , including marketing , sales and distribution costs ; · the cost of manufacturing and formulating ganaxolone , or any other future product candidates , to internal and regulatory standards for use in preclinical studies , clinical trials and , if approved , in commercial sale ; · our ability to establish and maintain strategic collaborations , licensing or other arrangements and the financial terms of such agreements ; · any product liability , infringement or other lawsuits related to our products ; · capital needed to attract and retain skilled personnel ; · the costs involved in preparing , filing , prosecuting , maintaining , defending and enforcing patent claims , including litigation costs and the outcome of such litigation ; and · the timing , receipt and amount of sales of , or royalties on , future approved products , if any . please see “ risk factors ” for additional risks associated with our substantial capital requirements . 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 effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . discussion of critical accounting policies and significant judgments and estimates we base this management 's discussion and analysis of our financial condition and results of operations on our financial statements , which we have prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses and the disclosure of contingent assets and liabilities in our financial statements . we evaluate our estimates and judgments , including those related to accrued clinical trial expenses on an ongoing basis . we base our estimates on historical experience , known trends and events and various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . you should consider your evaluation of our financial condition and results of operations with these policies , judgments and estimates in mind . 72 while we describe our significant accounting policies in the notes to our financial statements appearing elsewhere in this annual report on form 10-k , we believe the following accounting policies are the most critical to the judgments and estimates we use in the preparation of our financial statements . clinical trial expenses as part of the process of preparing our financial statements , we are required to estimate our clinical trial expenses . our clinical trial accrual process seeks to account for expenses resulting from our obligations under contracts with vendors , consultants and cros and clinical site agreements in connection with conducting clinical trials . the financial terms of these contracts are subject to negotiations , which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts . our objective is to reflect the appropriate clinical trial expenses in our financial statements by matching the appropriate expenses with the period in which services and efforts are expended . we account for these expenses according to the progress of the trial as measured by subject progression and the timing of various aspects of the trial . we determine accrual estimates based on estimates of the services received and efforts expended that take into account discussion with applicable personnel and outside service providers as to the progress or state of completion of trials . during the course of a clinical trial , we adjust our clinical expense recognition if actual results differ from our estimates . we make estimates of our accrued expenses and prepaid assets as of each balance sheet date in our financial statements based on the facts and circumstances known to us at that time . our clinical trial accrual and prepaid assets are dependent , in part , upon the receipt of timely and accurate reporting from cros and other third-party vendors . although we do not expect our estimates to differ materially from amounts we actually incur , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low for any particular period . recent accounting pronouncements in february 2016 , the financial accounting standards board ( fasb ) established accounting standards codification ( asc ) topic 842 , leases ( asc 842 ) , by issuing accounting standards update ( asu ) no . 2016-02 , which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements . topic 842 was subsequently amended by asu no
| results of operations research and development expenses we allocate direct research and development expenses , consisting principally of external costs , such as fees paid to investigators , consultants , central laboratories and cros in connection with our clinical trials , and costs related to manufacturing or purchasing clinical trial materials , to specific product programs . we do not allocate employee and contractor-related costs , costs associated with our facility expenses , including depreciation or other indirect costs , to specific product programs because these costs are deployed across multiple product programs under research and development and , as such , are separately classified . the table below shows our research and development expenses incurred with respect to each active program , in thousands . the primary drivers of our research and development expenditures are currently in our programs in se , cdd and pcdh19-re . we are making preparations for a phase 3 trial in se , and have initiated phase 3 trials in cdd and pcdh19-re . we expect our research and development expenses for ganaxolone will continue to increase during subsequent periods . we did not allocate research and development expenses to any other specific product programs during the periods presented : replace_table_token_1_th note : certain prior year expenses have been reclassified to conform to current year presentation . ( 1 ) the increase was due to the increased enrollment in our phase 3 trial during 2019 , along with additional manufacturing and preclinical studies in support of this program . ( 2 ) the decrease was due to completion of enrollment and close out of both of our ppd trials during the third quarter of 2019 . ( 3 ) the decrease was due to the completion of our phase 2 trial during the fourth quarter of 2019 and additional manufacturing activities performed in 2018 to support the then-ongoing phase 2 trial .
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short-term investments consist of readily marketable securities with maturity dates within three months from the date of purchase and include certain types of commercial paper , corporate bonds , debt securities and certificates of deposit . short-term investments were $ 8,015 and $ 47,263 at december 31 , 2013 and 2012 , respectively , and all were classified as available-for-sale and were carried at fair value , with unrealized gains and losses reported as a component of accumulated other comprehensive income ( loss ) . realized gains and losses are included story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our `` selected consolidated financial data '' and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those forward-looking statements below . factors that could cause or contribute to those differences include , but are not limited to , those identified below and those discussed in the section entitled `` risk factors '' included elsewhere in this annual report on form 10-k. this annual report on form 10-k contains “ forward-looking statements ” within the meaning of section 21e of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) . these statements are often identified by the use of words such as “ may , ” “ will , ” “ expect , ” “ believe , ” “ anticipate , ” “ intend , ” “ could , ” “ estimate , ” or “ continue , ” and similar expressions or variations . such forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those identified herein , and those discussed in the section titled “ risk factors ” , set forth in part i , item 1a of this form 10-k. except as required by law , we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements . overview proofpoint is a pioneering security-as-a-service ( `` saas '' ) vendor that enables large and mid-sized organizations worldwide to defend , protect , archive and govern their most sensitive data . our saas platform is comprised of an integrated suite of on-demand data protection solutions , including threat management , regulatory compliance , data governance , and secure communication . we were founded in 2002 to provide a unified solution to help enterprises address their growing data security requirements . our first solution was commercially released in 2003 to combat the burgeoning problem of spam and viruses and their impact on corporate email systems . as the threat environment has continued to evolve , we have dedicated significant resources to meet the ongoing challenges that this highly dynamic environment creates for our customers such as investing significantly to expand the breadth of our data protection platform with $ 7.1 million and $ 5.9 million spent in 2013 and 2012 , respectively , on capital spending to support infrastructure expansion . these expenditures are primarily in connection with the replacement and upgrade of equipment to lower the cost of deployment as well as to improve the efficiency for our cloud-based architecture . since early 2013 , we have launched proofpoint essentials , a suite of saas security and compliance capabilities designed to meet the needs of managed service providers and dedicated security resellers , enabling these partners to offer their customers this full suite of cloud-based solutions . we also introduced proofpoint 's social platform for archiving , which provides our customers a quick path to regulatory compliance regarding their social media usage , enabling them to leverage a wide range of social media platforms such as yammer , chatter and facebook while adhering to strict compliance standards . additionally , we introduced proofpoint secure share which allows enterprises to securely exchange large files with ease in a cloud-based environment . 37 our business is based on a recurring revenue model . our customers pay a subscription fee to license the various components of our saas platform for a contract term that is typically one to three years . at the end of the license term , customers may renew their subscription and in each year since the launch of our first solution in 2003 , we have retained over 90 % of our customers . we derive this retention rate by calculating the total annually recurring subscription revenue from customers currently using our saas platform and dividing it by the total annually recurring subscription revenue from both these current customers as well as all business lost through non-renewal . a growing number of our customers increase their annual subscription fees after their initial purchase by broadening their use of our platform or by adding more users , and these sales have consistently represented 15 % or more of our billings each year since 2008. as our business has grown , our subscription revenue has increased as a percentage of our total revenue , from 89 % of total revenue in 2010 to 96 % in 2013. we market and sell our solutions to large and mid-sized customers both directly through our field and inside sales teams and indirectly through a hybrid model where our sales organization actively assists our network of distributors and resellers . we also derive a lesser portion of our total revenue from the license of our solutions to strategic partners who offer our solutions in conjunction with one or more of their own products or services . our solutions are designed to be implemented , configured and operated without the need for any training or professional services . story_separator_special_tag although revenue associated with our social media and file sharing applications has not been material to date , we believe that our ability to provide security , archiving , governance and discovery for these new solutions will be viewed as valuable by our existing customers , enabling us to derive revenue from these new forms of messaging and communication . while the majority of our current and prospective customers run their email systems on premise , we believe that there is a trend for large and mid-sized enterprises to migrate these systems to the cloud . while our current revenue derived from customers using cloud-based email systems continues to grow as a percentage of our total revenue , many of these cloud-based email solutions offer some form of threat protection and governance services , potentially mitigating the need for customers to buy these capabilities from third parties such as ourselves . we believe that we can continue to provide security , archiving , governance , and discovery solutions that are differentiated from the services offered by cloud-based email providers , and as such our platform will continue to be viewed as valuable to enterprises once they have migrated their email services to the cloud , enabling us to continue to derive revenue from this new trend toward cloud-based email deployment models . with the majority of our business , we invoice our customers for the entire contract amount at the start of the term and these amounts are recorded as deferred revenue on our balance sheet , with the dollar weighted average duration of these contracts for any given period over the past three years typically ranging from 16 to 23 months . as a result , while our practice of invoicing customers for the entire amount of the contract at the start of the term provides us with a relatively immediate contribution to cash flow , the revenue is recognized ratably over the term of the contract , and hence contributions toward operating income are realized over an extended period . as such , our efforts to improve our profitability require us to invest far less in operating expenses than the cash flow generated by our business might otherwise allow . as we strive to invest in an effort to continue to increase the size and scale of our business , we expect that the level of investment afforded by our growth in revenue should be sufficient to fund the investments needed to drive revenue growth and broaden our product line . considering all of these factors , we do not expect to be profitable on a gaap basis in the near term and in order to achieve profitability we will need to grow revenue at a rate faster than our investments in operating expenses and cost of revenue . we intend to grow our revenue through acquiring new customers by investing in our sales and marketing activities . we believe that an increase in new customers in the near term will result in a larger base of renewal customers , which , over time we expect to be more profitable for us . sales and marketing is our greatest expense and hence a significant contributing factor to our operating losses . given that our costs to acquire new revenue sources , either in the form of new customers or the sale of additional solutions to existing customers , often exceed the actual revenue recognized in the initial periods , we believe that our opportunity to improve our return on investment on sales and marketing costs relies primarily on our ongoing ability to cost-effectively renew our business with existing customers , thereby lowering our overall sales and marketing costs as a percentage of revenue as the mix of revenue derived from this more profitable renewal activity increases over time . therefore , we anticipate that our initial significant investments in sales and marketing activities will over time generate a larger base of more profitable customers . cost of subscription revenue is also a significant expense for us , and we expect to continue to build on the improvements over the past three years , such as in replacing third-party technology with our proprietary technology and improving the utilization of our fixed investments in equipment and infrastructure , in order to provide the opportunity for improved subscription gross margins over time . although we plan to continue enhancing our solutions , we intend to lower our rate of investment in research and development as a percentage of revenue over time by deriving additional revenue from our existing platform of solutions rather than by adding entirely new categories of solutions . in addition , as personnel costs are one of the primary drivers of the increases in our operating expenses , we plan to reduce our historical rate of headcount growth over time . 39 key metrics we regularly review a number of metrics , including the following key metrics presented in the unaudited table below , to evaluate our business , measure our performance , identify trends in our business , prepare financial projections and make strategic decisions . many of these key metrics , such as adjusted subscription gross profit , billings and adjusted ebitda , are non-gaap measures . this non-gaap information is not necessarily comparable to non-gaap information of other companies . non-gaap information should not be viewed as a substitute for , or superior to , net loss prepared in accordance with gaap as a measure of our profitability or liquidity . users of this financial information should consider the types of events and transactions for which adjustments have been made . replace_table_token_6_th subscription revenue subscription revenue represents the recurring subscription fees paid by our customers and recognized as revenue during the period for the use of our security-as-a-service platform , typically licensed for one to three years at a time .
| results of operations the following table is a summary of our consolidated statements of operations . replace_table_token_10_th the following table sets forth our consolidated results of operations for the specified periods as a percentage of our total revenue for those periods . 45 replace_table_token_11_th _ ( 1 ) includes stock-based compensation and amortization of intangible assets as follows : replace_table_token_12_th revenue replace_table_token_13_th 46 subscription revenue increased $ 30.6 million and $ 27.6 million , or 30 % and 37 % , respectively , for 2013 and 2012. these increases were primarily due to a $ 25.9 million and $ 24.3 million increase in revenue from the united states and , to a lesser extent , a $ 4.7 million and $ 3.2 million from international customers for 2013 and 2012 , respectively . we increased personnel in the sales and marketing organization , which represented a 39 % and 24 % increase for 2013 and 2012 , respectively , in the size of the team from the prior year . along with the improving economy in the overall global landscape , these new resources directly contributed to the further growth in the sales capacity of our field sales organization and were the primary reason for the overall growth in revenue for 2013 and 2012 , respectively , from the previous years . additionally , our acquisitions in 2013 also increased revenue in 2013 , including $ 3.0 million from sendmail , inc. hardware and services revenue increased $ 1.0 million , or $ 22 % , in 2013 primarily due to higher revenue from professional services as we almost doubled our personnel in the services department from 2012 and focused on meeting customer service needs .
