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because the story_separator_special_tag concerning forward—looking statements this annual report on form 10-k , including management 's discussion and analysis of financial condition and results of operations , contains not only historical information , but also forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . statements that are not historical are forward-looking and reflect expectations for future company performance . in addition , forward-looking statements may be made orally or in press releases , conferences , reports , on the company 's web site , or otherwise , in the future by or on behalf of the company . when used by or on behalf of the company , the words “ expect , ” “ anticipate , ” “ estimate , ” “ believe , ” “ intend , ” “ will , ” “ plan , ” “ predict , ” “ project , ” “ outlook , ” “ could , ” “ may , ” “ should , ” and similar expressions generally identify forward-looking statements . for these statements throughout the annual report on form 10-k , the company claims the protection of the safe harbor for forward-looking statements contained in the private securities litigation reform act of 1995. the entire sections entitled “ financial overview and outlook ” and “ risk factors ” should be considered forward-looking statements . forward-looking statements involve a number of risks and uncertainties , including but not limited to those discussed in the “ risk factors ” section contained in item 1a . readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results or conditions , which may not occur as anticipated . actual results or conditions could differ materially from those anticipated in the forward-looking statements and from historical results , due to the risks and uncertainties described herein , as well as others not now anticipated . the risks and uncertainties described herein are not exclusive and further information concerning the company and its businesses , including factors that potentially could materially affect the company 's financial results , may emerge from time to time . except as required by law , the company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements . company overview the company manufactures and markets center pivot , lateral move , and hose reel irrigation systems . the company also produces and markets irrigation controls , chemical injection systems , remote monitoring and irrigation scheduling systems . these products are used by farmers to increase or stabilize crop production while conserving water , energy , and labor . through its acquisitions and third-party commercial arrangements , the company has been able to enhance its capabilities in providing innovative , turn-key solutions to customers through the integration of designs , controls , and pump stations . the company sells its irrigation products primarily to a world-wide independent dealer network , who resell to their customers , the farmers . the company 's primary production facilities are located in the united states . the company has smaller production and sales operations in brazil , france , china , turkey , and south africa , as well as distribution and sales operations in the netherlands , australia , and new zealand . the company also manufactures and markets , through distributors and direct sales to customers , various infrastructure products , including moveable barriers for traffic lane management , crash cushions , preformed reflective pavement tapes , and other road safety devices , through its production facilities in the united states and italy , and has produced road safety products in irrigation manufacturing facilities in china and brazil . in addition , the company 's infrastructure segment produces large diameter steel tubing , and railroad signals and structures , and provides outsourced manufacturing and production services for other companies . for the business overall , the global , long-term drivers of population growth , water conservation and environmental sustainability , the need for increased food production , and the need for safer , more efficient transportation solutions remain positive . key factors which impact demand for the company 's irrigation products include total worldwide agricultural crop production , the profitability of agricultural crop production , agricultural commodity prices , net farm income , availability of financing for farmers , governmental policies regarding the agricultural sector , water and energy conservation policies , the regularity of rainfall , regional climate conditions , and foreign currency exchange rates . a key factor which impacts demand for the company 's infrastructure products is the amount of spending authorized by governments to improve road and highway systems . much of the u.s. highway infrastructure market is driven by government spending programs . for example , the u.s. government funds highway and road improvements through the federal highway trust fund program . this program provides funding to improve the nation 's roadway system . in december 2015 , the u.s. government enacted a five-year , $ 305 billion highway-funding bill to fund highway and bridge projects , the first long-term national transportation spending bill in a decade . matching funding from the various states may be required as a condition of federal funding . 20 the company continues to have an ongoing , structured , acquisition process that it expects to generate additional growth opportunities throughout the world and add to its irrigation and infrastructure capabilities . the company is committed to achieving earnings growth by global market expansion , improvements in margins , and strategic acquisitions . new accounting standards issued but not yet adopted see note 2 , new accounting pronouncements , to the company 's consolidated financial statements for information regarding recently issued accounting pronouncements . story_separator_special_tag the company 's irrigation revenues are highly dependent upon the need for irrigated agricultural crop production , which , in turn , depends upon many factors , including the following primary drivers : agricultural commodity prices - as of august 2019 , c orn prices have increased approximately five percent and soybean prices have increased approximately three percent from august 2018. commodity prices , although somewhat improved over the prior year , continue to be substantially lower than the peak prices in 2013. net farm income - as of august 2019 , the u.s. department of agriculture ( the “ usda ” ) estimated u.s. 2019 net farm income to be $ 88.0 billion , an increase of 4.8 percent from the usda 's final u.s. 2018 net farm income of $ 84.0 billion . weather conditions – demand for irrigation equipment is often positively affected by storm damage and prolonged periods of drought conditions as producers look for ways to reduce the risk of low crop production and crop failures . conversely , demand for irrigation equipment can be negatively affected during periods of more predictable or excessive natural precipitation . governmental policies - a number of government laws and regulations can impact the company 's business , including : o the agricultural improvement act of 2018 ( the “ 2018 farm bill ” ) was signed into law in december 2018. the 2018 farm bill continues many of the programs that were in the agricultural act of 2014 , which expired in september 2018. such programs are designed to provide a degree of certainty to growers , including funding for the environmental quality incentives program , which provides financial assistance to farmers to implement conservation practices , and is frequently used to assist in the purchase of center pivot irrigation systems . o u.s. tax reform enacted in december 2017 increased the benefit of certain tax incentives , such as the section 179 income tax deduction and section 168 bonus depreciation , which are intended to encourage equipment purchases by allowing the entire cost of equipment to be treated as an expense in the year of purchase rather than amortized over its useful life . o biofuel production continues to be a major demand driver for irrigated corn , sugar cane and soybeans as these crops are used in high volumes to produce ethanol and biodiesel . in july 2018 , the u.s. environmental protection agency ( “ the epa ” ) proposed to maintain the 2019 ethanol production target levels at the same levels as the 2018 requirements . on may 30 , 2019 , the epa finalized regulatory changes to allow gasoline blended with up to 15 percent ethanol ( e15 ) to take advantage of the 1-psi reid vapor pressure ( rvp ) waiver that formerly applied to 10 percent ethanol , or e10 , during summer months . under the finalized expansion , e15 will be allowed to be sold year-round without additional rvp control rather than being available for sale just eight months out of the year . o many international markets are affected by government policies such as subsidies and other agriculturally related incentives . while these policies can have a significant effect on individual markets , they typically do not have a material effect on the consolidated results of the company . currency –the value of the u.s. dollar fluctuates in relation to the value of currencies in a number of countries to which the company exports products and maintains local operations . the strengthening of the 22 dollar increases the cost in the local currency of the products exported from the u.s. into these countries and , therefore , could negatively affect the company 's international sales and margins . in addition , the u.s. dollar value of sales made in any affected foreign curre ncies will decline as the value of the dollar rises in relation to these other currencies . in the u.s. , uncertainty regarding the outcome of trade negotiations with other countries continues to weigh on farmer sentiment towards investment in irrigation equipment . international markets remain active with opportunities for further development and expansion , however regional political and economic factors , currency conditions and other factors can create a challenging environment . additionally , international results are heavily dependent upon project sales which tend to fluctuate and can be difficult to forecast accurately . the infrastructure business is dependent to some extent on government spending for road construction . in december 2015 , the u.s. government enacted a five-year , $ 305 billion highway-funding bill to fund highway and bridge projects , the first long-term national transportation spending bill in a decade . this bill provided a level of stability and certainty but only modestly increased spending levels . in addition , the fhwa has changed highway safety product certification requirements . the change has required additional research and development spending and could have an impact on the competitive positioning of the company 's highway safety products . in spite of government spending uncertainty , opportunities exist for market expansion in each of the infrastructure product lines . demand for the company 's transportation safety products continues to be driven by population growth and the need for improved road safety . as of august 31 , 2019 , the company had an order backlog of $ 55.4 million compared with $ 53.3 million at august 31 , 2018. included in these backlogs are amounts of $ 10.0 million and $ 3.3 million , respectively , that are not expected to be fulfilled within the subsequent fiscal year . the company 's backlog can fluctuate from period to period due to the seasonality , cyclicality , timing , and execution of contracts . backlog typically represents long-term projects as well as short lead-time orders ; therefore , it is generally not a good indication of the revenues to be realized in succeeding quarters .