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an international intergovernmental organization , 8.0 % was leased to various non-governmental organizations and 5.2 % was available for lease . the u.s. government , 11 state governments and the united nations combined were responsible for 92.6 % and 93.8 % of our annualized rental income , as defined below , as of december 31 , 2013 and 2012 , respectively . property operations as of december 31 , 2013 , excluding properties classified as discontinued operations , 94.8 % of our rentable square feet were leased , compared to 93.6 % of our rentable square feet as of december 31 , 2012. occupancy data for our properties as of december 31 , 2013 and 2012 is as follows ( square feet in thousands ) : replace_table_token_6_th ( 1 ) based on properties we owned on december 31 , 2013 , and excludes properties classified as discontinued operations . ( 2 ) based on properties we owned on december 31 , 2013 and which we owned continuously since january 1 , 2012 , and excludes properties classified as discontinued operations . our comparable properties for the period january 1 , 2011 through december 31 , 2012 were 41 properties ( 50 buildings ) . our comparable properties for the period january 1 , 2012 through december 31 , 2013 , increased to 53 properties ( 66 buildings ) as a result of our acquisition of 12 properties ( 16 buildings ) during the year ended december 31 , 2011 , less two properties ( two buildings ) we sold during the year ended december 31 , 2013 , and three properties ( three buildings ) we classified as discontinued operations as of december 31 , 2013 . ( 3 ) percent leased includes ( i ) space being fitted out for tenant occupancy pursuant to our lease agreements , if any , and ( ii ) space which is leased , but is not occupied or is being offered for sublease by tenants , if any , as of the measurement date . 43 the average annual effective rental rate per square foot for our properties for the years ended december 31 , 2013 and 2012 are as follows : replace_table_token_7_th ( 1 ) average annual effective rental rate per square foot represents total rental income during the period specified divided by the average rentable square feet leased during the period specified . excludes properties classified as discontinued operations . ( 2 ) based on properties we owned on december 31 , 2013 , and excludes properties classified as discontinued operations . ( 3 ) based on properties we owned on december 31 , 2013 and which we owned continuously since january 1 , 2012 , and excludes properties classified as discontinued operations . we currently believe that u.s. property leasing market conditions are slowly improving , but remain weak in many u.s. markets . our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants frequently renew leases to avoid the costs and disruptions that may result from relocating their operations . we believe that budgetary pressures may cause an increased demand for leased space by government tenants , as opposed to new buildings built on behalf of government tenants . however , these same budgetary pressures could also result in a decrease in government sector employment , government tenants improving their space utilization or consolidation into government owned properties , thereby reducing the demand for government leased space . accordingly , we are unable to reasonably project what the financial impact of market conditions or changing government financial circumstances will be on our financial results for future periods . as of december 31 , 2013 , excluding properties classified as discontinued operations , we had leases totaling 361,360 rentable square feet that were scheduled to expire through december 31 , 2014. based upon current market conditions and tenant negotiations for leases scheduled to expire through december 31 , 2014 , we expect that rental rates we are likely to achieve on new or renewed leases will , in the aggregate and on a weighted ( by annualized revenues ) average basis , be higher than the rates currently being paid , thereby generally resulting in slightly higher revenue from the same space absent a decrease in occupancies . however , we can provide no assurance that the rental rates we expect will occur or that we will not experience material declines in our rental income due to vacancies upon lease expirations . prevailing market conditions and government tenants ' needs at the time we negotiate our leases will generally determine rental rates and other terms for leased space in our properties ; and market conditions and government tenants ' needs are beyond our control . as of december 31 , 2013 , 44 lease expirations at our properties , excluding properties classified as discontinued operations , by year are as follows ( square feet and dollars in thousands ) : replace_table_token_8_th ( 1 ) the year of lease expiration is pursuant to current contract terms . some government tenants have the right to vacate their space before the stated expirations of their leases . as of december 31 , 2013 , government tenants occupying approximately 7.9 % of our rentable square feet and responsible for approximately 6.1 % of our annualized rental income as of december 31 , 2013 have currently exercisable rights to terminate their leases before the stated expirations . story_separator_special_tag the increase in other operating expenses reflects the effects of acquired properties and an increase in other operating expenses for comparable properties . other operating expenses for acquired properties increased $ 508 for properties acquired during 2013 and $ 3,029 for properties acquired during 2012. other operating expenses at comparable properties increased $ 523 primarily as a result of increases in property insurance expense and repair and maintenance costs . depreciation and amortization . the increase in depreciation and amortization reflects the effect of property acquisitions and improvements made to certain of our properties since january 1 , 2012. depreciation and amortization for acquired properties increased $ 1,342 for properties acquired during 2013 and $ 5,747 for properties acquired during 2012. depreciation and amortization at comparable properties decreased $ 460 due primarily to certain of our depreciable leasing related assets becoming fully depreciated in 2012 and 2013 , partially offset by improvements made to certain of our properties after january 1 , 2012. acquisition related costs . acquisition related costs in the 2013 period include a $ 958 increase in the estimated fair value of additional consideration related to one of our 2012 acquisitions ( see note 4 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k ) and , in both 2013 and 2012 , legal and other due diligence costs incurred in connection with our acquisition activity . general and administrative . general and administrative expenses consist of fees pursuant to our business management agreement with rmr , equity compensation expense , legal and accounting fees , trustees ' fees and expenses , securities listing and transfer agency fees and other costs relating to our status as a publicly traded company . the increase in general and administrative expenses primarily reflects the increase in amounts due under our business management agreement in 2013 due to our property acquisitions since january 1 , 2012. interest and other income . the increase in interest and other income is primarily the result of a higher average amount of investable cash in 2013 compared to 2012. interest expense . the slight decrease in interest expense reflects a lower average outstanding debt balance during 2013 compared to 2012 and a lower weighted average interest rate in 2013. income tax expense . the decrease in income tax expense is a result of lower state income taxes in 2013 compared to 2012. equity in earnings of an investee . equity in earnings of an investee represents our proportionate share of earnings from our investment in aic . income ( loss ) from discontinued operations . income ( loss ) from discontinued operations reflects operating results of two properties ( two buildings ) sold during the three months ended march 31 , 2013 and three properties ( three buildings ) held for sale as of december 31 , 2013. income ( loss ) from discontinued operations in 2013 includes a $ 10,142 loss on asset impairment and a net gain of $ 8,168 realized from the sale of two properties . net income . our net income increased in 2013 compared to 2012 as a result of the changes noted above . on a per share basis , net income decreased in 2013 compared to 2012 due to our issuance of common shares pursuant to a public offering in 2012 . 49 year ended december 31 , 2012 , compared to year ended december 31 , 2011 replace_table_token_10_th ( 1 ) comparable properties consist of 41 properties ( 50 buildings ) we owned on december 31 , 2012 and which we owned continuously since january 1 , 2011 , and exclude properties classified as discontinued operations . ( 2 ) acquired properties consist of 22 properties ( 29 buildings ) and 12 properties ( 16 buildings ) , which 12 properties are included in the previously referenced 22 properties we owned on december 31 , 2012 and december 31 , 2011 , respectively , which we acquired during the period from january 1 , 2011 to december 31 , 2012 . ( 3 ) see footnote ( 3 ) on page 47 for the definition of noi . ( 4 ) see footnote ( 4 ) on page 48 for the definition of ffo and normalized ffo . 50 we refer to the 41 properties ( 50 buildings ) we owned on december 31 , 2012 and which we have owned continuously since january 1 , 2011 , excluding properties classified as discontinued operations , as comparable properties . we refer to the 22 properties ( 29 buildings ) and 12 properties ( 16 buildings ) , which 12 properties are included in the previously referenced 22 properties , that we owned as of december 31 , 2012 and 2011 , respectively , which we acquired during the period from january 1 , 2011 to december 31 , 2012 , as acquired properties . our consolidated income statement for the year ended december 31 , 2012 includes the operating results of 12 acquired properties ( 16 buildings ) for the entire year and 10 acquired properties ( 13 buildings ) for less than the entire year , as we acquired those 12 properties ( 16 buildings ) prior to january 1 , 2012 and we acquired those 10 properties ( 13 buildings ) during that period . our consolidated income statement for the year ended december 31 , 2011 includes the operating results of 12 acquired properties ( 16 buildings ) for less than the entire year , as those properties were purchased during 2011. references to changes in the income and expense categories below relate to the comparison of consolidated results for the year ended december 31 , 2012 , compared to the year ended december 31 , 2011. rental income . the increase in rental income reflects the effects of acquired properties , partially offset by lower revenues for comparable properties .
| results of operations ( amounts in thousands , except per share amounts ) year ended december 31 , 2013 , compared to year ended december 31 , 2012 replace_table_token_9_th ( 1 ) comparable properties consist of 53 properties ( 66 buildings ) we owned on december 31 , 2013 and which we owned continuously since january 1 , 2012 , and exclude properties classified as discontinued operations . ( 2 ) acquired properties consist of 15 properties ( 21 buildings ) and 10 properties ( 13 buildings ) , which 10 properties are included in the previously referenced 15 properties , we owned on december 31 , 2013 and december 31 , 2012 , respectively , and which we acquired during the period from january 1 , 2012 to december 31 , 2013 . ( 3 ) we calculate net operating income , or noi , as shown above . we define noi as income from our real estate less our property operating expenses . noi excludes capitalized tenant improvement costs and leasing commissions . we consider noi to be an appropriate supplemental measure to net income because it may help both investors and management to understand the operations of our properties . we use noi 47 internally to evaluate individual and company wide property level performance , and we believe that noi provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are incurred at the property level and may facilitate comparisons of our operating performance between periods and with other reits . the calculation of noi excludes certain components of net income in order to provide results that are more closely related to our properties ' results of operations .
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since inception of the company in 2006 , we have created a comprehensive business model to deliver wholesome pet food that pet parents can trust , and in the process we believe we have become one of the fastest growing pet food companies in north america . our business model is difficult for others to replicate and we see significant opportunity for future growth by leveraging the unique elements of our business , including our brand , our product know-how , our freshpet kitchens , our refrigerated distribution , our freshpet fridge and our culture . recent developments due to our continued growth , we have undertaken a capital expansion project at our freshpet kitchens manufacturing facility to expand our plant capacity and increase distribution . since 2015 , we have invested approximately $ 35.2 million in capital expenditures , with $ 17.6 million recorded during each of 2016 and 2015. a portion of the new equipment was placed in service in july 2016 , with the remaining portion placed into service in october 2016 , which resulted in incremental depreciation expense of approximately $ 1.6 million in the year ended december 31 , 2016. in order to fund the expansion , we borrowed $ 10.0 million under our credit facilities and repaid $ 3.0 million by the end of 2016. we expect to repay the remainder of this indebtedness by the end of 2017. the expansion increased our production capacity at our freshpet kitchens which we estimate will be at least 130 % when fully utilized . in addition to the freshpet kitchens expansion project , we have opened our innovation center located next door to freshpet kitchens . we expect this facility to provide additional capabilities in innovation and research & development . additionally , we recently expanded our business on a test basis to two retailers in the united kingdom , where our products are selling in 63 stores . net sales our net sales are derived from the sale of pet food to our customers , who purchase either directly from us or through third-party distributors . our products are sold to consumers through a fast-growing network of company-owned branded refrigerators , known as freshpet fridges , located in our customers ' stores . we continue to roll out freshpet fridges across leading retailers across north america and have installed freshpet fridges in over 16,600 retail stores as of december 31 , 2016. all of our products are sold under the freshpet brand name , with ingredients , packaging and labeling customized by class of retail . sales are recorded net of discounts , slotting , returns and promotional allowances . our net sales growth is driven by the following key factors : increasing sales velocity from the average freshpet fridge due to increasing awareness , trial and adoption of freshpet products . our investments in marketing and advertising help to drive awareness and trial at each point of sale . increased penetration of freshpet fridge locations in major classes of retail , including grocery , mass , club , pet specialty and natural . the impact of new freshpet fridge installations on our net sales varies by retail class and depends on numerous factors including store traffic , refrigerator size , placement within the store , and proximity to other stores that carry our products . consumer trends including growing pet ownership , pet humanization and a focus on health and wellness . we believe that as a result of the above key factors , we will continue to penetrate the pet food marketplace and increase our share of the pet food category . 28 gross profit our gross profit is net of costs of goods sold , which include the costs of product manufacturing , product ingredients , packaging materials , spoils , and inbound freight . as discussed above , we have also undertaken a capital expansion project at our freshpet kitchens facility that we believe further increased our production capacity which we estimate will be at least 130 % when fully utilized . over time , growing capacity utilization of our new facility will allow us to leverage fixed costs and thereby expand our gross profit margins . our gross profit margins are impacted by the cost of ingredients and packaging materials . we expect to mitigate any adverse movement in input costs through a combination of cost management and price increases . selling , general and administrative expenses our selling , general and administrative expenses consist of the following : outbound freight . prior to the second quarter of 2016 , outbound freight from our freshpet kitchens was managed by a national third-party refrigerated and frozen human food manufacturer . during the second quarter , we transitioned to a new third-party logistics provider . through our new third-party logistics provider 's infrastructure , we realized cost efficiencies in logistics during the third quarter and fourth quarter of 2016. additionally , we sell through third-party distributors for the grocery , mass , club , pet specialty and natural classes in the united states , canada , and on a test basis in the united kingdom . marketing & advertising . our marketing and advertising expenses primarily consist of national television media , digital marketing , social media , and grass roots marketing to drive brand awareness . these expenses may vary from quarter to quarter depending on the timing of our marketing and advertising campaigns . freshpet fridge operating costs . freshpet fridge operating costs consist of repair costs and depreciation . the purchase and installation costs for new freshpet fridges are capitalized and depreciated over the estimated useful life . all new refrigerators are covered by a three year manufacturer warranty . we subsequently incur maintenance and freight costs for repairs and refurbishments handled by third-party service providers . research & development ( “ r & d ” ) . research and development costs consist of expenses to develop and test new products . the costs are expensed as incurred . brokerage . story_separator_special_tag our gross profit margin of 47.0 % for the twelve months ended december 31 , 2015 , was a decrease of 162 basis points compared to the same period in the prior year , primarily related to 237 basis points due to operational inefficiencies associated with product innovation , partially offset by 62 basis points due to leverage of depreciation expense with higher volumes in 2015 and 13 basis points due to non-capitalizable start-up costs associated with the freshpet kitchens plant startup in 2014. adjusted gross profit was $ 57.2 million and $ 44.8 million in the years ended december 31 , 2015 and 2014 , respectively . adjusted gross profit margin was 49.2 % and 51.6 % in the years ended 2015 and 2014 , respectively . adjusted gross profit excludes $ 2.6 million of depreciation expense in 2015 , and $ 2.5 million of depreciation expense and $ 0.1 million of non-capitalizable plant start-up costs in 2014. see “ —non-gaap financial measures ” for how we define adjusted gross profit and a reconciliation of adjusted gross profit to gross profit , the closest comparable u.s. gaap measure . selling , general and administrative expenses selling , general and administrative expenses increased $ 10.0 million , or 21 % , to $ 58.3 million for the twelve months ended december 31 , 2015 as compared to the same period in the prior year . key components of the dollar increase include additional outbound freight costs of $ 1.9 million due to increased volume and sales , higher advertising expenses of $ 2.1 million , higher share-based compensation expense of $ 1.9 million , secondary fees of $ 0.6 million , research and development costs of $ 0.2 million and incremental operating expenses of $ 4.3 million , which were partially offset by a decrease in variable compensation expense of $ 1.0 million . the increased operating expenses were primarily due to costs associated with being a public company , new hires , and increased refrigerator repairs due to our growing freshpet fridge network . as a percentage of net sales , selling , general and administrative expenses decreased to 50 % for the twelve months ended december 31 , 2015 from 56 % for the twelve months ended december 31 , 2014. adjusted sg & a decreased as a percentage of net sales to 46 % in the in the year ended 2015 as compared to 54 % of net sales in the year ended 2014. adjusted sg & a excludes $ 3.7 million and $ 1.8 million for non-cash items related to share-based compensation in 2015 and 2014 , respectively , and $ 0.6 million of secondary fees in 2015. see “ —non-gaap financial measures ” for how we define adjusted sg & a and a reconciliation of adjusted sg & a to sg & a , the closest comparable u.s. gaap measure . 32 loss from operations loss from operations decreased $ 2.4 million , or 40 % , to $ 3.6 million for the twelve months ended december 31 , 2015 as compared to the same period in the prior year as a result of the factors discussed above . fees on debt guarantee fees on debt guarantee expense were not incurred during the twelve months ended december 31 , 2015 , as such there was a decrease of $ 25.9 million for the twelve months ended december 31 , 2015 as compared to the same period in the prior year . the expense during the twelve months ended december 31 , 2014 was attributable to adjusting the fair value of the fees on debt guarantee liability to the fair value thereof as of the ipo settlement date . interest expense for the twelve months ended december 31 , 2015 interest expense was $ 0.5 million , which related to fees associated with our 3-year $ 10.0 million revolving credit facility and $ 30.0 million term loan commitment earmarked for capital expenditures . interest expense for the twelve months ended december 31 , 2014 was $ 4.6 million . see “ —liquidity and capital resources. ” other income/ ( expenses ) , net other income/ ( expense ) , net increased $ 1.1 million to $ 0.5 million for the twelve months ended december 31 , 2015 , primarily related to the revaluation of warrants . income related to the revaluation of warrants was $ 0.5 million for the twelve months ended december 31 , 2015 compared to expense of $ ( 0.3 ) million for the same period in the prior year . net loss net loss decreased $ 33.6 million , or 90 % , to $ 3.7 million for the twelve months ended december 31 , 2015 as compared to the same period in the prior year . net loss was 3 % of net sales for the twelve months ended december 31 , 2015 as compared to a net loss of 43 % of net sales for the same period in the prior year . selected quarterly financial data the following quarterly consolidated statement of operations data for the 12 fiscal quarters ended december 31 , 2016 has been prepared on a basis consistent with our audited annual consolidated financial statements and includes , in the opinion of management , all normal recurring adjustments necessary for a fair statement of the financial information contained herein . the following quarterly data should be read together with our consolidated financial statements included elsewhere in this report . 33 replace_table_token_8_th non-gaap financial measures we have presented the following non-gaap financial measures in this report . these non-gaap financial measures should be considered only as supplements to gaap reported measures , should not be considered replacements for , or superior to , gaap measures and may not be comparable to similarly named measures used by other companies .