| results of operations the following “ fiscal 2019 compared to fiscal 2018 ” section presents an analysis of the company 's consolidated operating results displayed in the consolidated statements of earnings and should be read together with the information in note 17 , industry segment information , to the consolidated financial statements . a discussion regarding our financial condition and results of operations for fiscal 2018 compared to fiscal 2017 can be found under item 7 in our annual report on form 10-k for the fiscal year ended august 31 , 2018 , filed with the securities and exchange commission ( “ sec ” ) on october 24 , 2018 , which is available free of charge on the sec 's website at www.sec.gov and the company 's website at www.lindsay.com under the tab “ investor relations – sec filings. ” fiscal 2019 compared to fiscal 2018 the following table provides highlights for fiscal 2019 compared with fiscal 2018 : replace_table_token_4_th ( 1 ) includes corporate general and administrative expenses of $ 40.3 million and $ 26.8 million for fiscal 2019 and fiscal 2018 , respectively . ( 2 ) see note 17 for further details regarding segments . revenues operating revenues in fiscal 2019 decreased by $ 103.6 million , or 19 percent , to $ 444.1 million compared with $ 547.7 million in fiscal 2018. irrigation segment revenues decreased $ 88.4 million , or 20 percent , and infrastructure revenues decreased $ 15.2 million , or 14 percent , compared to the prior fiscal year for each .
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the forward-looking statements include , without limitation , those concerning the following : our expectations as to the nature of possible technological , industry , customer , market , price and sales trends ; our expectations regarding continued and future growth in our business and operations ; our expectation regarding fluctuations in our overall gross profit , gross margin , product mix , annual and quarterly results , customer base and selling prices ; our plans regarding our selling and marketing campaigns and activities ; our expectations regarding our ability to meet customer needs ; our expectations regarding our future relationship with our suppliers ; our expectation regarding the positive effect of our recent acquisitions ; our expectations regarding increased selling , marketing , research and development , and general and administrative expenses ; our expectations regarding future amortization of intangible assets expenses ; our plans and expectations regarding restructuring and cost reduction efforts ; our expectations regarding future performance of certain of our joint ventures ; our expectation regarding continued significant investment in research and development ; our plans regarding research and development of ip-based access services ; our expectations regarding the development and introduction of new products ; our plans to expand our digital product offerings ; our expectations regarding the future introduction and success of tdcdma products ; our plans regarding support for and enhancement of ip-based wireless and broadband services ; our expectations regarding the integration of cdma2000 into the mswitch platform ; our expectations regarding future periods of competition ; our expectations regarding the nature of our competitors ; our expectation regarding the ability of competitors to influence governmental policy formation and interpretation ; our expectations regarding the functionality , cost-effectiveness and performance of our products ; our expectations regarding our future investments ; our expectations regarding our future levels of cash and cash equivalents , as well as our expectation that existing cash and cash equivalents will be sufficient to finance our operations for the foreseeable future ; our expected utilization of derivative financial instruments ; our expectations regarding demand for pas products ; our expectations regarding the technological and market importance of pas in china ; our expectations regarding future subscriber growth in china ; our expectations regarding the future importance of china in the handset market ; our expectations regarding the development of a 3g network in china ; expectations regarding licensing requirements and our ability to receive licenses in china for our pas system and other products ; our expectations regarding sales performance of our 47 products ; our expectations regarding key markets ; our expectations regarding consolidation of the telecommunications industry ; our plans to reinvest cost savings derived from employee terminations ; our expectations regarding the growth of china 's telecom markets ; our expectation that our business will continue to be significantly influenced by the political , economic and legal environment in china , as well as expectations about the nature of political , economic and legal reform in china and other international markets ; our expectations regarding future receipt of financial subsidies from local chinese governments ; our expectations regarding market share percentages for our products ; our expectations regarding the future allocation of net sales by product group , business segment and geographic region ; our expectations regarding efficiencies we hope to achieve in supply chain capability ; our plans and expectations regarding growth management ; our expectations regarding expansion into new markets , including our plans to pursue opportunities for our cdma products in multiple markets ; our plans to improve gross margins ; our plans regarding the use of available funds , including the payment of dividends ; our plans regarding recent accounting pronouncements and our expectations regarding the effect of such announcements ; our expectations regarding the timing of the completion of the cellon transaction ; our plans with respect to legal proceedings and our expectations regarding the effect of such proceedings ; our expectations regarding the remediation of the technical default of our 7/8 % convertible subordinated notes due 2008 ; our plans to implement measures to remediate material weaknesses ; and our expectations regarding the effect of remediation measures . additional forward-looking statements may be identified by the words `` anticipate , '' `` expect , '' `` believe , '' `` intend , '' `` will '' and similar expressions , as they relate to us or our management , or by the words `` designed , '' `` intended '' and similar expressions , as they relate to our products and services . investors are cautioned that these forward-looking statements are inherently uncertain . these statements are subject to risks and uncertainties that may cause actual results and events to differ materially . for a detailed discussion of these risks and uncertainties , see the `` factors affecting future operating results '' section of this form 10-k. we do not guarantee future results and undertake no obligation to update the forward-looking statements to reflect events or circumstances occurring after the date of this form 10-k. restatement of consolidated financial statements in december 2005 , we discovered two previously unknown side letter agreements that were provided to a customer in india . the side letter agreements obligated us to deliver a variety of software bug fixes , features , updates and upgrades for no additional consideration , and , contrary to our policy , these side letter agreements were withheld from our financial management and the company 's independent registered public accounting firm . as a result , neither management nor our independent registered public accounting firm were able to properly evaluate their effect on the recognition of revenue under contracts with this customer . the discovery of these side letter agreements prompted an investigation by independent legal counsel that was ordered by and under the direction of the audit committee of the company 's board of directors . as a result of the independent review conducted for the audit committee of the board of directors , we identified accounting errors that impacted certain of our previously issued financial statements . story_separator_special_tag according to china 's ministry of information industry , the mobile phone penetration rate was 30 % at the end of 2005 , which is still far behind most developed countries in the world . this means almost 70 % of china 's 1.3 billion population still did not have mobile phone service . as china 's economic growth and urbanization continues in the coming years , we believe this represents a huge market demand for cost-effective communication services , the addressable market of pas . at the end of fiscal year 2005 , the number of pas subscribers exceeded 87 million users , an increase of 31 % over the prior year . positioned as an extension of fixed-line service and an affordable city-wide mobile phone service , pas has a significant cost advantage over the 2nd and 3rd generation mobile phone technologies , in terms of the existing infrastructure of the network and lower service tariffs . restructuring programs over the past few years , we have undertaken a significant globalization program and we intend to continue to build our global sales outside of china . we intend to continue to improve our internal supply chain and inventory management processes to ensure timely deliveries . we also intend to continue to implement and enhance our administrative infrastructure to assist our globalization . as part of this program , we reviewed our corporate wide operations with the aim of narrowing our strategic focus with regard to market concentration , product portfolio selection , and resources allocation . in the second quarter of fiscal 2005 , we announced and initiated a restructuring plan to rationalize our cost structure in response to the decline in demand for certain of our products and to align investments with key growth opportunities . the primary goal of these improvements is to optimize our cost structure and enable us to deliver consistent and sustainable profitability for our stockholders . during 2005 , we incurred approximately $ 35.3 million in restructuring expenses consisting of $ 15.2 million in severance payments to approximately 1,595 employees terminated in workforce reduction programs , $ 14.5 million in asset impairments to write-off equipment and licenses associated with discontinued products , and a $ 5.6 million inventory write-off for discontinued products . restructuring expense related to severance and asset impairments are reported in operating expense , while the inventory write-off is reported in cost of sales in the statements of operations ( see note 23 to the consolidated financial statements . ) we will continue our efforts to evaluate certain operations and will actively pursue opportunities to divest additional non-core assets and may incur additional costs associated with future actions to further align our business operations . debt extinguishment and equity issuance we entered into agreements to exchange 4,988,100 shares of our common stock with a fair value of approximately $ 37.6 million and approximately $ 57.1 million in cash for $ 127.9 million aggregate 50 principal amount of our outstanding 7/8 % convertible subordinated notes due 2008 ( the `` notes '' ) with five of our note holders . these exchanges are considered early extinguishments of debt in which the aggregate fair value of the common stock and cash is less than the carrying value of the notes . accordingly , we recorded gains of $ 31.4 million on the exchanges . as of december 31 , 2005 , we had reduced by nearly one-third our long term debt obligations as compared to the amount of such obligations at december 31 , 2004. asset impairment management held a series of planning meetings in september 2005 to assess the current business forecast for all of our reporting units . this assessment analyzed various factors including a reduction in the rate of growth of pas subscribers , a delay of the expected granting of 3g licenses in china and japan , challenges with product quality primarily in our broadband reporting unit , a narrowing of our strategic focus related to our product offering and greater than expected revenue and margin decline due to continued pricing pressures for several of our key markets . we determined that certain circumstances have changed sufficiently to indicate that the fair value of certain of our reporting units may be below their book values . as a result , we conducted an evaluation of our long-lived assets including goodwill , intangible assets , and certain property plant and equipment for impairment and recorded impairment charges . based upon this analysis , we recorded impairment charges totaling $ 218.1 million consisting of $ 192.9 million of goodwill , $ 1.7 million of intangible assets , and $ 23.5 million of property , plant and equipment ( see note 10 to the consolidated financial statements . ) management also evaluated the expected realization of deferred tax assets during 2005 and recorded a non-cash charge of $ 218.1 million to provide a full valuation allowance on the net deferred tax assets at december 31 , 2005 in the united states and china . softbank china in december , 2005 , we sold our 10 % ownership interest in softbank china holdings pte ltd ( `` softbank china '' ) to softbank corp. , a related party and owner of the remaining 90 % of softbank china for $ 56.9 million . as a result , we recorded in other income a gain of $ 47.2 million after management fees , transaction expenses and net of the investment carrying value ( see note 9 to the consolidated financial statements . )
| results of operations effective in the first quarter of 2005 , we reorganized our business based principally upon product families and realigned our business into five operating units : ( i ) broadband infrastructure , ( ii ) wireless infrastructure , ( iii ) handsets , ( iv ) pcd and ( v ) service . our chief operating decision makers , in accordance with sfas no . 131 , `` disclosures about segments of an enterprise and related information , '' began evaluating financial results of operations of these five operating units . broadband infrastructure is primarily comprised of the ian-8000 , ip-based digital subscriber line access multiplexer , gepon , netring , rollingstream , and other wireline products . wireless 51 infrastructure is primarily comprised of the pas and cdma products . handsets is primarily comprised of pas handsets . pcd is primarily comprised of cdma handsets and digital devices . we also provide installation and certain maintenance services . for each of the periods presented , total services sales accounted for less than 10 % of net sales . net sales replace_table_token_5_th fiscal 2005 vs. 2004 revenues increased by 9 % to $ 2.9 billion in 2005 driven by higher pcd revenues in the united states and broadband infrastructure revenues in japan , offset by declining wireless infrastructure and handsets revenue in china . pcd was established from the selected assets and liabilities acquired from audiovox in november 2004. in 2005 , pcd revenues increased by $ 1.1 billion proportionate to the number of periods reported . due to pcd , our revenues in the united states have almost quadrupled and now represent 46 % of total company revenues . additionally , verizon wireless accounted for 25 % of pcd revenues and 12 % of total company revenues in 2005. broadband infrastructure revenues more than doubled in 2005 driven by sales of ian-8000 equipment to japan telecom , an affiliate of softbank corp. and a related party .
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the following discussion and analysis contains forward-looking statements , including , without limitation , statements relating to our plans , strategies , objectives , expectations , intentions and resources . such forward-looking statements should be read in conjunction with our disclosures under “ item 1a . risk factors ” of this form 10-k. 2018 executive overview schlumberger full-year 2018 revenue of $ 32.8 billion increased 8 % over 2017. this revenue growth was driven almost entirely by increased activity in north america against a backdrop of increasing oil prices throughout most of the year . in the oil markets , sentiment was stable and positive for the first three quarters of 2018 , providing a rising oil price environment . oecd crude and product stocks continued a downward trend that began in the third quarter of 2016. production cuts from opec and russia in 2017 served to strengthen the oil price . activity picked up globally and , as oil reached its peak price for the year in october , production from major producers , including unconventional us production , began to surprise to the upside . output in libya rebounded sharply ; saudi arabia and the united arab emirates each recorded record production output ; and dispensations from the iran export sanctions generated aggregate production that more than offset declines elsewhere . as a result , the market became oversupplied at the beginning of the fourth quarter despite the anticipated slowdown in the permian basin production growth due to capacity takeaway constraints . this , coupled with concerns about global oil demand , caused oil prices to plummet by more than 40 % during the fourth quarter of 2018 and led to a sudden and sharp decrease in us land well completion activity during the final months of the year . in the natural gas markets , consumption of liquified natural gas ( “ lng ” ) continued to rise enabled by vast sources of new supply . the us became a lng exporter in 2016 , when the first shipment left sabine pass in louisiana . us export capacity grew to 37 million tonnes in 2018 and is set to nearly double in 2019. underground gas storage in the us was below average through most of 2018 , however , rising gas production from unconventional oil and gas wells in the us northeast , midcontinent and the permian basin helped to keep henry hub prices well below international prices . this will allow the us to join australia and the middle east as significant exporters . schlumberger financial performance in 2018 was driven largely by north america , where revenue of $ 12.0 billion grew 26 % year-over-year , despite the steep fall-off in activity during the fourth quarter of the year . this growth was driven by increased land activity that primarily benefited schlumberger 's onestim business , where revenue grew 41 % . full-year 2018 international revenue of $ 20.4 billion was essentially flat compared with 2017. during the third quarter of 2018 , international revenue grew faster than north america revenue for the first time since 2014 , marking the beginning of a positive activity trend after three consecutive years of declining revenue . this was driven by the increased activity of national oil companies ( “ nocs ” ) , as they began to invest in longer-term resource development following a sustained period of deep underinvestment and declining production . the dramatic fall in oil prices in the fourth quarter was largely driven by higher-than-expected us shale production as a result of the surge in activity earlier in the year , and as geopolitics negatively impacted the global demand- and supply-balance sentiments . the