| results of operations replace_table_token_5_th twelve months ended december 31 , 2016 compared to twelve months ended december 31 , 2015 net sales the following table sets forth net sales by class of retail : replace_table_token_6_th ( 1 ) stores at december 31 , 2016 and december 31 , 2015 consisted of 7,953 and 6,887 grocery and 3,814 and 3,555 mass and club , respectively . ( 2 ) stores at december 31 , 2016 and december 31 , 2015 consisted of 4,530 and 4,294 pet specialty and 312 and 279 natural and other , respectively . * includes net sales from freshpet baked product test of $ 4.4 million , or 3.3 % of total net sales , for the twelve months ended december 31 , 2016 and $ 4.6 million , or 4 % of total net sales , for the twelve months ended december 31 , 2015. net sales increased $ 16.9 million , or 15 % , to $ 133.1 million for the twelve months ended december 31 , 2016 as compared to the same period in the prior year . the $ 16.9 million increase in net sales was driven by growth in the grocery , mass , and club refrigerated channel of $ 15.6 million and pet specialty of $ 1.3 million . the net sales increase was driven by overall velocity gains and an increase of freshpet fridges store locations , which grew by 10.6 % from 15,015 as of december 31 , 2015 to 16,609 as of december 31 , 2016. gross profit gross profit increased $ 5.7 million , or 10 % , to $ 60.4 million for the twelve months ended december 31 , 2016 as compared to the same period in the prior year . the increase in gross profit was primarily driven by higher net sales , partially offset by increased depreciation due to our freshpet kitchens expansion and non-capitalizable start-up costs associated with the freshpet kitchens expansion .
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” management overview we are a leader in performance marketing products and technologies . we specialize in customer acquisition for clients in high value , information-intensive markets or “ verticals , ” including financial services , education , home services and business-to-business technology . our clients include some of the world 's largest companies and brands in those markets . while the majority of our operations and revenue are in north america , we also have emerging businesses in brazil and india . we deliver measurable and cost-effective marketing results to our clients , typically in the form of a qualified lead , inquiry , click , call , application , or customer . leads , inquiries , clicks , calls , and applications can then convert into a customer or sale for clients at a rate that results in an acceptable marketing cost to them . we are typically paid by clients when we deliver qualified leads , inquiries , clicks , calls , applications , or customers as defined by our agreements with them . references to the delivery of customers means a sale or completed customer transaction ( e.g. , bound insurance policies or customer appointments with clients ) . because we bear the costs of media , our programs must result in attractive marketing costs to our clients at media costs and margins that provide sound financial outcomes for us . to deliver leads , inquiries , clicks , calls , applications , and customers to our clients , generally we : own or access targeted media through business arrangements ( e.g. , revenue sharing arrangements ) or by purchasing media ( e.g. , clicks from major search engines ) ; run advertisements or other forms of marketing messages and programs in that media to create visitor responses typically in the form of leads or inquiries ( e.g. , contact information ) , clicks ( to further qualification or matching steps , or to online client applications or offerings ) , calls ( to our owned and operated call centers or that of our clients or their agents ) , applications ( e.g. , for enrollment or a financial product ) , or customers ( e.g. , bound insurance policies ) ; match these leads , inquiries , clicks , calls , applications , or customers to client offerings or brands that we believe can meet visitor interests or needs and client targets and requirements ; and optimize client matches and media costs such that we achieve desired results for clients and a sound financial outcome for us . our primary financial objective has been and remains creating revenue growth from sustainable sources , at target levels of profitability . our primary financial objective is not to maximize profits , but rather to achieve target levels of profitability while investing in various growth initiatives , as we continue to believe we are in the early stages of a large , long-term market opportunity . our business derives its net revenue from fees earned through the delivery of qualified leads , inquiries , clicks , calls , applications , or customers and , to a lesser extent , display advertisements , or impressions . through a vertical focus , targeted media presence and our technology platform , we are able to deliver targeted , measurable marketing results to our clients . our two largest client verticals are financial services and education . our financial services client vertical represented 62 % , 52 % and 42 % of net revenue in fiscal years 2017 , 2016 and 2015. our education client vertical represented 24 % , 30 % and 38 % of net revenue in fiscal years 2017 , 2016 and 2015. our other client verticals , consisting of home services , business-to-business technology and medical , represented 14 % , 18 % and 20 % of net revenue in fiscal years 2017 , 2016 and 2015. we generated the majority of our revenue from sales to clients in the united states . trends affecting our business client verticals to date , we have generated the majority of our revenue from clients in our financial services and education client verticals . we expect that a majority of our revenue in fiscal year 2018 will also be generated from clients in these client verticals . in addition , revenue from our financial services client vertical is expected to increase as a percentage of our total revenue . our financial services client vertical has been challenged by a number of factors in the past , including the limited availability of high quality media at acceptable margins caused by acquisition of media sources by competitors , increased competition for high quality media and changes in search engine algorithms . these effects may impact our business in the future again . to offset this 31 impact , we have broadened our product set with enhanced click , lead , call and policy products that have enabled better monetization to provide greater access to high quality media sources . moreover , we have entered in to strategic partnerships to increase and diversify our access to quality media and client budgets . our education client vertical has been significantly challenged by regulations and enforcement activity affecting u.s. for-profit education institutions over the past several years . for example , in july 2015 , the federal trade commission initiated an investigation of a publicly traded u.s. for-profit education client with respect to its recruiting and enrollment practices . these and other similar regulatory and enforcement activities have affected and are expected to continue to affect our clients ' businesses and marketing practices , which have and may continue to , result in a decrease in these clients ' spending with us and other vendors and fluctuations in the volume and mix of our business with these clients . story_separator_special_tag costs associated with software incurred in the development phase or obtained for internal use are capitalized and amortized in cost of revenue over the software 's estimated useful life . operating expenses we classify our operating expenses into three categories : product development , sales and marketing , and general and administrative . our operating expenses consist primarily of personnel costs and , to a lesser extent , professional services fees , facilities fees and other costs . personnel costs for each category of operating expenses generally include salaries , stock-based compensation expense , bonuses , commissions and employee benefit costs . product development . product development expenses consist primarily of personnel costs , facilities fees and professional services fees related to the development and maintenance of our products and media management platform . we are constraining expenses generally to the extent practicable . sales and marketing . sales and marketing expenses consist primarily of personnel costs , facilities fees and professional services fees . we are constraining expenses generally to the extent practicable . general and administrative . general and administrative expenses consist primarily of personnel costs of our finance , legal , employee benefits and compliance , technical support and other administrative personnel , as well as accounting and legal professional services fees and facilities fees . we are constraining expenses generally to the extent practicable . interest and other ( expense ) income , net interest and other ( expense ) income , net , consists primarily of interest income , interest expense , and other income and expense . interest income represents interest earned on our cash , cash equivalents and marketable securities , which may increase or decrease depending on market interest rates and the amounts invested . interest expense is related to our term loan facility , revolving loan facility , the related interest rate swap , promissory notes issued in connection with our acquisitions , and imputed interest on non-interest bearing notes . we have no borrowing agreements outstanding as of june 30 , 2017 ; however interest expense could increase if , among other things , we enter into a new borrowing agreement to manage liquidity needs or make additional acquisitions through debt financing . other income and expense includes gains and losses on foreign currency exchange , gains and losses on sales of websites and domain names that were not considered to be strategically important to our business , and other non-operating items . benefit from ( provision for ) income taxes we are subject to tax in the united states as well as other tax jurisdictions or countries in which we conduct business . earnings from our limited non-u.s. activities are subject to local country income tax and may be subject to u.s. income tax . 33 story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > product development expenses decreased $ 1.5 million , or 8 % , in fiscal year 2016 compared to fiscal year 2015 , primarily due to decreased personnel costs of $ 1.8 million related to decreased headcount and decreased performance incentive compensation associated with the lower achievement of performance objectives . sales and marketing expenses sales and marketing expenses decreased $ 2.8 million , or 24 % , in fiscal year 2017 compared to fiscal year 2016 , primarily due to decreased personnel costs of $ 1.7 million and decreased stock-based compensation expense of $ 0.7 million . the decrease in personnel costs was related to our corporate restructuring announced in november 2016 and decreased performance incentive compensation associated with the lower achievement of performance objectives . sales and marketing expenses decreased $ 2.5 million , or 17 % , in fiscal year 2016 compared to fiscal year 2015 , primarily due to decreased personnel costs of $ 1.5 million related to decreased headcount and decreased performance incentive compensation associated with the lower achievement of performance objectives and decreased advertising costs of $ 0.4 million . general and administrative expenses general and administrative expenses decreased $ 1.2 million , or 7 % , in fiscal year 2017 compared to fiscal year 2016 , primarily due to decreased personnel costs of $ 0.7 million and decreased litigation expense of $ 0.5 million . the decrease in personnel costs was 35 related to our corporate restructuring announced in november 2016 and decreased performance incentive compensation associated with the lower achievement of performance objectives . the decrease in litigation expense was due to lower lega l settlements . general and administrative expenses increased $ 0.3 million , or 2 % , in fiscal year 2016 compared to fiscal year 2015. restructuring charges in november 2016 , we announced a corporate restructuring in order to accelerate margin expansion and grow cash flow . as a result , we recognized total cash and non-cash restructuring costs of $ 2.4 million related to employee severance and benefits in fiscal year 2017 , which was paid during the fiscal year using existing cash on hand . the corporate restructuring was complete as of june 30 , 2017 and is expected to reduce operating costs by approximately $ 17 million annually , primarily from personnel costs in cost of revenue and product development . benefits from the restructuring took effect starting in the three months ended december 31 , 2016. interest and other expense , net replace_table_token_14_th interest income was immaterial in fiscal years 2017 , 2016 and 2015. interest expense decreased $ 0.2 million , or 41 % in fiscal year 2017 compared to fiscal year 2016 , and $ 3.2 million , or 85 % , in fiscal year 2016 compared to fiscal year 2015 , primarily due to decreased debt obligations . other ( expense ) income , net decreased $ 2.5 million in fiscal year 2017 compared to fiscal year 2016 , primarily due to the impairment of our investment in a privately held entity of $ 2.5 million .
| results of operations the following table sets forth our consolidated statements of operations for the periods indicated : replace_table_token_10_th ( 1 ) cost of revenue and operating expenses include stock-based compensation expense as follows : replace_table_token_11_th gross profit replace_table_token_12_th net revenue net revenue increased $ 2.1 million , or 1 % , in fiscal year 2017 compared to fiscal year 2016. our financial services client vertical revenue increased $ 29.6 million , or 19 % , primarily due to our enhanced product set that provides greater segmentation , transparency , and right pricing of media which have enabled access to more media and client budgets and to additional strategic partnerships that have increased and diversified our access to quality media and client budgets . our education client vertical revenue decreased $ 18.0 million , or 20 % , primarily due to exits from the channel of some for-profit education clients , decreased client demand as a result of client initiatives which include campus closures and discontinuation of certain education programs and lower budgets from certain education clients . revenue from other client verticals decreased $ 9.5 million , or 18 % , primarily due to decreased client demand in our business-to-business technology and medical client verticals , partially offset by increased client demand in our home services client vertical . net revenue increased $ 15.6 million , or 6 % , in fiscal year 2016 compared to fiscal year 2015. our financial services client vertical revenue increased $ 36.0 million , or 30 % , primarily due to the continued rollout of our enhanced products and media management platform and to strategic partnerships that have increased and diversified our access to quality media and client budgets . our education client vertical revenue decreased $ 16.3 million , or 15 % , primarily due to the exit from the channel by a large u.s. for-profit education client .