combination of these two factors , together with a large sell-off in the equity markets due to concerns around global growth and increasing us interest rates , created a near-perfect storm to close out 2018. looking ahead to 2019 , schlumberger expects a more positive supply- and demand-balance sentiment to lead to a gradual recovery in the price of oil over the course of the year , as the opec and russia production cuts take full effect ; the effect of lower activity in north america land in the second half of 2018 impacts production growth ; the dispensations from the iran export sanctions expire and are not renewed ; and as the us and china continue to work toward a solution to their ongoing trade dispute . in the meantime , the recent oil price volatility has introduced more uncertainty around the global exploration and production ( “ e & p ” ) spending outlook for 2019 , with customers generally taking a more conservative approach at the start of the year . however , based on recent discussions with customers , schlumberger is seeing clear signs that e & p investments are starting to normalize and reflect a more sustainable financial stewardship of the global resource base . for the north america land e & p operators , this means that future investments will likely be much closer to the level that can be covered by free cash flow . conversely , in the international markets apart from the middle east and russia , after four years of underinvestment and a focus on maximizing cash flow , the nocs and independents are starting to see the need to invest in their resource base simply to maintain production at current levels . this means that even with the current oil price levels , schlumberger expects solid , single-digit growth in the international markets , while in north america land the increased cost of capital and focus on aligning investments closer to free cash flow has introduced more uncertainty to the outlook for both drilling and production activity . story_separator_special_tag conversely , when the percentage of pretax earnings generated outside of north america decreases , the schlumberger effective tax rate generally increases . as discussed in further detail in note 3 to the consolidated financial statements , on december 22 , 2017 the us enacted the tax cuts and jobs act ( the “ act ” ) . the act , which is also commonly referred to as “ us tax reform , ” significantly changed us corporate income tax laws by , among other things , reducing the us corporate income tax rate from 35 % to 21 % starting in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of us subsidiaries . the effective tax rate for each of 2017 and 2016 was significantly impacted by the charges and credits described in note 3 to the consolidated financial statements because they were only partially tax-effective . excluding the impact of these charges and credits , the effective tax rate was 17 % in 2018 , 18 % in 2017 and 16 % in 2016. the decrease in the effective tax rate in 2018 as compared to 2017 , excluding the impact of charges and credits , was primarily due to the impact of us tax reform . the increase in the effective tax rate in 2017 as compared to 2016 , excluding the impact of charges and credits , was primarily attributable to a change in the geographic mix of earnings as the percentage of pretax earnings generated in north america increased compared to 2016. charges and credits schlumberger recorded significant charges and credits during 2018 , 2017 and 2016. these charges and credits , which are summarized below , are more fully described in note 3 to the consolidated financial statements . the following is a summary of the 2018 charges and credits , of which the $ 215 million gain on the sale of the marine seismic acquisition business is classified in gain on sale of business in the consolidated statement of income ( loss ) , while the remaining $ 356 million of other charges are classified in impairments & other . replace_table_token_10_th 18 the following is a summary of the 201 7 charges and credits , of which $ 3 . 211 billion were classified in impairments & other , $ 245 million were classified in cost of sales and $ 308 million were classified in merger & integration in the consolidated statement of income ( loss ) : replace_table_token_11_th the following is a summary of the 2016 charges and credits , of which $ 3.172 billion were classified in impairments & other , $ 349 million were classified in merger & integration and $ 299 million were classified in cost of sales in the consolidated statement of income ( loss ) : replace_table_token_12_th 19 liquidity and capital resources schlumberger had total cash , short-term investments and fixed income investments , held to maturity of $ 2.8 billion , $ 5.1 billion and $ 9.5 billion at december 31 , 2018 , 2017 and 2016 , respectively . total debt was $ 16.1 billion , $ 18.2 billion and $ 19.6 billion at december 31 , 2018 , 2017 and 2016 , respectively . details of the components of liquidity as well as changes in liquidity follow : replace_table_token_13_th replace_table_token_14_th 20 ( 1 ) “ net debt ” represents gross debt less cash , short-term investments and fixed income investments , held to maturity . management believes that net debt provides useful information regarding the level of schlumberger 's indebtedness by reflecting cash and investments that could be used to repay d ebt . net debt is a non-gaap financial measure that should be considered in addition to , not as a substitute for or superior to , total debt . ( 2 ) includes depreciation of property , plant and equipment and amortization of intangible assets , multiclient seismic data costs and spm investments . ( 3 ) includes severance payments of approximately $ 340 million during 2018 , $ 455 million during 2017 and $ 850 million during 2016 . ( 4 ) “ free cash flow ” represents cash flow from operations less capital expenditures , spm investments and multiclient seismic data costs capitalized . management believes that free cash flow is an important liquidity measure for the company and that it is useful to investors and management as a measure of the ability of our business to generate cash . once business needs and obligations are met , this cash can be used to reinvest in the company for future growth or to return to shareholders through dividend payments or share repurchases . free cash flow does not represent the residual cash flow available for discretionary expenditures . free cash flow is a non-gaap financial measure that should be considered in addition to , not as substitute for or superior to , cash flow from operations . key liquidity events during 2018 , 2017 and 2016 included : cash flow from operations was $ 5.7 billion in 2018 , $ 5.7 billion in 2017 and $ 6.3 billion in 2016. operating cash flows for 2018 were essentially flat compared to 2017 as the lower consumption of working capital was offset by decreased depreciation and amortization following the asset impairment charges recorded during the fourth quarter of 2017. the improvement in working capital in 2018 was largely driven by strong accounts receivable collections . the decrease in operating cash flows in 2017 as compared to 2016 was largely attributable to lower earnings before consideration of non-cash charges and credits and depreciation and amortization expense . on july 18 , 2013 , the board approved a $ 10 billion share repurchase program to be completed at the latest by june 30 , 2018. this program was completed during may 2017. on january 21 , 2016 , the board approved a new $ 10 billion share repurchase program for schlumberger common stock .
| fourth quarter 2018 results replace_table_token_5_th ( 1 ) comprised principally of certain corporate expenses not allocated to the segments , stock-based compensation costs , amortization expense associated with certain intangible assets , certain centrally managed initiatives and other nonoperating items . ( 2 ) excludes interest income included in the segments ' income ( fourth quarter 2018 : $ 2 million ; third quarter 2018 : $ 2 million ) . ( 3 ) excludes interest expense included in the segments ' income ( fourth quarter 2018 : $ 9 million ; third quarter 2018 : $ 8 million ) . ( 4 ) charges and credits are described in detail in note 3 to the consolidated financial statements . fourth-quarter revenue of $ 8.2 billion declined 4 % sequentially driven by lower activity and pricing for most production- and cameron-related businesses in north america land . lower revenue from onesubsea also contributed to the decline . international activity remained resilient despite the oil price drop , with revenue increasing 1 % sequentially . the seasonal slowdown in russia was offset by increased revenue in the middle east , asia and africa . revenue from europe and latin america was flat compared with the previous quarter . sequential performance was heavily impacted by production- and cameron-related activity declines in north america land , as seen by the 12 % sequential decrease of revenue in north america . onestim revenue dropped 25 % sequentially as a number of fleets were warm-stacked during the latter part of the quarter , and as schlumberger focused on securing dedicated contracts for the first half of 2019 early in the fourth-quarter tendering cycle . reservoir characterization fourth-quarter revenue of $ 1.7 billion decreased 1 % sequentially driven by the seasonal decline in wireline activity in russia , lower wireline exploration activity offshore north america , and reduced onesurface activity in the middle east . these effects were partially offset by year-end sales of sis software .
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73 the allocation of the purchase price paid for hhi is as follows : replace_table_token_13_th the intangible assets in the table above are being amortized on a straight-line basis over their estimated useful lives . the amortization is included in amortization of acquisition-related intangibles in our consolidated statements of income . of the goodwill acquired , $ 23.3 million is expected to be tax deductible . the fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and thus represent level 3 measurements within the fair value measurement hierarchy story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the `` selected financial data '' and our financial statements and the related notes included elsewhere in this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those set forth under `` risk factors '' and elsewhere in this annual report . background cpsi , founded in 1979 , is a leading provider of healthcare information technology ( `` it '' ) solutions and services for rural and community hospitals and post-acute care facilities . with our january 2016 acquisition of healthland holding inc. ( `` hhi '' ) , cpsi is now the parent of five companies - evident , llc ( `` evident '' ) , trubridge , llc ( `` trubridge '' ) , healthland inc. ( `` healthland '' ) , american healthtech , inc. ( `` aht '' ) , and rycan technologies , inc. ( `` rycan '' ) . our combined companies are focused on helping improve the health of the communities we serve , connecting communities for a better patient care experience , and improving the financial operations of our customers . the individual contributions of each of our five wholly-owned subsidiaries towards this combined focus are as follows : evident , formed in april 2015 , provides comprehensive electronic health record ( `` ehr '' ) solutions and services for rural and community hospitals , including those solutions previously sold under the cpsi name as well as an expanded range of offerings targeted specifically at rural and community healthcare organizations . trubridge focuses exclusively on providing business management , consulting and managed it services to rural and community healthcare organizations , regardless of their it vendor . healthland , acquired in the acquisition of hhi , provides integrated technology solutions and services to small rural , community , and critical access hospitals . aht , acquired in the acquisition of hhi , is one of the nation 's largest providers of financial and clinical technology solutions and services for post-acute care facilities . rycan , acquired in the acquisition of hhi , provides revenue cycle management workflow and automation software to rural and community hospitals , healthcare systems , and skilled nursing organizations . the combined company currently supports approximately 1,300 acute care facilities and over 3,300 post-acute care facilities with a geographically diverse customer mix within the domestic rural and community healthcare market . our customers primarily consist of rural and community hospitals with 300 or fewer acute care beds , with hospitals having 100 or fewer beds comprising approximately 95 % of our hospital ehr customer base . as discussed in this item under “ results of operations by segment ” below , we now manage our operations using three operating segments , which are also our reportable segments : ( 1 ) acute care ehr , ( 2 ) post-acute care ehr and ( 3 ) trubridge , rycan , and other outsourcing . acute care ehr our acute care ehr segment consists of acute care software solutions and support sales generated by evident and healthland . post-acute care ehr our post-acute care ehr segment consists of post-acute care software solutions and support sales generated by aht . trubridge , rycan , and other outsourcing our trubridge , rycan , and other outsourcing segment primarily consists of business management , consulting and managed it services sales generated by trubridge and the sale of rycan 's revenue cycle management workflow and automation software . 37 management overview historically we have primarily sought revenue growth through sales of healthcare it systems and related services to existing and new customers within our target market , a strategy that has resulted in a ten-year compounded annual growth rate in legacy revenues ( i.e. , revenues related to our legacy evident and trubridge operations ) of approximately 4.5 % . important to our potential for continued long-term revenue growth is our ability to sell new and additional products and services to our existing customer base , including cross-selling opportunities presented with the acquisition of hhi . we believe that as our combined customer base grows , the demand for additional products and services , including business management , consulting and managed it services , will also continue to grow , supporting further increases in recurring revenues . we also expect to drive revenue growth from new product development that we may generate from our product development activities . in april 2015 , we announced the formation of evident , a wholly-owned subsidiary of cpsi . evident provides ehr solutions previously sold under the cpsi name as well as an expanded range of offerings targeted specifically at rural and community healthcare organizations . our objectives with the creation of evident are to further define system and support differentiation in our core target market , broaden the positioning of our ehr solution and offer a new range of solutions to address current and upcoming needs of rural and community healthcare providers . with the formation of evident came the introduction of our ehr solution under the name thrive and our unique collaborative support model under the name likemind . story_separator_special_tag despite these narrowing markets , we expect to continue to benefit from the arra 's ehr incentive program in the medium-to-long term as the expanded requirements for continued eligibility for incentive payments and related payment adjustments for those healthcare providers not in compliance with meaningful use rules are expected to result in both an expanded replacement market for ehrs and additional orders from our existing customer base to purchase incremental applications necessary to satisfy such expanded requirements , particularly as the stage three meaningful use rules become effective . the stage three requirements will be optional for 2017 , with all providers required to comply with the stage three requirements beginning in 2018. however , as the ehr replacement market is not likely to develop rapidly and the market for add-on sales to existing customers for incremental stage three-related applications is not likely to significantly expand until the related stage three rules become effective , our system sales revenues and profitability may be materially and adversely affected during the short-term . although we are pursuing other strategic initiatives designed to result in system sales revenue growth in the future in the form of selective expansion into english-speaking international markets , selective expansion within the 100 to 300 bed hospital market and targeted expansion for our ambulatory solutions , there can be no guarantee that such initiatives will prove successful or will benefit the company in a sufficiently timely fashion to offset the short-term effects of the aforementioned narrowing markets . health care reform in march 2010 , president obama signed into law the patient protection and affordable care act and the health care and education reconciliation act of 2010 , collectively referred to herein as the `` health reform laws . '' this sweeping legislation implemented changes to the healthcare and health insurance industries from 2010 through 2015 , requiring substantially all u.s. citizens and legal residents to have qualifying health insurance coverage starting in 2014 and providing the means by which it will be made available to them . the health reform laws have had little direct impact on our internal operation and do not appear to have had a significant impact on the businesses of our hospital customers to date . however , we have not been able to determine at this point whether the ultimate impact will be positive , negative or neutral ; it is likely that the health reform laws will affect hospitals differently depending upon the populations they service . rural and community hospitals typically service higher uninsured populations than larger urban hospitals and rely more heavily on medicare and medicaid for reimbursement . it remains to be seen whether the increase in the insured populations for rural and community hospitals , as well as the increase in medicare and medicaid reimbursements under the arra for hospitals that implement ehr technology , will be enough to offset cuts in medicare and medicaid reimbursements contained in the health reform laws or as a result of sequestration or other federal legislation . we believe healthcare reform initiatives will continue during the foreseeable future . if adopted , some aspects of previously proposed reforms , such as further reductions in medicare and medicaid payments , could adversely affect the businesses of our customers and thereby harm our business . 2016 financial overview we generated revenues of $ 267.3 million from the sale of our products and services during 2016 , compared to $ 182.2 million during 2015 , an increase of 46.7 % that is primarily attributed to contributions from the acquisition of hhi . our net income decreased 78.5 % from 2015 , primarily due to the hhi-related transaction costs and amortization expense in the 39 combined amount of $ 18.4 million , while cash flow from operations decreased 93.3 % , due to the aforementioned transaction costs and acquisition-related investments in working capital . second generation meaningful use installment plans . beginning in the fourth quarter of 2012 , we began offering to our customers license agreements with payment terms that provide us with greater visibility into and control over the customer 's meaningful use attestation process and significantly reduce the maximum timeframe over which customers must satisfy their full payment obligations in purchasing our system ( `` second generation meaningful use installment plans '' ) . under these arrangements , for the first two years following execution of the contract , a customer is only required to remit to us medicare and medicaid incentive payments ( not to exceed the remaining balance under the arrangement ) received for adoption of a qualifying ehr upon receipt of such funds . upon the expiration of this two-year period , the remaining balance ( if any ) is required to be paid in full over a period not to exceed 12 months . as the overall payment period durations of the second generation meaningful use installment plans are consistent with that of our historical system sale financing arrangements , revenues under the second generation meaningful use installment plans are recognized upon installation of our ehr solution . in addition to the second generation meaningful use installment plans discussed above , we have historically made financing arrangements available to customers on a case-by-case basis depending upon the various aspects of the proposed contract and customer attributes . these financing arrangements include other short-term payment plans and longer-term lease financing through us or third-party financing companies . for those customers not seeking a financing arrangement , the payment schedule of the typical contract is structured to provide for a scheduling deposit due at contract signing , with the remainder of the contracted fees due at various stages of the installation process ( delivery of hardware , installation of software and commencement of training , and satisfactory completion of a monthly accounting cycle or end-of-month operation by and as applicable for each respective application ) .