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general : park aerospace corp. ( “ park ” or the “ company ” ) formerly known as park electrochemical corp. is an aerospace company which develops and manufactures solution and hot-melt advanced composite materials used to produce composite structures for the global aerospace markets . park 's advanced composite materials include film adhesives ( undergoing qualification ) and lightning strike materials . park offers an array of composite materials specifically designed for hand lay-up or automated fiber placement ( afp ) manufacturing applications . park 's advanced composite materials are used to produce primary and secondary structures for jet engines , large and regional transport aircraft , military aircraft , unmanned aerial vehicles ( uavs commonly referred to as “ drones ” ) , business jets , general aviation aircraft and rotary wing aircraft . park also offers specialty ablative materials for rocket motors and nozzles and specially designed materials for radome applications . as a complement to park 's advanced composite materials offering , park designs and fabricates composite parts , structures and assemblies and low volume tooling for the aerospace industry . target markets for park 's composite parts and structures ( which include park 's proprietary composite sigma strut and alpha strut product lines ) are , among others , prototype and development aircraft , special mission aircraft , spares for legacy military and civilian aircraft and exotic spacecraft . the company 's fiscal year is the 52- or 53-week period ending the sunday nearest to the last day of february . the 2020 , 2019 and 2018 fiscal years ended on march 1 , 2020 , march 3 , 2019 and february 25 , 2018 , respectively . the 2019 fiscal year consisted of 53 weeks . the 2020 and 2018 fiscal years each consisted of 52 weeks . unless otherwise indicated in this discussion and analysis , all references to years and quarters in this discussion and analysis are to the company 's fiscal years and fiscal quarters and all annual and quarterly information in this discussion and analysis is for such fiscal years and quarters , respectively . 20 20 financial overview on december 4 , 2018 , park completed the previously announced sale of its electronics business , including manufacturing facilities in singapore , france , california and arizona and r & d facilities in singapore and arizona , to agc inc. for an aggregate purchase price of $ 145 million in cash , subject to post-closing adjustments for changes in working capital compared to target net working capital , excluding cash in certain acquired subsidiaries and certain accrued and unpaid taxes of certain acquired subsidiaries . see note 13 , “ discontinued operations ” , of the notes to consolidated financial statements elsewhere in this report for additional information on the sale . as a result , the discussion below is of the company 's continuing operations , which is comprised of the aerospace business . the company paid a special cash dividend of $ 1.00 per share on february 20 , 2020 to shareholders of record at the close of business on february 3 , 2020. the special cash dividend was funded from the company 's cash balances . this special dividend , together with the company 's regular quarterly dividend of $ 0.10 per share paid february 2 , 2020 to shareholders of record on january 3 , 2020 , brings the total amount of dividends paid to shareholders to $ 26.15 per share , a total of approximately $ 536 million , since the company 's 2005 fiscal year . 25 in 2019 , the company announced the major expansion of its aerospace manufacturing , development and design facilities located at the newton city-county airport in newton , kansas . this expansion includes the construction of a redundant manufacturing facility located adjacent to park 's existing newton , kansas facilities . this facility , which is being constructed in part to support a major aerospace customer , will include approximately 90,000 square feet of manufacturing and office space , and will essentially double the size of park 's existing newton , kansas manufacturing footprint . the total cost of the expansion is expected to be approximately $ 21 million , and the expansion is expected to be completed in the second half of the 2020 calendar year . the expansion includes new resin mixing and delivery systems , new hot-melt film and tape manufacturing lines , space to accommodate an additional hot-melt tape line or solution treating line , space to accommodate a confidential joint development project with a major aerospace customer , additional slitting capability , significant additional freezer and storage space , an expanded production lab , a new r & d lab and additional office space . through march 1 , 2020 , the company had incurred $ 7.6 million on the expansion . during 2020 , the company recorded a non-cash charge of $ 0.2 million in connection with the modification of previously granted employee stock options resulting from the $ 1.00 per share special cash dividend paid by the company in february 2020. selling , general and administrative expenses in 2020 included $ 0.7 million of stock option expense . the company 's total net sales worldwide in 2020 were 17 % higher than in 2019 due primarily to the “ end customer ” of a major company customer ramping up commercial jet production and the company 's customer restocking depleted inventory , particularly in the fourth quarter , and to an increase in military sales during 2020. the company 's gross profit margin , measured as a percentage of sales , decreased to 31.1 % in 2020 from 31.7 % in 2019. higher sales and production levels combined with the fixed nature of certain overhead costs were more than offset by increased direct labor and supplies expenses . story_separator_special_tag the company 's net earnings from continuing operations for 2018 were $ 18.5 million , including the tax benefit of $ 17.8 million related to the tax act , the stock option modification pre-tax charge of $ 0.5 million in connection with the special dividend of $ 3.00 per share paid in february 2018 , the pre-tax loss of $ 1.3 million on the sales of marketable securities and the pre-tax deferred financing costs of $ 0.1 million related to the termination of the credit agreement in 2018. the net impact of the items described above was to decrease net earnings by $ 2.0 million in 2019 and to increase net earnings by $ 16.0 million in 2018. discontinued operations on december 4 , 2018 , park completed the previously announced sale of its electronics business , including manufacturing facilities in singapore , france , california and arizona and r & d facilities in singapore and arizona , to agc inc. for an aggregate purchase price of $ 145 million in cash , subject to post-closing adjustments for changes in working capital compared to the target net working capital , excluding cash in certain acquired subsidiaries and certain accrued and unpaid taxes of certain acquired subsidiaries . see note 13 , “ discontinued operations ” , of the notes to consolidated financial statements elsewhere in this report for additional information on the sale . the operating results of the electronics business are classified , together with certain costs related to the sale , as discontinued operations , net of tax , in the consolidated statements of operations . the company 's net earnings from discontinued operations were higher in 2019 compared to 2018 primarily as a result of the gain recognized on the sale of the electronics business of $ 102,145 and the gain of $ 2,945 recognized on the sale of its new england laminates co. , inc. facility located in newburgh , new york . basic and diluted earnings per share basic and diluted earnings per share from continuing operations for 2019 were $ 0.31 , including the stock option modification charge in connection with the special dividend paid in february 2019 and the pre-tax loss on the sales of marketable securities described above , compared to basic and diluted earnings per share for 2018 of $ 0.91 , including the tax benefit related to the tax act , the stock option modification charge in connection with the special dividend paid in february 2018 , the pre-tax loss on the sales of marketable securities and the deferred financing costs described above . the net impact of the items described above was to increase basic and diluted earnings per share by $ 0.08 in 2019 and decrease basic and diluted earnings per share by $ 0.81 in 2018 . 32 l iquidity and capital resources : replace_table_token_6_th replace_table_token_7_th cash and marketable securities the company believes it has sufficient liquidity to fund its operating activities for the 12 months from the date of the filing of this form 10-k annual report and for the foreseeable future thereafter . the change in cash and marketable securities at march 1 , 2020 compared to march 3 , 2019 was primarily the result of positive operating cash flow more than offset by capital expenditures and the special dividend paid by the company to its shareholders in february 2020 and a number of additional factors . the significant changes in cash provided by operating activities were as follows : ● accounts receivable increased by 17 % at march 1 , 2020 compared to march 3 , 2019 due primarily to the increase in total net sales in the last month of 2019 ; ● inventory increased 21 % due primarily to raw material purchased at the end of february 2020 for use in future production ; ● prepaid expenses and other current assets increased 228 % due primarily to the increase in income tax receivable ; ● accounts payable increased 49 % due to the raw material purchases and capital expenditures at the end of february 2020 ; ● accrued liabilities decreased 41 % at march 1 , 2020 compared to march 3 , 2019 due primarily to decreased accruals for restructuring ; and ● income taxes payable decreased 58 % at march 1 , 2020 compared to march 3 , 2019 due to tax payments in excess of the current tax provision . in addition , the company paid $ 28.7 million and $ 95.0 million in cash dividends during 2020 and 2019 , respectively , including special dividends of $ 20.5 million and $ 86.8 million paid in 2020 and 2019 , respectively . 33 working capital working capital at march 1 , 2020 was lower compared to march 3 , 2019. decreases in cash and cash equivalents and marketable securities and increases in accounts payable were offset by increases in accounts receivable , inventories and prepaid and other assets and decreases in accrued liabilities and taxes payable . the company 's current ratio ( the ratio of current assets to current liabilities ) was 16.7 to 1 at march 1 , 2020 compared to 15.1 to 1 at march 3 , 2019. cash flows during 2020 , the company 's net earnings from continuing operations , before depreciation and amortization , stock-based compensation , amortization of bond premium and gain on sale of fixed assets , were $ 13.3 million . such earnings were decreased by changes in operating assets and liabilities of $ 7.4 million , resulting in $ 5.9 million of cash provided by operating activities from continuing operations . during 2020 , the company expended $ 6.8 million for the purchase of property , plant and equipment compared to $ 2.8 million during 2019 , and the company paid $ 28.7 million and $ 95.1 million in cash dividends in 2020 and 2019 , respectively .
| results o f operations : 20 20 compared to 201 9 replace_table_token_4_th net sales the company 's total net sales worldwide in 2020 were 17 % higher than in 2019 due primarily to the “ end customer ” of a major company customer ramping up commercial jet production and to an increase in military sales during 2020 . 27 gross profit the company 's gross profit margin , measured as a percentage of sales , decreased to 31.1 % in 2020 , from 31.7 % in 2019. higher sales and the partially fixed nature of overhead expenses were more than offset by the increased labor and supplies expenses . selling , general and administrative expenses selling , general and administrative expenses decreased by $ 1.0 million , or 12 % , during 2020 compared to 2019. such expenses , measured as percentages of sales , were 13.2 % during 2020 compared to 17.5 % during 2019. the decrease in such expenses in 2019 was due primarily to decreased legal and professional fees and lower stock option expenses , excluding the stock option modification charges in each period . selling , general and administrative expenses in 2020 included $ 0.7 million of stock option expenses , including $ 0.2 million due to the modification of previously granted stock options , compared to $ 1.2 million of such expenses in 2019 , including $ 0.5 million due to the modification of previously granted stock options . earnings from continuing operations for the reasons set forth above , the company 's earnings from continuing operations were $ 10.7 million for 2020 , including a pre-tax stock option modification charge of $ 0.2 million resulting from the special dividend of $ 1.00 per share paid in february 2020. the company 's earnings from continuing operations were $ 7.2 million in 2019 , including a pre-tax stock option modification charge of $ 0.5 million resulting from the special dividend of $ 4.25
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in addition , loans in the recreational and tourism sector can be story_separator_special_tag the first bancorp , inc. ( the `` company '' or `` the first bancorp '' ) was incorporated in the state of maine on january 15 , 1985 , and is the parent holding company of first national bank ( the `` bank '' ) . on january 28 , 2016 , the board of directors voted to change the bank 's name to first national bank from the first , n.a . the company generates almost all of its revenues from the bank , which was chartered as a national bank under the laws of the united states on may 30 , 1864. the bank , which has sixteen offices along coastal and eastern maine , emphasizes personal service to the communities it serves , concentrating primarily on small businesses and individuals . the bank offers a wide variety of traditional banking services and derives the majority of its revenues from net interest income – the spread between what it earns on loans and investments and what it pays for deposits and borrowed funds . while net interest income typically increases as earning assets grow , the spread can vary up or down depending on the level and direction of movements in interest rates . management believes the bank has modest exposure to changes in interest rates , as discussed in `` interest rate risk management '' elsewhere in management 's discussion . the banking business in the bank 's market area historically has been seasonal with lower deposits in the winter and spring and higher deposits in the summer and fall . this seasonal swing is fairly predictable and has not had a materially adverse effect on the bank . non-interest income is the bank 's secondary source of revenue and includes fees and service charges on deposit accounts and services , income from the sale and servicing of mortgage loans , and income from investment management and private banking services through first national wealth management ( previously first advisors ) , a division of the bank . forward-looking statements this report contains statements that are `` forward-looking statements . '' we may also make forward-looking statements in other documents we file with the sec , in our annual reports to shareholders , in press releases and other written materials , and in oral statements made by our officers , directors or employees . you can identify forward-looking statements by the use of the words `` believe '' , `` expect '' , `` anticipate '' , `` intend '' , `` estimate '' , `` assume '' , `` outlook '' , `` will '' , `` should '' , `` may '' , `` might , `` could '' , and other expressions that predict or indicate future events or trends and which do not relate to historical matters . you should not rely on forward-looking statements , because they involve known and unknown risks , uncertainties and other factors , some of which are beyond the control of the company . these risks , uncertainties and other factors may cause the actual results , performance or achievements of the company to be materially different from the anticipated future results , performance or achievements expressed or implied by the forward-looking statements . some of the factors that might cause these differences include the following : changes in general national , regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets , adverse economic developments in or affecting the geographic areas in which the bank operates , volatility and disruption in national and international financial markets , government intervention in the u.s. financial system , reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits , reductions in the market value of wealth management assets under administration , changes in the value of securities and other assets , reductions in loan demand , changes in loan collectibility , default and charge-off rates , changes in the size and nature of the company 's competition , changes in legislation or regulation and accounting principles , policies and guidelines , and changes in the assumptions used in making such forward-looking statements . in addition , the factors described under `` risk factors '' in item 1a of this annual report on form 10-k may result in these differences . you should carefully review all of these factors , and you should be aware that there may be other factors that could cause these differences . these forward-looking statements were based on information , plans and estimates at the date of this annual report , and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors , new information , future events or other changes . although the company believes that the expectations reflected in such forward-looking statements are reasonable , actual results may differ materially from the results discussed in these forward-looking statements . readers are also urged to carefully review and consider the various disclosures made by the company , which attempt to advise interested parties of the factors that affect the company 's business . critical accounting policies management 's discussion and analysis of the company 's financial condition and results of operations is based on the consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates , including those related to the allowance for loan losses , goodwill , the valuation of mortgage servicing rights , and other-than-temporary impairment on securities . story_separator_special_tag changes in fair value of a derivative that is effective and that qualifies as a cash flow hedge are recorded in other comprehensive income ( loss ) and are reclassified into earnings when the forecasted transaction or related cash flows affect earnings . changes in fair value of a derivative that qualifies as a fair value hedge and the change in fair value of the hedged item are both recorded in earnings and offset each other when the transaction is effective . those derivatives that are classified as trading instruments , including customer loan swaps , are recorded at fair value with changes in fair value recorded in earnings . the company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item , that it is unlikely that the forecasted transaction will occur , or that the designation of the derivative as a hedging instrument is no longer appropriate . the first bancorp - 2019 form 10-k - page 23 use of non-gaap financial measures certain information in management 's discussion and analysis of financial condition and results of operations and elsewhere in this report contains financial information determined by methods other than in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . management uses these `` non-gaap '' measures in its analysis of the company 's performance and believes that these non-gaap financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrating the effects of significant gains and charges in the current period . the company believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance . management believes that investors may use these non-gaap financial measures to analyze financial performance without the impact of unusual items that may obscure trends in the company 's underlying performance . these disclosures should not be viewed as a substitute for operating results determined in accordance with gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . in several places in this report , net interest income is presented on a fully taxable equivalent basis . specifically included in interest income was tax-exempt interest income from certain investment securities and loans . an amount equal to the tax benefit derived from this tax exempt income has been added back to the interest income total , which adjustments increased net interest income accordingly . management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis , and is particularly useful to investors in understanding and evaluating the changes and trends in the company 's results of operations . other financial institutions commonly present net interest income on a tax-equivalent basis . this adjustment is considered helpful in the comparison of one financial institution 's net interest income to that of another institution , as each will have a different proportion of tax-exempt interest from its earning assets . moreover , net interest income is a component of a second financial measure commonly used by financial institutions , net interest margin , which is the ratio of net interest income to average earning assets . for purposes of this measure as well , other financial institutions generally use tax-equivalent net interest income to provide a better basis of comparison from institution to institution . the company follows these practices . the following table provides a reconciliation of tax-equivalent financial information to the company 's consolidated financial statements , which have been prepared in accordance with gaap . a federal income tax rate of 21.0 % was used in 2019 and 2018 and a 35.0 % federal income tax rate was used in 2017 . replace_table_token_3_th the company presents its efficiency ratio using non-gaap information which is most commonly used by financial institutions . the gaap-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income from the consolidated statements of income and comprehensive income . the non-gaap efficiency ratio excludes securities losses from noninterest expenses , excludes securities gains from noninterest income , and adds the tax-equivalent adjustment to net interest income . the following table provides a reconciliation between the gaap and non-gaap efficiency ratio : replace_table_token_4_th the first bancorp - 2019 form 10-k - page 24 the company presents certain information based upon average tangible common shareholders ' equity instead of total average shareholders ' equity . the difference between these two measures is the company 's intangible assets , specifically goodwill from prior acquisitions . management , banking regulators and many stock analysts use the tangible common equity ratio and the tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets , typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions . the following table provides a reconciliation of tangible average shareholders ' equity to the company 's consolidated financial statements , which have been prepared in accordance with gaap : replace_table_token_5_th story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2.89 % in 2019 , compared to 2.91 % in 2018 . total interest income on a tax-equivalent basis in 2019 was $ 80.9 million , a increase of $ 8.2 million or 11.3 % from the $ 72.7 million posted by the company in 2018 . total interest expense in 2019 was $ 26.2 million , an increase of $ 5.8 million or 28.6 % from the $ 20.3 million posted by the company in 2018 . tax-exempt interest income amounted to $ 8.6 million for the year ended december 31 , 2019 , $ 8.1 million for the year ended december 31 , 2018 and $ 7.3 million for the year ended december 31 , 2017 .
| executive summary this was the best annual performance in the first bancorp , inc. 's history , ending the decade with a sixth consecutive year of record earnings . the company 's 2019 performance was driven by earning asset growth , which led to increased net interest income , which was supplemented in 2019 by growth in non-interest income . total assets surpassed $ 2 billion for the first time , ending the year at $ 2.07 billion . net income for the year ended december 31 , 2019 was $ 25.5 million , up $ 2.0 million or 8.5 % from the $ 23.5 million posted for the year ended december 31 , 2018 . earnings per common share on a fully diluted basis were $ 2.34 for the year ended december 31 , 2019 , up $ 0.17 or 7.8 % from the $ 2.17 posted for the year ended december 31 , 2018 . net interest income on a tax-equivalent basis increased $ 2.4 million or 4.6 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , with growth in earning assets responsible for the increase . the company 's net interest margin was 2.89 % in 2019 , compared to 2.91 % in 2018 . non-interest income in 2019 was $ 14.2 million , an increase of $ 1.6 million or 12.6 % from the $ 12.6 million reported in 2018 . this growth was due to mortgage banking revenue , wealth management income as well as new revenue sources including loan swap fees . non-interest expense in 2019 was $ 35.2 million , an increase of $ 1.7 million or 5.1 % from the $ 33.5 million reported in 2018 , primarily due to increased employee expense incurred to support the company 's growth . the company benefited from fdic insurance premium credits which helped reduce the bank 's fdic premium expense .