| results of operations the following table sets forth certain items included in our results of operations for each of the three years in the period ended december 31 , 2016 , expressed as a percentage of our total sales for these periods : replace_table_token_2_th 2016 compared to 2015 revenues . total revenues for 2016 increased 46.7 % , or $ 85.1 million , compared to 2015. this was largely attributable to $ 86.6 million of revenue contributions from the acquisition of hhi . 42 system sales and support revenues increased by 67.2 % , or $ 79.5 million . system sales and support revenues were comprised of the following for the years ended december 31 , 2016 and december 31 , 2015 , with increases in both system sales and support mostly attributable to $ 43.2 million and $ 42.2 million , respectively , of revenue contributions from the acquisition of hhi . year ended december 31 , ( in thousands ) 2016 2015 system sales ( 1 ) $ 82,231 $ 46,578 support ( 1 ) 115,643 71,807 total system sales and support $ 197,874 $ 118,385 ( 1 ) note these amounts differ from amounts previously reported as `` system sales '' and `` support and maintenance '' under our prior revenue classifications as certain revenue categories ( such as saas/cloud ehr ) that were formerly included in `` support and maintenance '' revenues are now classified as a component of `` system sales . ''
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due to our operating loss and credit carry-forwards , the u.s. federal statute of limitations remains open for 1998 and onward . 13. retirement savings plan we have a retirement savings plan that qualifies under internal revenue code section 401 ( k ) . the plan covers all qualified employees . contributions to the plan are made at the discretion of our board of directors . during the year ended december 31 , 2015 , we contributed $ 108,000 to the plan . there were no contributions to the plan during 2014 or 2013 . 42 14. quarterly financial information ( unaudited ) the following table summarizes our unaudited quarterly financial information for the periods shown below ( in thousands , except per share data ) : replace_table_token_35_th microvision , inc. valuation story_separator_special_tag overview our business strategy is to commercialize our picop® scanning technology by enabling odms and oems to produce scanning engines by licensing our technology to those odms and oems , and by selling key scanning engine components to them , as needed . in 2013 and 2014 , our revenues were primarily derived from engineering services from collaborative research and development and contract agreements . in 2015 , our revenue was primarily generated from product sales and royalty revenue , and engineering services has become a smaller part of our business . we expect product sales and royalty revenue to be a significant portion of our total revenue in the future . in 2015 , 70 % of our revenue was generated from product sales , 17 % was generated from performance on contracts , 13 % was generated from royalties , and no revenue was generated from performance on collaborative research and development agreements . sony corporation accounted for 98 % of our total revenue in 2015. in 2014 , 49 % of our revenue was generated from performance on collaborative research and development agreements , 40 % was generated from performance on contracts , 10 % was generated from product sales , and 1 % was generated from royalties . two commercial customers accounted for 65 % of our total revenue in 2014. in 2013 , 50 % of our revenue was generated from performance on collaborative research and development agreements , 39 % was generated from product sales , 10 % was generated from performance on contracts , and 1 % was generated from royalties . two commercial customers accounted for 86 % of our total revenue in 2013. we have incurred substantial losses since inception and expect to incur a significant loss during the fiscal year ending december 31 , 2016. we have received a report from our independent registered public accounting firm regarding the consolidated financial statements for the year ended december 31 , 2015 that includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern . these financial statements were prepared assuming we will continue as a going concern . key accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that materially affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent liabilities . we evaluate our estimates on a continuous basis . we base our estimates on historical data , terms of existing contracts , our evaluation of trends in the display and image capture industries , information provided by our current and prospective customers and strategic partners , information available from other outside sources and on various other assumptions we believe to be reasonable under the circumstances . the results form the basis for making judgments regarding 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 . 14 we believe the following key accounting policies require significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we recognize revenue when : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred and there are no uncertainties regarding customer acceptance , ( iii ) fees are fixed or determinable , and ( iv ) collection is reasonably assured . we generate revenue from many sources and activities . we enter into arrangements that can include various combinations of product sales , services , and licensing activities . for multiple-element arrangements , we use a hierarchy to determine the contract consideration to be used for allocating revenue to deliverables : ( i ) vendor-specific objective evidence of fair value ( vsoe ) , ( ii ) third party evidence of selling price ( tpe ) , and ( iii ) best estimate of selling price . to date , our revenue sources can be classified as : product revenue , royalty revenue , contract revenue , or development revenue . product revenue our product sales generally include acceptance provisions . we recognize product revenue upon acceptance of the product by the customer or expiration of the contractual acceptance period , after which there are no rights of return . no estimates are made for product returns because revenue is recognized upon expiration of the contractual acceptance period . contract revenue we recognize contract revenue on long-term , cost plus fixed fee , and fixed price contracts using the percentage-of-completion method . under the percentage-of- completion method , revenue is recognized as work progresses on the contract . the percentage-of-completion method relies on estimates of total expected contract revenue and costs . at the end of each period , we estimate the labor , material and other costs required to complete the contract using data provided by our technical team , project managers , vendors , outside consultants and others and compare these to costs incurred to date . story_separator_special_tag 16 income taxes significant judgment is required in evaluating our tax position and in determining our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . we record a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized . based on our history of losses since inception , the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets . our actual tax exposure may differ from our estimates and any such differences may impact income our tax expense in the period in which such determination is made . the key accounting policies described above are not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles , with no need for us to apply judgment or make estimates . there are also areas in which our judgment in selecting any available alternative would not produce a materially different result to our consolidated financial statements . additional information about our accounting policies , and other disclosures required by generally accepted accounting principles , are set forth in the notes to our consolidated financial statements . inflation has not had a material impact on our revenues or income from continuing operations over the three most recent fiscal years . story_separator_special_tag activities , direct material to support development programs , laboratory operations , outsourced development and processing work , and other operating expenses . we assign our research and development resources based on the business opportunity of the available projects , the skill mix of the resources available and the contractual commitments we have made to our customers . the decrease in research and development expense during the year ended december 31 , 2015 , compared to 2014 , was primarily attributable to the allocation of resources to a commercial contract during the period , and these costs were recognized as cost of contract revenue upon completion of all deliverables and obligations under the agreement . we believe that a substantial level of continuing research and development expense will be required to further develop our picop scanning technology . accordingly , we anticipate our level of research and development spending will continue to be substantial . sales , marketing , general and administrative expense 2015 2014 $ change % change ( in thousands ) sales , marketing , general and administrative expense $ 7,879 $ 7,005 $ 874 12.5 sales , marketing , general and administrative expense includes compensation and support costs for marketing , sales , management and administrative staff , and for other general and administrative costs , including legal and accounting services , consultants and other operating expenses . the increase in sales , marketing , general and administrative expense during the year ended december 31 , 2015 , compared to 2014 , was primarily attributed to increased business development payroll costs and higher outsourced professional and contract services costs . gain on sale of previously reserved inventory replace_table_token_8_th gain on sale of previously reserved inventory includes the sales of excess component inventory for discontinued products and was fully reserved in prior periods . gain ( loss ) on warrant exchange 2015 2014 $ change % change ( in thousands ) gain ( loss ) on warrant exchange $ - $ ( 4,967 ) $ 4,967 ( 100.0 ) in february 2014 , we issued 3.7 million shares of our common stock under the exchange provisions of our then-outstanding warrants . during the year ended december 31 , 2014 , we recorded a loss of $ 5.0 million on the exchange as the fair market value of the common stock issued was greater than the obligation recorded due to an increase in our stock price from december 31 , 2013 to the date the warrants were exchanged . during the year ended december 31 , 2015 , there were no outstanding warrants with exchange provisions . year ended december 31 , 2014 compared to year ended december 31 , 2013. product revenue replace_table_token_9_th product revenue was lower during the year ended december 31 , 2014 , than the same period in 2013 , as a result of lower component sales . the backlog of product orders at december 31 , 2014 was $ 3.6 million compared to $ 147,000 at december 31 , 2013 . 