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the impacts were primarily due to better than anticipated labor productivity and favorable resolution of customer and subcontractor change orders . at december 31 , 2020 , both projects were complete . changes in estimates for 2019 – for 2019 , significant changes in estimated margins on projects negatively impacted operating results for our shipyard division by $ 12.3 million and story_separator_special_tag the following “ management 's discussion and analysis of financial condition and results of operations ” is provided to assist readers in understanding our financial performance during the periods presented and significant trends that may impact our future performance . this discussion should be read in conjunction with our financial statements and the related notes thereto . certain terms are defined in the “ glossary of terms ” beginning on page ii . overview we are a leading fabricator of complex steel structures , modules and marine vessels , and a provider of project management , hookup , commissioning , repair , maintenance and civil construction services . our customers include u.s. and , to a lesser extent , international energy producers ; refining , petrochemical , lng , industrial , power , and marine operators ; epc companies ; and certain agencies of the u.s. government . during 2019 , we operated and managed our business through three operating divisions ( “ fabrication , ” “ shipyard ” and “ services ” ) and one non-operating division ( “ corporate ” ) , which represented our reportable segments . in the first quarter 2020 , our fabrication and services divisions were operationally combined to form an integrated new division called fabrication & services . as a result , we operate and manage our business through two operating divisions ( “ shipyard ” and “ fabrication & services ” ) and one non-operating division ( “ corporate ” ) , which represent our reportable segments . accordingly , the segment results ( including the effects of eliminations ) for our fabrication and services divisions for each of 2019 and 2018 were combined to conform to the presentation of our reportable segments for 2020. in addition to the division combination , in the first quarter 2020 , management and project execution responsibility for our two forty-vehicle ferry projects were transferred from our former fabrication division to our shipyard division . accordingly , results for these projects for 2019 ( the projects had no results for 2018 ) were reclassified from our former fabrication division to our shipyard division to conform to the presentation of these projects for 2020. see note 10 of our financial statements in item 8 for further discussion of our realigned operating divisions . our corporate headquarters is located in houston , texas , with operating facilities located in houma , louisiana . in the fourth quarter 2020 , we closed our jennings yard and lake charles yard within our shipyard division . see note 3 of our financial statements in item 8 and below for further discussion of our closure of the jennings yard and lake charles yard . since 2014 , the price of oil has been at depressed levels , resulting in a significant and sustained reduction in capital spending and drilling activities from our traditional offshore oil and gas customer base . consequently , our operating results and cash flows were negatively impacted as we experienced reductions in revenue , lower margins due to competitive pricing , significant under-utilization of our operating facilities and losses on certain projects . during the first quarter 2020 , oil prices declined even further to historical lows due to a decline in demand for oil resulting in part from an unprecedented global health crisis caused by covid-19 . on june 8 , 2020 , the national bureau of economic research indicated that the u.s. economy entered a recession in february 2020 , and the duration and severity of this recession , which is ongoing , remains unclear at this time . we operate in a critical infrastructure industry , as defined by the u.s. department of homeland security . consistent with federal guidelines and with state and local orders to date , we have continued to operate across our footprint . however , the progression of and global response to covid-19 , and related contraction in oil demand , combined with depressed and volatile crude oil prices have had and may continue to have negative impacts on our operations . the extent to which covid-19 and the related contraction in oil demand and the resulting reduction and volatility in crude oil prices may adversely impact our business , prospects , financial condition , operating results and cash flows depends on future developments that are highly uncertain and unpredictable . this current level of uncertainty means the ultimate business and financial impacts of covid-19 and the related contraction in oil demand and the depressed crude oil prices can not be reasonably estimated at this time . during 2020 , covid-19 significantly impacted our operations . specifically , as we have ramped up our workforce to support our longer duration projects , we have been impacted by physical distancing measures , higher employee absenteeism and turnover , as well as challenges recruiting and hiring craft labor , particularly within our shipyard division . further , certain deliverables from third-party engineering firms supporting our projects have been delayed and our suppliers and subcontractors are being impacted by covid-19 , resulting in schedule delays and higher cost estimates for subcontracted services and materials . the more significant impacts to our projects associated with covid-19 during 2020 are summarized below : towing , salvage and rescue ship projects – the cumulative effect of covid-19 related impacts has resulted in disruptions , inefficiencies and lower than anticipated productivity and progress on our five towing , salvage and rescue ship projects , which are expected to have compounding effects over the duration of the projects and result in extensions of schedules and the re-sequencing of construction activities on the projects . story_separator_special_tag pursuit of force majeure – we are providing appropriate notices to our customers and making the appropriate claims for extensions of schedule for our projects which have been impacted by covid-19 . loan agreement – in april 2020 , we entered into a loan agreement for proceeds of $ 10.0 million ( “ ppp loan ” ) pursuant to the paycheck protection program ( “ ppp ” ) under the coronavirus aid , relief , and economic security act ( “ cares act ” ) . the proceeds were used for payroll costs , rent and utilities , of which approximately 93 % was used for payroll costs . see “ liquidity and capital resources ” below and note 5 of our financial statements in item 8 for further discussion of the ppp loan . efforts to preserve and improve our liquidity – we continue to take actions to preserve and improve our liquidity , and at december 31 , 2020 , our cash and short-term investments totaled $ 51.2 million . to preserve our liquidity position , we have undertaken cost reduction initiatives ( including reducing the compensation of our directors and executive officers and reducing the size of our board ) , monetized under-utilized assets and facilities and are maintaining an ongoing focus on project cash flow management . during 2020 , we received proceeds of $ 1.7 million from the sale of assets held for sale , and at december 31 , 2020 , our assets held for sale totaled $ 8.2 million . further , as discussed above , we received the ppp loan in the second quarter 2020 , which provided funding necessary to offset the immediate and anticipated impacts of covid-19 . it also provided us important additional liquidity as a strong balance sheet is required to execute our backlog and compete for new project awards , and we experience significant monthly fluctuations in our working capital . efforts to improve our resource utilization and centralize our key project resources – we are improving our resource utilization and centralizing our key project resources through the rationalization and integration of our facilities and operations . closure of jennings yard and lake charles yard – during the fourth quarter 2020 , we closed our jennings yard and lake charles yard . the closures will consolidate our marine vessel construction and repair and maintenance activities in our houma yards , enabling us to maximize the utilization of our facilities and resources ( including reducing overhead costs ) , combine our management and supervision talent in a single location , and improve our project execution . see note 3 of our financial statements in item 8 for further discussion of our closure of the jennings yard and lake charles yard . combination of our fabrication division and services division and realignment of projects – as discussed above , in the first quarter 2020 , we combined our fabrication and services divisions to form an integrated new division called fabrication & services . the integration will enable us to capitalize on the best practices and execution experience of the former divisions , conform processes and procedures , maximize the utilization of our resources ( including reducing overhead costs ) and improve project execution . in addition , as discussed above , in the first quarter 2020 , management and project execution responsibility for our two forty-vehicle ferry projects was transferred from our former fabrication division to our shipyard division to better align the supervision and construction of these vessels with the capabilities and expertise of our shipyard division . efforts to improve our competitiveness and project execution – we have taken , and continue to take , actions to improve our competitiveness and project execution by enhancing our proposal , estimating and operations resources , processes and procedures . our actions include strategic changes in management and key personnel , the addition of functional expertise , project management training , development of a formal “ lessons learned ” program to incorporate experiences gained from previous projects into current and future projects , and other measures designed to strengthen our personnel , processes and procedures . further , we are taking a disciplined approach to pursuing and bidding project opportunities , putting more rigor around our bid estimates to provide greater confidence that our estimates are achievable , increasing accountability and providing incentives for the execution of projects in line with our original estimates and subsequent forecasts , and incorporating previous experience into the bidding and execution of future projects . efforts to reduce our reliance on the offshore oil and gas sector – we are pursuing several initiatives to reduce our reliance on the fabrication of structures and marine vessels associated with the offshore oil and gas sector . fabrication of onshore modules , piping systems and structures – we continue to focus our business development efforts on the fabrication of modules , piping systems and other structures for onshore refining , petrochemical , lng and industrial facilities . we have experienced success with several smaller project opportunities , and our volume of bidding activity for onshore modules , piping systems and structures is increasing ; however , our pursuit of large project opportunities has been impacted by the timing and delay of certain opportunities due in part to covid-19 , volatile oil prices and an ongoing competitive market environment . we also continue to believe that our strategic location in houma , louisiana and track record of quality and on-time completion of onshore modules position us well to compete in the onshore fabrication market . however , we do not expect large project opportunities to be awarded by customers until late 2021 or 2022. this timing may be impacted by ongoing uncertainty created by the volatility of oil prices and covid-19 . in the interim , we continue to strengthen our relationships with key customers and strategic partners and enhance our resources as discussed above .
| results of operations comparison of 2020 and 2019 ( in thousands , except for percentages ) : in the comparative tables below , percentage changes that are not considered meaningful are shown below as “ nm ” ( generally when the prior period amount is immaterial or when the percentage change is significantly greater than 100 % ) . consolidated replace_table_token_3_th new project awards – new project awards for 2020 and 2019 were $ 207.1 million and $ 384.1 million , respectively . significant new project awards for 2020 include : the exercise of options by the u.s. navy for a fourth and fifth towing , salvage and rescue ship in the first quarter 2020 within our shipyard division , additional scopes of work for our research vessel projects in the fourth quarter 2020 within our shipyard division , and a marine docking structures project and additional scopes of work for our offshore jacket and deck project in the second quarter 2020 within our fabrication & services division . significant new project awards for 2019 include : the exercise of options by the u.s. navy for a second and third towing , salvage and rescue ship in the second quarter 2019 within our shipyard division , the exercise of an option by oregon state university for a third research vessel in the second quarter 2019 within our shipyard division , a seventy-vehicle ferry in the third quarter 2019 within our shipyard division , an offshore jacket and deck project and subsea components project in the first quarter 2019 within our fabrication
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the company believes that story_separator_special_tag forward-looking statements the following discussion and analysis of the results of operations and financial condition for the years ended december 31 , 2017 and 2016 should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere in this annual report on form 10-k. 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 . see “ forward-looking statements ” at the beginning of this report . overview helix 's mission is to provide clients with the most powerful and cutting-edge integrated operating environments in the market , helping them to better manage and mitigate risk while they focus on their core business . we accomplish these goals through a unique combination of business , logistics , risk-management , and investment skills , delivered through a proprietary software suite and partnership platform . our team is composed of former military , law enforcement , and technology professionals with deep experience in security and law enforcement , intelligence , technology design and development , partner relations , data aggregation , venture capital , private equity , risk-management , banking , and finance – a combination that is truly unmatched in the legal cannabis industry . technology is a cornerstone of helix 's service offering . we offer clients the only true technology platform in the industry , allowing clients to manage inventory and supply costs through cannabase , as well as bespoke monitoring and transport solutions . we focus on utilizing technology as an operations multiplier , bringing in and managing unique partnerships across the tech spectrum to tailor and guarantee desired outcomes for our clients . within the cannabis industry , no other activity carries as much potential for unforeseen negative impact as a lapse in compliance operations . helix brings a broad range of compliance services to firms in the cannabis industry , safeguarding their ability to operate while increasing their access to services that offer them a competitive edge . as our flagship service offering , we offer simply the highest standard in security operations : transport , armed and unarmed guarding , training , investigation , and special services in the industry . from the training of our guard staff , to the sophistication and effectiveness of our literally , battle-tested protocols , to our responsiveness to client needs and suggestions , helix delivers integrated operating environments that are unmatched in the industry . we have greatly enhanced our core operations with the recent acquisition of security grade and plan of merger with biotrackthc . security grade is a market leader in the security profession and provides a broad range of services , from security consulting to installation of surveillance technology . consistent with our team of professionals , security grade employs specialists with extensive experience and exposure to all areas of security related services . biotrackthc specializes in providing cannabis software services , ranging from monitoring of plant inventory to point-of-sale solutions . these strategic acquisitions will help field the growing demand in the legal cannabis industry . results of operations for the years ended december 31 , 2017 and 2016 management believes that we will continue to incur losses for the immediate future . therefore , we may either need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities , if ever . these conditions raise substantial doubt about our ability to continue as a going concern . our consolidated financial statements do not include any adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern . for the year ended december 31 , 2017 , we have generated revenue and are trying to achieve positive cash flows from operations . 19 the following table shows our results of operations for the years ended december 31 , 2017 and 2016. the historical results presented below are not necessarily indicative of the results that may be expected for any future period . replace_table_token_3_th revenue total revenue for the year ended december 31 , 2017 was $ 4,029,800 , which represented an increase of $ 1,908,200 , or 89.9 % , compared to total revenue of $ 2,121,600 for the year ended december 31 , 2016. the increase primarily resulted from a substantial increase in the number of clients serviced by helix , the introduction of retail transportation services , and additional revenue resulting from the security grade acquisition . 20 cost of revenue cost of revenue for the years ended december 31 , 2017 and 2016 primarily consisted of hourly compensation for security personal . cost of revenue increased by $ 1,041,868 , or 56.8 % , for the year ended december 31 , 2017 , to $ 2,877,024 , as compared to $ 1,835,156 for the year ended december 31 , 2016. the increase primarily resulted from a substantial increase in the number of clients serviced by helix , which required the hiring of additional employees . operating expenses our operating expenses encompass selling , general and administrative expenses , salaries and wages , professional and legal fees and depreciation . selling , general and administrative expenses consist primarily of rent/moving expenses , advertising and travel expenses . salaries and wages is composed of non-revenue generating employees . professional services are principally comprised of outside legal , audit , information technology consulting , marketing and outsourcing services as well as the costs related to being a publicly traded company . our operating expenses during the year ended december 31 , 2017 and 2016 were $ 4,376,773 and $ 2,869,122 , respectively . story_separator_special_tag story_separator_special_tag guidance for business combinations , the company determines whether a transaction or other event is a business combination , which requires that the assets acquired and liabilities assumed constitute a business . each business combination is then accounted for by applying the acquisition method . if the assets acquired are not a business , the company accounts for the transaction or other event as an asset acquisition . under both methods , the company recognizes the identifiable assets acquired , the liabilities assumed , and any noncontrolling interest in the acquired entity . in addition , for transactions that are business combinations , the company evaluates the existence of goodwill or a gain from a bargain purchase . the company capitalizes acquisition-related costs and fees associated with asset acquisitions and immediately expense acquisition-related costs and fees associated with business combinations . revenue recognition the company recognizes revenue when : ( 1 ) persuasive evidence of an arrangement exists , ( 2 ) the services have been rendered to the customer , ( 3 ) the sales price is fixed or determinable and , ( 4 ) collectability is reasonably assured . the company 's revenues are principally derived from providing security services to its clientele . the security services revenue is generated from performing armed and unarmed guarding which is contracted for on an hourly basis . revenues associated with these contracted services are recognized under time-based arrangements as services are provided . additionally , the company provides transportation security services , which are generally contracted for on a per run basis and sometimes additional fees and surcharges are also billed to the client depending on the length of the run . revenues associated with these services are recognized as the transportation service is provided . the company generates advertising revenues from consumer advertising on its cannabase platform . revenue is recognized over the contract period associated with each specific advertising campaign . income taxes the company accounts for income taxes under the asset and liability method , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements . under this method , deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . the company has incurred net operating loss for financial-reporting and tax-reporting purposes . accordingly , for federal and state income tax purposes , the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset for the years ended december 31 , 2017 and 2016. distinguishing liabilities from equity the company relies on the guidance provided by asc topic 480 , distinguishing liabilities from equity , to classify certain redeemable and or convertible instruments . the company first determines whether a financial instrument should be classified as a liability . the company will determine the liability classification if the financial instrument is mandatorily redeemable , or if the financial instrument , other than outstanding shares , embodies a conditional obligation that the company must or may settle by issuing a variable number of its equity shares . once the company determines that a financial instrument should not be classified as a liability , the company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet ( “ temporary equity ” ) . the company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the company ( i.e . at the option of the holder ) . otherwise , the company accounts for the financial instrument as permanent equity . 25 initial measurement the company records its financial instruments classified as liability , temporary equity or permanent equity at issuance at the fair value , or cash received . subsequent measurement - financial instruments classified as liabilities the company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date . the changes in fair value of its financial instruments classified as liabilities are recorded as other expense/income . share-based compensation in accordance with asc 718 , compensation – stock based compensation , and asc 505 , equity based payments to non-employees , the company accounts for share-based payment using the fair value method . common shares issued to third parties for non-cash consideration are valued based on the fair market value of the services provided or the fair market value of the common stock on the measurement date , whichever is readily determinable . recently issued accounting pronouncements in may 2014 , the fasb issued asu 2014-09 , “ revenue from contracts with customers ” ( “ asu 2014-09 ” ) . the objective of asu 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance , including industry specific guidance . the core principle of asu 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . in applying the new guidance , an entity will : ( 1 ) identify the contract ( s ) with a customer; ( 2 ) identify the performance obligations in the contract; ( 3 ) determine the transaction price; ( 4 ) allocate the transaction price to the contract 's performance obligations; and ( 5 ) recognize revenue when ( or as ) the entity satisfies a performance obligation .