19 royalty revenue replace_table_token_10_th contract revenue replace_table_token_11_th the increase in contract revenue during the year ended december 31 , 2014 , compared to 2013 , was primarily the result of the delivery of customized scanning engines to a worldwide logistics company during the third quarter of 2014. the contract backlog , including orders for prototype units and evaluation kits , at december 31 , 2014 was $ 1.5 million , compared to $ 285,000 at december 31 , 2013. development revenue replace_table_token_12_th in march 2013 , we entered into a $ 4.6 million collaborative research and development agreement with sony corporation to incorporate our picop® scanning technology into a display module that could enable a variety of new products . as of september 30 , 2014 , we had completed all deliverables and obligations under the collaborative research and development agreement and had recognized the full contract value of $ 4.6 million . the backlog of collaborative research and development agreements at december 31 , 2014 was zero , compared to $ 1.7 million at december 31 , 2013. cost of product revenue replace_table_token_13_th cost of product revenue was lower during the year ended december 31 , 2014 , compared to 2013 , as a result of reduced product sales .
| results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014. product revenue replace_table_token_3_th product revenue is revenue from sales of our products and products incorporating our picop scanning technology . product revenue was higher during the year ended december 31 , 2015 than the same period in 2014 , due to higher product sales to sony corporation as part of continued shipments of orders we received during 2015 and 2014 totaling $ 14.6 million and $ 3.8 million , respectively , for key components to be integrated into display modules it manufactures and sells . from time to time , raw materials and manufacturing delays and components received that do not meet quality standards have resulted in delivery delays to our customers . the backlog of product orders at december 31 , 2015 was $ 11.0 million compared to $ 3.6 million at december 31 , 2014. the product backlog is scheduled for delivery within the next twelve months . royalty revenue replace_table_token_4_th royalty revenue is revenue under license agreements to our picop® scanning technology . royalty revenue was higher during the year ended december 31 , 2015 , compared to the same period in 2014 , as a result of the prorated revenue that was recognized from the $ 8.0 million upfront license fee we received from sony corporation in march 2015 and ongoing per unit royalties on display modules it sells . contract revenue replace_table_token_5_th 17 contract revenue includes revenue from support service contracts and the sale of prototype units and evaluation kits incorporating our picop scanning technology . in october 2014 , we entered into a $ 1.5 million agreement to provide display module support services to sony corporation for the production readiness , initial production and market launch for its products incorporating our picop scanning technology .
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our actual results may differ materially from those discussed in or implied by the forward looking statements as a result of various factors , including , without limitation , those set forth under part i , item 1a , “ risk factors , ” and other matters included elsewhere in this annual report on form 10-k. the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k , as well as the information presented under part ii , item 6 of this annual report on form 10-k. overview we design and manufacture commercial and defense fully-automatic transmissions . the business was founded in 1915 and has been headquartered in indianapolis , indiana since inception . allison was an operating unit of general motors corporation from 1929 until 2007 , when allison once again became a stand-alone company . in march 2012 , allison began trading on the new york stock exchange under the symbol , “ alsn ” . we have approximately 2,900 employees and 12 different transmission product lines . although approximately 77 % of revenues were generated in north america in 2018 , we have a global presence by serving customers in europe , asia , south america and africa . we serve customers through an independent network of approximately 1,400 independent distributor and dealer locations worldwide . trends impacting our business our net sales are driven by commercial vehicle production , which tends to be highly correlated to macroeconomic conditions . during 2019 , we expect lower demand in the north america off-highway and service parts , support equipment and other end markets , partially offset by increased demand in the north america on-highway end market , price increases on certain products and continued execution of our growth initiatives . full year 2018 and 2017 net sales by end market ( in millions ) replace_table_token_7_th * north america on-highway end market net sales are inclusive of net sales for north america electric hybrid-propulsion systems for transit bus north america on-highway end market net sales were up 12 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , principally driven by higher demand for rugged duty series and highway series models . north america off-highway end market net sales were up $ 42 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , principally driven by higher demand from hydraulic fracturing applications . defense end market net sales were up 35 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , principally driven by higher tracked and wheeled demand . outside north america on-highway end market net sales were up 11 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , principally driven by higher demand in asia and europe . 34 outside north america off-highway end market net sales were up $ 88 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , principally driven by higher demand in the energy , mining and construction sectors . service parts , support equipment and other end market net sales were up 19 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , principally driven by higher demand for global service parts and support equipment . key components of our results of operations net sales we generate our net sales primarily from the sale of transmissions , transmission parts , support equipment , defense kits , engineering services , royalties and extended transmission coverage to a wide array of oems , distributors and the u.s. government . sales are recorded net of provisions for customer allowances and other rebates . engineering services are recorded as net sales in accordance with the terms of the contract . the associated costs are recorded in cost of sales . we also have royalty agreements with third parties that provide net sales as a result of joint efforts in developing marketable products . cost of sales our primary components of cost of sales are purchased parts , the overhead expense related to our manufacturing operations and direct labor associated with the manufacture and assembly of transmissions and parts . for the year ended december 31 , 2018 , direct material costs were approximately 71 % , overhead costs were approximately 23 % and direct labor costs were approximately 6 % of total cost of sales . we are subject to changes in our cost of sales caused by movements in underlying commodity prices . we seek to hedge against this risk by using long-term supply agreements ( `` ltsas '' ) . see part ii , item 7a , “ quantitative and qualitative disclosures about market risk—commodity price risk ” included in this annual report on form 10-k. selling , general and administrative the principal components of our selling , general and administrative expenses are salaries and benefits for our office personnel , advertising and promotional expenses , product warranty expense , expenses relating to certain information technology systems and amortization of our intangibles . engineering — research and development we incur costs in connection with research and development programs that are expected to contribute to future earnings . such costs are expensed as incurred . 