| summary of cash flows replace_table_token_5_th net cash used in operating activities . net cash used in operating activities for the year ended december 31 , 2017 was $ 1,681,513. this included a net loss of $ 10,595,313 , non-cash charge related to depreciation and amortization of $ 479,014 , non-cash loss of $ 1,201,004 regarding the change in fair value of convertible notes , non-cash gain of $ 31,068 regarding the fair value of convertible notes – related party , non-cash loss on beneficial conversion feature of $ 390,666 , non-cash loss on extinguishment of debt of $ 4,611,395 , non-cash loss on induced conversion of convertible note of $ 1,503,876 , non-cash loss on the change in fair value of warrants to be issued of $ 590,436 and changes in accounts receivable , deposits , accounts payable , accrued expenses , costs in excess of billings , billings in excess of costs and deferred rent of $ 86,056. net cash used in operating activities for the year ended december 31 , 2016 was $ 1,338,125. this included a net loss of $ 7,259,766 , non-cash charge related to depreciation and amortization of $ 60,489 , bad debt expense of $ 31,767 , non-cash loss of $ 124,574 in regards to the fair value of convertible notes , non-cash loss of $ 2,830,143 in regards to the induced conversion of convertible notes , non-cash loss on impairment of intangibles of $ 1,278,323 , non-cash loss on fair value of liability of shares to be issued of $ 415,366 , non-cash loss on non-employee stock compensation expense of $ 1,446,536 and changes in accounts receivable , prepaid expenses , deposits , accounts payable and accrued expenses of $ 265,557 . 23 net cash used in investing activities .
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specific events in some of the smaller countries in which the company has warehouse clubs , such as increases in value-added taxes , reduced economic activity , currency devaluations and other factors , are contributing to a more challenging retail environment in those markets , adversely impacting sales growth . the company does not currently face direct competition from u.s. branded membership warehouse club operators . however , it does face competition from various retail formats such as hypermarkets , supermarkets , cash and carry , home improvement centers , electronic retailers and specialty stores , including those within central america that are owned and operated by a large u.s. based retailer . the company has competed effectively in these markets in the past and expects to continue to do so in the future due to the unique nature of the membership warehouse club format . the company has noted that certain retailers are making investments in upgrading their stores and adding new locations within the company 's markets resulting in increased competition . for example , cost-u-less , a cash and carry , low price operator with which the company competes in st. thomas , recently opened a location in barbados . further , it is possible that u.s. warehouse club operators may decide to enter the company 's markets and compete more directly with pricesmart in a similar warehouse club format . many pricesmart markets are susceptible to foreign currency exchange rate volatility . currency exchange rate changes either increase or decrease the cost to the company 's subsidiaries of imported products purchased in u.s. dollars and priced in local currency . approximately 52 % of the company 's net warehouse sales are comprised of products purchased in u.s. dollars and imported into the markets where pricesmart warehouse clubs are located , but approximately 79 % of the company 's net warehouse sales are in foreign currencies . currency exchange rate fluctuations affect affect the company 's consolidated sales as local currency denominated sales are translated to u.s. dollars . also , as a result of local currency fluctuations , the company revalues all u.s. dollar-denominated monetary assets and liabilities within the company 's markets that do not use the u.s. dollar as their functional currency . these monetary assets and liabilities include , but are not limited to , excess cash permanently reinvested offshore , u.s. dollar-denominated long-term debt used to finance land acquisition and the construction of warehouse clubs , and u.s. dollar-denominated accounts payable related to the purchase of merchandise . the company seeks to manage its foreign exchange risk by ( 1 ) adjusting selling prices from time to time ; ( 2 ) obtaining local currency loans from banks within certain markets where it is economical to do so and where management believes the risk of devaluation and the level of u.s. dollar denominated liabilities warrants this action ; ( 3 ) reducing the time between the acquisition of product in u.s. dollars and the settlement of that purchase in local currency ; and ( 4 ) by entering into cross-currency interest rate swaps and forward currency derivatives . the company has local currency-denominated long-term loans in honduras and guatemala ; has cross-currency interest rate swaps and forward currency derivatives in colombia and has forward currency derivatives in costa rica . turbulence in the currency markets can have a significant impact on the value of the foreign currencies within the countries in which the company operates . for example , in the first quarter of fiscal year 2012 , concerns related to european sovereign debt contributed to a 9.3 % devaluation of the colombian peso against the u.s. dollar , resulting in the company 's colombian subsidiary recording approximately $ 1.5 million in currency losses upon the translation of u.s. dollar denominated liabilities . future volatility and uncertainties regarding the currencies in the company 's countries could have a material impact on the company 's operations in future periods . however , there is no way to accurately forecast how currencies may trade in the future and , as a result , the company can not accurately project the impact of the change in rates on the company 's future demand for imported products , reported sales , or financial results . 6 business strategy the company 's business strategy is to offer for sale to businesses and families a limited number of stock keeping units ( sku 's ) covering a wide range of products at the lowest possible prices . the company charges an annual membership fee to its customers . these fees combined with warehouse and distribution operating efficiencies and volume purchasing enable pricesmart to operate its business on lower merchandise margins than conventional retail stores . the combination of annual membership fees , operating efficiencies and low margins enable pricesmart to offer its members high quality merchandise at very competitive prices which , in turn , enhances the value of the pricesmart membership . current and future management actions generally , the company 's operating efficiencies , earnings and cash flow from operations improve as sales increase . higher sales provide greater purchasing power and often result in lower product prices from the company 's suppliers . further , increased sales permit the company to leverage its selling , general and administrative expenses . sales growth in our existing locations ( comparable warehouse club sales ) creates the highest degree of expense leverage . therefore , the company prioritizes initiatives that it expects will have the greatest impact on increasing sales , particularly within our existing locations . looking forward to the next several quarters , the following items are likely to have an impact on the company 's business and the results of operations . the company seeks to increase sales by attracting new members and growing sales with existing members in its warehouse clubs and by adding new pricesmart warehouse clubs . during fiscal 2013 , the company opened its second and third clubs in colombia . story_separator_special_tag membership income for fiscal year 2013 was $ 33.8 million , an increase of 25.5 % compared to fiscal year 2012. the number of membership accounts at year end was 1,095,513. gross profits ( net warehouse sales less associated cost of goods sold ) increased 11.3 % . gross profits as a percent of net warehouse sales were 14.8 % for the full year , a decrease of 10 basis points ( 0.10 % ) from fiscal year 2012. selling , general and administrative expenses , including pre-opening expenses , improved 24 basis points as a percent of sales ( 0.24 % ) . operating income for fiscal year 2013 was $ 127.9 million , an increase of 18.5 % from the prior year . foreign exchange transactions resulted in a net loss of $ 954,000 for the fiscal year 2013 compared to a net loss in fiscal year 2012 of $ 525,000. net income for fiscal year 2013 was $ 84.3 million , or $ 2.78 per diluted share , compared to $ 67.6 million , or $ 2.24 per diluted share , in the prior year . 8 comparison of fiscal year 2013 to 2012 and fiscal year 2012 to 2011 the following discussion and analysis compares the results of operations for each of the three fiscal years ended august 31 , 2013 , 2012 and 2011 and should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report . certain percentages presented are calculated using actual results prior to rounding . the company 's fiscal year ends on august 31. unless otherwise noted , all tables present dollar amounts in thousands . net warehouse club sales replace_table_token_9_th ( 1 ) the company has made reclassifications to the consolidated statements of income for fiscal years reported prior to 2013 to conform to the presentation in fiscal year 2013 ; see `` selected financial data '' for further detail . comparison of 2013 to 2012 net warehouse club sales grew 12.0 % in fiscal year 2013 compared to fiscal year 2012 with the company recording positive sales growth in all countries . colombia , in particular , experienced strong sales growth with the addition of two warehouse clubs in fiscal year 2013 ( north and south cali , colombia ) . overall sales growth was predominantly driven by transaction growth of 8.8 % . the average value of each transaction grew 2.9 % . comparison of 2012 to 2011 net warehouse club sales grew 19.4 % in fiscal year 2012 compared to fiscal year 2011. the sales growth in the year reflected sales from one additional warehouse club in fiscal year 2012 ( barranquilla , colombia ) compared to fiscal year 2011. overall sales growth was predominantly driven by transaction growth of 17.7 % . the average value of each transaction grew 1.4 % . comparable sales the company reports comparable warehouse club sales on a “ same week ” basis with 13 weeks in each quarter beginning on a monday and ending on a sunday . the periods are established at the beginning of the fiscal year to provide as close a match as possible to the calendar month and quarter that is used for financial reporting purposes . this approach equalizes the number of weekend days and weekdays in each period for improved sales comparison , as the company experiences higher warehouse club sales on the weekends . further , each of the warehouse clubs used in the calculations was open for at least 13 1/2 calendar months before its results for the current period were compared with its results for the prior period . for example , the sales related to the warehouse club opened in cali , colombia ( `` canas gordas '' ) on october 19 , 2012 will not be used in the calculation of comparable warehouse club sales until january 2014. in addition , sales related to the warehouse club opened in cali , colombia ( `` menga '' ) on may 3 , 2013 will not be used in the calculation of comparable warehouse club sales until july 2014. comparison of 2013 to 2012 comparable warehouse club sales for the 52-week period ended september 1 , 2013 increased 9.0 % compared to the same 52-week period last year . comparison of 2012 to 2011 comparable warehouse club sales for the 52-week period ended september 2 , 2012 increased 14.5 % compared to the same 52-week period last year . 9 net warehouse club sales by segments the following tables indicate the net warehouse club sales and the percentage growth in net warehouse club sales during fiscal years 2013 , 2012 and 2011 in the segments in which the company operates . the first warehouse club in colombia opened on august 19 , 2011. during fiscal 2013 , the company opened its second and third clubs in colombia . these clubs are in south and north cali and opened in october 2012 and may 2013 , respectively . replace_table_token_10_th ( 1 ) the company has made reclassifications to the consolidated statements of income for fiscal years reported prior to 2013 to conform to the presentation in fiscal year 2013 ; see `` selected financial data '' for further detail . replace_table_token_11_th comparison of 2013 to 2012 the higher net warehouse club sales growth in latin america compared to the caribbean reflects the sales associated with two additional warehouse clubs in this segment in fiscal year 2013 compared to fiscal year 2012 ( north and south cali , colombia ) and improved economic conditions in those larger and more diversified markets , particularly panama and costa rica . within the caribbean segment , the company saw small positive growth in the single club island markets , with stronger growth in trinidad .
| financial condition and results of operations this annual report on form 10-k contains forward-looking statements concerning the company 's anticipated future revenues and earnings , adequacy of future cash flow , proposed warehouse club openings , the company 's performance relative to competitors and related matters . these forward-looking statements include , but are not limited to , statements containing the words “ expect , ” “ believe , ” “ will , ” “ may , ” “ should , ” “ project , ” “ estimate , ” “ anticipated , ” “ scheduled , ” and like expressions , and the negative thereof . these statements are subject to risks and uncertainties that could cause actual results to differ materially , including the following risks : the company 's financial performance is dependent on international operations , which exposes the company to various risks ; any failure by the company to manage its widely dispersed operations could adversely affect its business ; the company faces significant competition ; future sales growth depends , in part , on the company 's ability to successfully open new warehouse clubs ; the company might not identify in a timely manner or effectively respond to changes in consumer trends and changes in consumer preferences for merchandise and shopping modalities , which could adversely affect its relationship with members , demand for its products and market share ; the company faces difficulties in the shipment of , and risks inherent in the importation of , merchandise to its warehouse clubs ; the company is exposed to weather and other natural disaster risks ; general economic conditions could adversely impact the company 's business in various respects ; the company is subject to changes in relationships and agreements with third parties with which the company does business and or from which the company acquires merchandise ; the company relies extensively on computer systems to process transactions , summarize results and manage its business .
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forward-looking statements in this annual report on form 10-k include , without limitation : ( 1 ) projections of revenue , earnings , capital structure and other financial items , ( 2 ) statements of our plans and objectives , ( 3 ) statements regarding the capabilities and capacities of our business operations , ( 4 ) statements of expected future economic performance and ( 5 ) assumptions underlying statements regarding us or our business . it is important to note that our actual results could differ materially from those included in such forward-looking statements due to a variety of factors including : ( 1 ) the cyclical nature of the markets we operate in ; ( 2 ) increases in interest rates ; ( 3 ) government spending ; ( 4 ) the performance of our competitors ; ( 5 ) shortages in supplies and raw materials ; ( 6 ) our ability to meet financial covenants required by our debt agreements ; ( 7 ) product liability claims , intellectual property claims , and other liabilities ; ( 8 ) difficulties in implementing new systems , integrating acquired businesses , managing anticipated growth , and responding to technological change ; ( 9 ) the volatility of our stock price ; ( 10 ) future sales of our common stock ; ( 11 ) the willingness of our stockholders and directors to approve mergers , acquisitions , and other business transactions ; ( 12 ) currency transactions ( foreign exchange ) risks and the risk related to forward currency contracts ; and ( 13 ) other risks described in the section entitled risk factors and elsewhere in our annual report on form 10-k. the risks described in our annual report on form 10-k are not the only risks facing our company . additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business , financial condition or operating results . we do not undertake , and expressly disclaim , any obligation to update this forward-looking information , except as required under applicable law . overview historically , the company designed , developed , and built specialty testing and assembly equipment for the automotive and heavy equipment industries that identifies defects through the use of signature analysis and in-process verification . in fiscal 2006 , the company completed two acquisitions that introduced lifting equipment into the company operations as a second segment of activity . effective july 3 , 2006 , the company 22 completed the purchase of manitex , inc. ( manitex ) via an acquisition of all of the membership interests in quantum value management , llc ( an entity owned by certain stockholders ) . a leading provider of engineered lift solutions in north america , manitex is based in georgetown , texas . manitex designs , manufactures , and markets a comprehensive line of boom trucks , sign cranes and trolley boom unloaders . manitex 's boom trucks and crane products are primarily used for industrial projects , energy exploration , and infrastructure development including : roads , bridges and commercial construction . on november 30 , 2006 , the company , through its wholly owned subsidiary , manitex liftking , ulc. , an alberta unlimited liability corporation ( manitex liftking ) completed the acquisition ( the liftking acquisition ) of all of the operating assets of liftking industries , inc. an ontario , canada corporation ( liftking ) . manitex liftking is headquartered in woodbridge ( toronto ) , ontario and manufactures a complete line of rough terrain forklifts and special mission oriented vehicles , as well as other specialized carriers , heavy material handling transporters , and steel mill equipment on july 31 , 2007 , the company further expanded its lifting equipment segment by purchasing of the noble forklift product line . the noble product line is comprised of four rough terrain forklifts in several configurations , and are being produced in the company 's existing facilities located in georgetown , texas and woodbridge , ontario . although the revenues for the noble product were not significant in 2007 , the company believes that the acquisition will allow the company to increase its market penetration in the future . against the background of the operating losses generated in recent history by the testing & assembly equipment segment operations based at wixom , michigan , the company conducted a strategic review of these operations . in connection with the preparation of our 2006 year-end financial statements , the board determined that certain assets used in connection with our testing & assembly equipment segment were impaired . accordingly , we recorded an impairment charge of $ 6.6 million . on march 29 , 2007 , our board of directors approved a plan to sell our testing & assembly equipment segment 's operating assets including its inventory , machinery , equipments and patents . as a result , our testing & assembly equipment segment has been accounted for as a discontinued operation starting with the first quarter of 2007 until its disposition . on july 5 , 2007 the company entered into an asset purchase agreement with euromaint industry , inc. , a delaware corporation ( euromaint ) . under the terms of the asset purchase agreement , the company agreed to sell and euromaint agreed to purchase certain assets of the company used in connection with the company 's diesel engine testing equipment business . euromaint also assumed and agreed to pay , perform and discharge when due certain obligations of the company arising in connection with the operation of the company 's diesel engine testing equipment business . in addition to the assumption of those certain assumed liabilities , euromaint agreed to pay to the company the aggregate purchase price of $ 1.1 million . this transaction was completed on august 1 , 2007. as of august 31 , 2007 , all operations of the company 's testing and assembly equipment segment operations had ceased . the testing and assembly equipment segment operated from a leased facility . story_separator_special_tag gross margin for 2006 was $ 5.8 million or 14.2 % of sales . the company had no revenues from continuing operations in 2005 and therefore reported no gross profit . gross margin for manitex and manitex liftking are included from the date of acquisition july 3 , 2006 and november 30 , 2006 , respectively . research and development expenses . research and development was $ 0.2 million for the twelve months ended december 31 , 2006. there were no research and development expenditure for 2005 as the company had no continuing operations for 2005. research and development expenses for manitex and manitex liftking are included from the date of acquisition july 3 , 2006 and november 30 , 2006 , respectively . selling , general and administrative expense . selling , general and administrative expense for year ended december 31 , 2006 was $ 4.4 million compared to $ 0.6 million for the comparable period in 2005. selling , general and administrative expense for 2006 are comprised of corporate expense of $ 1.4 million and $ 3.0 million related to operating companies . selling , general and administrative expense for 2005 of $ 0.6 million is comprised entirely of corporate expense as the company had no continuing operations in 2005. selling , general and administrative expenses for manitex and manitex liftking are included from the date of acquisition july 3 , 2006 and november 30 , 2006 , respectively . as stated above , selling , general and administrative expense for 2006 has two components , i.e . corporate expenses and those expenses related to operations . as the company had no continuing operations in 2005 , 27 selling , general and administrative expense for 2005 only had one component , corporate expense . therefore , our discussion , concerning the change in selling , general and administrative expense will only encompass the corporate expense component . corporate expenses increased $ 0.8 million to $ 1.4 million for 2006 from the $ 0.6 million 2005. the increase in corporate expenses reflects the recruitment of key experienced management to build an organizational structure to continue to drive the company 's strategy and growth objectives including activity to integrate the management , systems , controls , and operations of the two acquisitions made in 2006. operating income ( loss ) . the company had operating income of $ 1.2 million in 2006 and an operating loss of $ ( 0.6 ) million in 2005. the company had an operating loss in 2005 because it had no revenues from continuing operations in 2005 to offset corporate expenses . the company had operating income for 2006 as it includes results for manitex and manitex liftking from the date of acquisition july 3 , 2006 and november 30 , 2006 , respectively other income ( expense ) . other income ( expense ) for the year ended december 31 , 2006 was an expense of $ ( 1.9 ) million which is principally interest on debt that the company assumed or issued in connection with the manitex acquisition . for the twelve months ended december 31 , 2005 , the company had other income of $ 0.2 million . income tax expense ( benefit ) . the company 's income tax benefit was $ 0.2 million for the year period ended december 31 , 2006 as compared to a benefit of $ 0.1 million in the 2005 period . the increase in the tax benefit is primarily result of incurring a larger loss from continuing operations in 2006. net loss from continuing operations . as a result of the foregoing factors , the net loss from continuing operations was $ ( 0.5 ) million for the year ended december 31 , 2006 as compared to loss of $ ( 0.3 ) million for the same period in 2005. discontinued operations the loss from discontinued operations for 2006 was $ 8.3 , which is net of $ 1.1 million tax benefit . the loss from discontinued operations for 2005 was $ 2.0 million , which is net of $ 0.9 million tax benefit . the increase in the loss from discontinued operations in 2006 is principally related to recording an impairment charge of $ 6.6 million and not recording a full tax benefit against the 2006 loss . in 2006 , the company determined that the carrying values of some of the underlying assets of the former testing and assembly equipment segment exceeded their fair values . consequently , the company recorded an impairment loss of $ 6.6 million , which represents the excess of the carrying values of the assets over their fair values , less cost to sell . ( see note 5 to the consolidated financial statements ) the company did not record a full tax benefit against the loss from discontinued operations in 2006 as the company was in a cumulative loss position at december 31 , 2006 and could not conclude that it was more likely than not that the additional deferred tax asset related to 2006 net operating loss ( nol ) would be fully utilized and therefore a valuation allowance was recorded in 2006. a valuation allowance of $ 2.1 million was established , which represents the amount that total deferred tax assets exceed total deferred tax liabilities . the nol created in 2006 , however , remains available and can be used to offset taxable income through at least 2023. net loss the above , explains the company 's net loss of $ 8.9 million and $ 2.3 million for the years end december 31 , 2006 and 2005 , respectively . 28 liquidity and capital resources cash and cash equivalents were $ 0.6 million at december 31 , 2007 and december 31 , 2006. as of december 31 , 2007 , the company had approximately $ 4.8 million available to borrow under its merged credit facility .
| results of continuing operations for the year ended december 31 , 2007 , net income from continuing operations was $ 2.1 million , which consists of revenue of $ 106.9 million , cost of sales of $ 87.0 million , research and development costs of $ 0.8 million , sg & a costs excluding corporate expenses of $ 9.0 million , corporate sg & a expenses of $ 3.8 million , net interest expense of $ 3.4 million and other expense and foreign currency transactions expense of $ 0.6 million and income taxes of $ 0.2 million . for the year ended december 31 , 2006 , net loss from continuing operations was $ ( 0.5 ) million , which consists of revenue of $ 40.7 million , cost of sales of $ 34.9 million , research and development costs of $ 0.2 million , sg & a costs excluding corporate expenses of $ 3.0 million , corporate sg & a expenses of $ 1.4 million , net interest expense of $ 1.9 million and income tax benefit of $ ( 0.2 ) million . net revenue and gross profit for the year ended december 31 , 2007 , net revenue and gross profit were $ 106.9 million and $ 19.9 million , respectively . gross profit as a percent of sales was 18.6 % for the year ended december 31 , 2007. for the year ended december 31 , 2006 net revenue and gross profit were $ 40.7 million and $ 5.8 million , respectively .
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estimated future amortizing expense for amortizing intangibles within the years ending december 31 , are as follows : replace_table_token_33_th 62 note 8 : premises and equipment premises and equipment include the following at : replace_table_token_34_th the company occupies banking , land and office space in nine locations , seven of which are under noncancellable lease arrangements accounted for as operating leases . the initial lease periods range from 10 to 20 years and provide for one or more story_separator_special_tag this section is intended to help potential investors understand our financial performance through a discussion of the factors affecting our consolidated financial condition at december 31 , 2013 , 2012 and 2011. this section should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements that appear elsewhere in this report . overview howard bancorp , inc. is the holding company for howard bank . howard bank is a trust company chartered under subtitle 2 of title 3 of the financial institutions article of the annotated code of maryland . the bank was formed in march 2004 and commenced banking operations on august 9 , 2004. howard bank does not exercise trust powers , and our regulatory structure is the same as a maryland-chartered commercial bank . as such , our business has consisted primarily of originating both commercial and real estate loans secured by property in our market area . typically , commercial real estate and business loans involve a higher degree of risk and carry a higher yield than one-to four-family residential loans . although we plan to continue to focus on commercial customers , we intend to increase our originations of one- to four-family residential mortgage loans going forward , increasing our portfolio of mortgage lending and also selling select loans into the secondary markets . we are headquartered in ellicott city , maryland and we consider our primary market area to be the greater baltimore metropolitan area . we engage in a general commercial banking business , making various types of loans and accepting deposits . we market our financial services to small to medium sized businesses and their owners , professionals and executives , and high-net-worth individuals . our loans are primarily funded by core deposits of customers in our market . our core business strategy is to deliver superior customer service that is supported by an extremely high level of banking sophistication . our specialized community banking focus on both local markets and small business related market segments is combined with a broad array of products , new technology and seasoned banking professionals which positions the bank differently than most competitors . our experienced executives establish a relationship with each client and bring value to all phases of a client 's business and personal banking needs . we call it hands-on service . our results of operations depend mainly on our net interest income , which is the difference between the interest income we earn on our loan and investment portfolios and the interest expense we pay on deposits and borrowings . results of operations are also affected by provisions for credit losses , noninterest income and noninterest expense . our noninterest expense consists primarily of compensation and employee benefits , as well as office occupancy , deposit insurance and general administrative and data processing expenses . our operations are significantly affected by general economic and competitive conditions , particularly with respect to changes in interest rates , government policies and actions of regulatory authorities . future changes in applicable law , regulations or government policies may materially affect our financial condition and results of operations . as noted above , in august 2013 , howard bank purchased from cecil bank its branch located at 3 west bel air avenue , aberdeen , maryland . pursuant to the transaction , howard bank acquired $ 37.1 million in loans and $ 35.2 million in deposits from cecil bank , as well as the branch premises and equipment at their book value . in connection with its purchase of the branch from cecil bank , howard bank made a net cash payment to cecil bank of $ 3.2 million , including a premium of approximately $ 240,000. this transaction was recorded as an asset acquisition . for the year ended december 31 , 2013 , we reported net income of $ 1.96 million compared to net income of $ 1.62 million in 2012 , an increase of $ 341 thousand or 21 % . driven by continued balance sheet growth , net interest income increased to $ 15.8 million in 2013 , which represented an increase of $ 2.3 million or 17 % compared to 2012. partially offsetting the increase in net interest income , the provision for loan losses in 2013 of $ 950 thousand was $ 232 thousand or 32 % higher than the 2012 provision of $ 718 thousand . noninterest income also increased , to $ 1.3 million during 2013 compared to $ 768 thousand for 2012 , representing an increase of $ 556 thousand or 73 % . the largest contributor to the increased noninterest revenues was the initiation of a bank owned life insurance ( boli ) program in january 2013 , which generated $ 282 thousand of income during 2013. in addition to the boli income , year over year service charges on deposits and mortgage banking gains increased by 20 % and 76 % , respectively , during 2013. total noninterest expenses for 2013 of $ 13.2 million increased by $ 2.4 million or 22 % over total noninterest expenses of $ 10.8 million in 2012. compensation expenses , which accounted for more than half of the total increase in expenses , grew by $ 1.3 million or 22 % during 2013 compared to 2012 due to increases in staffing as we continue to open new branch and regional office locations , and also commenced the building and staffing of our new mortgage division . story_separator_special_tag to the extent that actual outcomes differ from management 's estimates , additional provisions to the allowance for credit losses may be required that would adversely impact earnings in future periods . income taxes we account for income taxes under the asset/liability method . we recognize deferred tax assets for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases , as well as operating loss and tax credit carry-forwards . we measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . we recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period indicated by the enactment date . we establish a valuation allowance for deferred tax assets when , in the judgment of management , it is more likely than not that such deferred tax assets will not become realizable . the judgment about the level of future taxable income is dependent to a great extent on matters that may , at least in part , be beyond our control . it is at least reasonably possible that management 's judgment about the need for a valuation allowance for deferred tax assets could change in the near term . 27 share based compensation we follow the provisions of asc topic 718 `` compensation – stock compensation '' which requires the expense recognition over the respective service period for the fair value of share based compensation awards , such as stock options , restricted stock , and performance based shares . this standard allows management to establish modeling assumptions as to expected stock price volatility , option terms , forfeiture rates and dividend rates which directly impact estimated fair value . the accounting standard also allows for the use of alternative option pricing models which may impact fair value as determined . our practice is to utilize reasonable and supportable assumptions which are reviewed with the appropriate board committee . balance sheet analysis and comparison of financial condition a comparison between december 31 , 2013 and december 31 , 2012 balance sheets are presented below . assets total assets increased $ 98.2 million , or 24.5 % , to $ 499.9 million at december 31 , 2013 compared to $ 401.7 million at december 31 , 2012. this increase in assets was primarily due to an $ 81.7 million , or 25.3 % , increase in loans , to $ 403.9 million at december 31 , 2013 from $ 322.2 million at december 31 , 2012. in addition to the $ 37.1 million in loans purchased in the aberdeen branch acquisition , the bank had organic growth of $ 44.6 million or 13.8 % in loans during 2013. in addition , the company purchased $ 11.0 million in boli during 2013 as it implemented its boli program . the growth in assets was funded primarily from increases in customer deposits , which increased from $ 314.9 million at december 31 , 2012 to $ 388.9 million at december 31 , 2013 , an increase of $ 74.1 million or 23.5 % . this deposit growth included approximately $ 35.2 million in additional deposits acquired in the aberdeen branch acquisition . supplementing the deposit growth , additional funding was provided by an increase in both short term and long term borrowings during 2013. total borrowed funds increased by $ 22.7 million or 58.2 % during 2013 , primarily due to the lower interest rates on these sources of funds , which made it more efficient to use borrowings to fund asset growth as opposed to deposits . in addition , our total capital levels increased $ 1.9 million or 24.5 % year over year , due primarily to annual earnings . securities available for sale we currently hold both u.s. agency securities and mortgage backed securities in our securities portfolio , all of which are considered as available for sale . we use our securities portfolio to provide the required collateral for funding via commercial customer repurchase agreements as well as to provide sufficient liquidity to fund our loans and provide funds for withdrawals of deposited funds . at december 31 , 2013 and december 31 , 2012 we held an investment in stock of the federal home loan bank of atlanta ( “ fhlb ” ) of $ 2.3 million and $ 1.5 million , respectively . this investment , which is required for continued membership , is based partially upon the dollar amount of borrowings outstanding from the fhlb . these investments are carried at cost . we have never held stock in fannie mae or freddie mac . the following tables set forth the composition of our investment securities portfolio at the dates indicated . replace_table_token_3_th we had securities available for sale of $ 28.7 million and $ 26.9 million at december 31 , 2013 and december 31 , 2012 , respectively , which were recorded at fair value . this represents a slight increase of $ 1.8 million , or 6.7 % , for the year ended december , 2013 from the prior year end . we did not record any gains or losses on the sales or calls of agency securities or mortgage backed securities in either of the years ended december 31 , 2013 or 2012. with respect to our portfolio of securities available for sale , the portfolio contained eight securities with an unrealized loss of $ 1,975 dollars and one security with unrealized losses of $ 52 dollars at december 31 , 2013 and 2012 , respectively . changes in the fair value of these securities resulted primarily from interest rate fluctuations . we do not intend to sell these securities nor is it more likely than not that we would be required to sell these securities before their anticipated recovery , and we believe the collection of the investment and related interest is probable .
| comparison of results of operations a comparison between the years ended december 31 , 2013 and december 31 , 2012 is presented below . general net income available to common shareholders increased $ 791 thousand , or 78.7 % , to $ 1.8 million for the year ended december 31 , 2013 compared to net income of $ 1.0 million for the year ended december 31 , 2012. the increase in net income available to common shareholders was primarily due to an increase in net interest income , which continued to benefit from asset growth and an overall decrease in the cost of funding , and an increase in noninterest income , partially offset by an increase in provision for credit losses and noninterest expenses . additionally , the dividends paid on preferred stock decreased by $ 451 thousand for 2013 compared to 2012 , due to a reduction in the dividend rate . interest income interest income increased $ 2.2 million , or 14.0 % , to $ 17.7 million for the year ended december 31 , 2013 compared to $ 15.5 million during the year ended december 31 , 2012. the increase was due to a $ 2.2 million , or 14.3 % , increase in interest income on loans . interest income earned on investment securities and income derived from federal funds sold relatively unchanged , decreasing $ 25 thousand for 2013 versus 2012. the increase in interest income on loans was due to a $ 70.6 million increase in average loans outstanding for 2013 versus 2012. partially offsetting the additional revenue from the higher levels of loan balances was an overall decrease in the yield earned on the loan portfolio , as the average yield was 4.90 % for 2013 compared to 5.34 % during 2012 . 33 interest expense interest expense slightly decreased $ 104 thousand , or 5.2 % , to $ 1.9 million during the year ended december 31 , 2013 from $ 2.0
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subsequent to december 31 , 2013 , ( a ) 10,533 shares of the company 's series a preferred stock were converted into 10,533 shares of our common stock on a one -for-one basis ; ( b ) an option holder exercised options to purchase 6,250 shares of the company 's common stock at an exercise price of $ 2.10 per share and surrendered 3,860 shares ( equal in value to the exercise price ) in a cashless exercise of such option and was issued a net of 2,390 shares of our common stock ; ( c ) an option holder exercised options to purchase 20,000 shares of the company 's common stock at an exercise price of $ 1.20 per share for $ 24,000 and was issued 20,000 shares of our common stock ; and ( story_separator_special_tag strategy and plan of operations the principal elements of our strategy include : expand feedstock supply volume . we intend to expand our feedstock supply volume by growing our collection and aggregation operations . we plan to increase the volume of feedstock we collect directly by developing new relationships with generators and working to displace incumbent collectors ; increasing the number of collection personnel , vehicles , equipment , and geographical areas we serve ; and acquiring collectors in new or existing territories . we intend to increase the volume of feedstock we aggregate from third-party collectors by expanding our existing relationships and developing new vendor relationships . we believe that our ability to acquire large feedstock volumes will help to cultivate new vendor relationships because collectors often prefer to work with a single , reliable customer rather than manage multiple relationships and the uncertainty of excess inventory . broaden existing customer relationships and secure new large accounts . we intend to broaden our existing customer relationships by increasing sales of used motor oil and re-refined products to these accounts . in some cases , we may also seek to serve as our customers ' primary or exclusive supplier . we also believe that as we increase our supply of feedstock and re-refined products that we will secure larger customer accounts that require a partner who can consistently deliver high volumes . re-refine higher value end products . we intend to develop , lease , or acquire technologies to re-refine our feedstock supply into higher-value end products , including assets or technologies which complement tcep . currently , we are using tcep to re-refine used oil feedstock into cutterstock for use in the marine fuel market . we believe that the expansion of our tcep facilities and our technology , and investments in additional technologies ( including the acquisition of the omega assets ) , will enable us to upgrade feedstock into end products , such as lubricating base oil , that command higher market prices than the current re-refined products we produce . expand tcep re-refinement capacity . we intend to expand our tcep capacity by building additional tcep facilities to re-refine feedstock . we believe the tcep technology has a distinct competitive advantage over conventional re-refining technology because it produces a high-quality fuel oil product , and the capital expenditures required to build a tcep plant are significantly lower than a comparable conventional re-refining facility . by continuing the transition from our historical role as a value-added logistics provider to operating as a re-refiner , we believe we will be able to leverage our feedstock supply network and aggregation capabilities to upgrade a larger percentage of our feedstock inventory into higher value end products which we believe should lead to increased revenue and gross margins . we intend to build tcep facilities near the geographic location of substantial feedstock sources that we have relationships with through our existing operations or from an acquisition . by establishing tcep facilities near proven feedstock sources , we seek to lower our transportation costs and lower the risk of operating plants at low capacity . pursue selective strategic relationships or acquisitions . we plan to grow market share by consolidating feedstock supply through partnering with or acquiring collection and aggregation assets , such as the planned acquisition of omega 's assets ( as described in greater detail above under “ item 1. business ” - “ recent events ” ) , which there can be no assurance will be completed . such acquisitions and or partnerships could increase our revenue and provide better control over the quality and quantity of feedstock available for resale and or upgrading as well as providing additional locations for the implementation of tcep . in addition , we intend to pursue further vertical integration opportunities by acquiring complementary recycling and processing technologies where we can realize synergies by leveraging our customer and vendor relationships , infrastructure , and personnel , and by eliminating duplicative overhead costs . alternative energy project development . we will continue to evaluate and potentially pursue various alternative energy project development opportunities . these opportunities may be a continuation of the projects sourced originally by world waste technologies , inc. , a development stage municipal solid waste conversion company we merged with in april 2009 , and or may include new projects initiated by us . 36 story_separator_special_tag while decreases in revenue/income or increases in expense ( unfavorable variances ) are shown with parentheses in the “ $ change ” and “ % change ” columns . story_separator_special_tag as volumes and production increase in our black oil division it often takes a few quarters to recognize increased additional per barrel margin , this is because of the fact that when we move into a new geographic location it takes us a period of time before we are able to create and benefit from economies of scale . our black oil business , through the use of the tcep , generated revenues of $ 89,120,218 for the year ended december 31 , 2013 , with cost of revenues of $ 82,229,131 , producing a gross profit of $ 6,891,087 . during the year ended december 31 , 2012 , these revenues were $ 89,132,373 with cost of revenues of $ 84,167,768 , producing gross profit of $ 4,964,605 . due to the company now owning the tcep technology as of december 31 , 2013 and 2012 , compared with only having a license to the technology during the majority of 2012 ( which technology was acquired as part of the acquisition , described above under “ business ” – “ material acquisition ” ) , our income from operations has been positively affected for the year ended december 31 , 2013. prior to september 1 , 2012 , we operated this technology from cmt pursuant to a perpetual license agreement . gross profit increased for the year ended december 31 , 2013 , compared to 2012 , as a result of increased volumes processed through our tcep operation reduced feedstock costs through our h & h oil operations as well as improved market conditions for the year ended december 31 , 2013. total volume company-wide increased 20 % during fiscal 2013 compared to 2012 , and our per barrel margin increased approximately 39 % for fiscal 2013 , compared to 2012. this improvement was a result of increased volumes , as well as cost benefits and savings created in connection with the acquisition and the various new subsidiary companies which increased our margins . 41 our refining and marketing division experienced an increase in production of 33 % for its fuel oil cutter product for the year ended december 31 , 2013 , compared to the same period in 2012 , and commodity prices decreased approximately 4 % over the same period . the average posting ( u.s. gulfcoast no . 2 waterborne ) during 2013 decreased $ 4.46 per barrel from $ 126.18 per barrel for 2012 to $ 121.72 per barrel for 2013. our pygas production decreased 7 % for the year ended december 31 , 2013 , compared to the same period in 2012 and commodity prices decreased approximately 4 % for our finished product for 2013 , compared to the same period in 2012. our gasoline blendstock volumes increased 84 % for the year ended december 31 , 2013 as compared to 2012. the average posting ( u.s. gulfcoast unleaded 87 waterborne ) during 2013 decreased $ 0.13 per gallon from $ 2.90 per gallon for 2012 to $ 2.77 per gallon during 2013. the overall increase in revenues associated with our refining and marketing division was due to increases in volumes for the year ended december 31 , 2013. overall volume for the refining and marketing division increased 32 % during the year ended december 31 , 2013 , compared to the year ended december 31 , 2012. margins per barrel decreased in the refining and marketing division as a result of market conditions as well as increased volumes from our fuel oil cutter product which does not carry as high a margin as the gasoline blendstock or pygas products . our tcep technology generated revenues of $ 56,538,657 during the year ended december 31 , 2013 , with cost of revenues of $ 50,484,253 , producing a gross profit of $ 6,054,404. the per barrel margin for our tcep product increased 32 % as compared to same period during 2012. this increase was a result of decreased operating costs during the fourth quarter of 2013 , we also received a slight reduction in market pricing during the fourth quarter of 2013 which put some pressure on our margins . the overall margin improvement is a result of improved feedstock costs delivered into the baytown facility during 2013. our recovery division includes the business operations of vertex recovery as well as the recently acquired business of e-source . this is a newly formed segment as of the fourth quarter of 2013. revenues for this division increased substantially as a result of the e-source business only being part of our operations during the fourth quarter of 2013. a large part of the increase was also a result of a one-time increase associated with a large distressed diesel project that vertex recovery participated in during the third quarter of 2013. this division periodically participates in project works that are not ongoing thus we expect to see fluctuations in revenue and gross profit from period to period . these projects are typically bid related and can take time to line out and get going ; however we believe these are very good projects for the company and we anticipate more in the upcoming periods . prevailing prices of certain commodity products can significantly impact our revenues and cash flows. , as noted above the revenue variances from fiscal 2012 to 2013 were impacted slightly due to the changes in commodity pricing between the two periods as detailed below . the following table sets forth the high and low spot prices during 2012 for our key benchmarks . replace_table_token_5_th 42 the following table sets forth the high and low spot prices during 2013 for our key benchmarks . replace_table_token_6_th we have seen on average a fairly stable market in each of the benchmark commodities we track during 2012 and 2013. our margins are a function of the difference between what we are able to pay for raw materials and the market prices for the range of products produced .
| results of operations description of material financial line items : revenues we generate revenues from three existing operating divisions as follows : black oil - revenues for our black oil division are comprised primarily of feedstock sales ( used motor oil ) which are purchased from generators of used motor oil such as oil change shops and garages , as well as a network of local and regional suppliers . volumes are consolidated for efficient delivery and then sold to third-party re-refiners and fuel oil blenders for the export market . in addition , through used oil re-refining , we re-refine used oil through tcep . the finished product is then sold by barge as a fuel oil cutterstock and a feedstock component for major refineries . refining and marketing - the refining and marketing division generates revenues relating to the sales of finished products . the refining and marketing division gathers hydrocarbon streams in the form of petroleum distillates , transmix and other chemical products that have become off-specification during the transportation or refining process . these feedstock streams are purchased from pipeline operators , refineries , chemical processing facilities and third-party providers , and then processed at a third-party facility under our direction . the end products are typically three distillate petroleum streams ( gasoline blendstock , pygas and fuel oil cutterstock ) , which are sold to major oil companies or to large petroleum trading and blending companies . the end products are delivered by barge and truck to customers . recovery - the recovery division is a generator solutions company for the proper recovery and management of hydrocarbon streams . this division also provides dismantling , demolition , decommission and marine salvage services at industrial facilities . we own and operate a fleet of trucks and other vehicles used for shipping and handling equipment and scrap materials . our revenues are affected by changes in various commodity prices including crude oil , natural gas , # 6 oil and metals .
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