35 non-gaap financial measures we use adjusted earnings before interest , taxes , depreciation , and amortization ( “ ebitda ” ) and adjusted ebitda as a percent of net sales to measure our operating profitability . we believe that adjusted ebitda and adjusted ebitda as a percent of net sales provide management , investors and creditors with useful measures of the operational results of our business and increase the period-to-period comparability of our operating profitability and comparability with other companies . story_separator_special_tag the change was principally driven by $ 13 million of lower technology-related investments expense for investments in co-development agreements to expand our position in transmission technologies , $ 12 million of credits related to post-retirement benefit plan amendments and $ 4 million of favorable foreign exchange , partially offset by a $ 3 million decrease in foreign exchange losses on intercompany financing . income tax expense income tax expense for the year ended december 31 , 2018 was $ 166 million resulting in an effective tax rate of 21 % , compared to $ 23 million of income tax expense and an effective tax rate of 4 % for the year ended december 31 , 2017 . the change in the effective tax rate was a result of the u.s. tax cuts and jobs act enacted into law in 2017 and was principally driven by a one time $ 157 million tax benefit resulting from a decrease in deferred tax liabilities in 2017 , partially offset by $ 5 million of tax expense related to the deemed repatriation of accumulated foreign earnings and profits in 2017 as a result of the u.s. tax cuts and jobs act . 40 comparison of years ended december 31 , 2017 and 2016 replace_table_token_10_th net sales net sales for the year ended december 31 , 2017 were $ 2,262 million compared to $ 1,840 million for the year ended december 31 , 2016 , an increase of 23 % . the increase was principally driven by a $ 154 million , or 41 % , increase in net sales in the service parts , support equipment and other end market principally driven by higher demand for north america service parts and global support equipment , a $ 154 million , or 15 % , increase in net sales in the north america on-highway end market principally driven by higher demand for rugged duty series models , a $ 44 million increase in net sales in the north america off-highway end market principally driven by higher demand from hydraulic fracturing applications , a $ 39 million , or 13 % , increase in net sales in the outside north america on-highway end market principally driven by higher demand in asia , europe and south america , a $ 29 million increase in net sales in the outside north america off-highway end market principally driven by improved demand in the mining and energy sectors and a $ 2 million , or 2 % , increase in net sales in the defense end market principally driven by higher demand . cost of sales cost of sales for the year ended december 31 , 2017 were $ 1,131 million compared to $ 976 million for the year ended december 31 , 2016 , an increase of 16 % . the increase was principally driven by increased material cost and manufacturing expenses commensurate with increased net sales , $ 9 million associated with the ratification of a new collective bargaining agreement with uaw local 933 and $ 6 million of higher incentive compensation expense . gross profit gross profit for the year ended december 31 , 2017 was $ 1,131 million compared to $ 864 million for the year ended december 31 , 2016 , an increase of 31 % . the increase was principally driven by $ 260 million related to increased net sales and $ 38 million of price increases on certain products , partially offset by $ 9 million of expenses associated with the ratification of a new collective bargaining agreement with uaw local 933 , $ 9 million of higher manufacturing expense commensurate with increased net sales , $ 6 million of higher incentive compensation expense and $ 7 million of unfavorable material cost . gross profit as a percent of net sales for the year ended december 31 , 2017 increased 3 % compared to the same period in 2016 principally driven by favorable sales volume and price increases on certain products , partially offset by expense associated with the ratification of a new collective bargaining agreement , higher incentive compensation expense and unfavorable material cost . 41 selling , general and administrative selling , general and administrative expenses for the year ended december 31 , 2017 were $ 342 million compared to $ 324 million for the year ended december 31 , 2016 , an increase of 6 % . the increase was principally driven by increased commercial activities spending , $ 6 million of higher incentive compensation expense , $ 5 million of unfavorable product warranty adjustments and $ 2 million of higher stock-based compensation expense , partially offset by $ 4 million of stockholder activism expenses in 2016 that did not recur in 2017 and $ 4 million of favorable dpim adjustments . engineering — research and development engineering expenses for the year ended december 31 , 2017 were $ 105 million compared to $ 88 million for the year ended december 31 , 2016 , an increase of 19 % . the increase was principally driven by increased product initiatives spending and $ 3 million of higher incentive compensation expense . loss associated with impairment of long-lived assets during the fourth quarter of 2017 , we recorded approximately $ 32 million of losses associated with impairment of certain of our long-lived assets related to the production of the tc10 transmission . see note 5 “ property , plant and equipment ” of notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for additional details . interest expense , net interest expense , net for the year ended december 31 , 2017 was $ 103 million compared to $ 101 million for the year ended december 31 , 2016 , an increase of 2 % .
| results of operations the following tables set forth certain financial information for the years ended december 31 , 2018 and 2017 and for the years ended december 31 , 2017 and 2016 . the following tables and discussion should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto included in part ii , item 8 of this annual report on form 10-k. comparison of years ended december 31 , 2018 and 2017 replace_table_token_9_th net sales net sales for the year ended december 31 , 2018 were $ 2,713 million compared to $ 2,262 million for the year ended december 31 , 2017 , an increase of 20 % . the increase was principally driven by a $ 140 million , or 12 % , increase in net sales in the north america on-highway end market principally driven by higher demand for rugged duty series and highway series models , a $ 101 million , or 19 % , increase in net sales in the service parts , support equipment and other end market principally driven by higher demand for global service parts and support equipment , an $ 88 million increase in net sales in the outside north america off-highway end market principally driven by higher demand in the energy , mining and construction sectors , a $ 42 million increase in net sales in the north america off-highway end market principally driven by higher demand from hydraulic fracturing applications , a $ 41 million , or 35 % , increase in net sales in the defense end market principally driven by higher tracked and wheeled demand , and a $ 39 million , or 11 % , increase in net sales in the outside north america on-highway end market principally driven by higher demand in asia and europe . see “ trends impacting our business ” above for additional information on net sales by end market .
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our actual results may differ materially from those discussed in or implied by any of the forward-looking statements as a result of various factors , including but not limited to those listed under “ risk factors ” and “ special note regarding forward-looking statements. ” we enable risk-bearing businesses to better understand and manage their risks and opportunities associated with those risks . we provide value to our customers by supplying proprietary data that , combined with our analytic methods , creates embedded decision support solutions . we are the largest aggregator and provider of data pertaining to u.s. property and casualty , or p & c , insurance risks . we offer solutions for detecting fraud in the u.s. p & c insurance , financial services and healthcare industries and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to supply chain to health insurance . our customers use our solutions to make better risk decisions with greater efficiency and discipline . we refer to these products and services as “ solutions ” due to the integration among our products and the flexibility that enables our customers to purchase components or the comprehensive package of products . these solutions take various forms , including data , statistical models or tailored analytics , all designed to allow our clients to make more logical decisions . we believe our solutions for analyzing risk positively impact our customers ' revenues and help them better manage their costs . on may 23 , 2008 , in contemplation of our ipo , insurance service office , inc. , or iso , formed verisk analytics , inc. , or verisk , a delaware corporation , to be the holding company for our business . verisk was initially formed as a wholly-owned subsidiary of iso . on october 6 , 2009 in connection with our ipo , we effected a reorganization whereby iso became a wholly-owned subsidiary of verisk . on october 1 , 2010 , we completed a follow-on public offering . we did not receive any proceeds from the sale of common stock in the offering . the primary purpose of the offering was to manage and organize the sale by class b insurance company shareholders while providing incremental public float . concurrently with the closing of the offering , we repurchased shares of common stock , for an aggregate purchase price of $ 192.5 million , directly from selling shareholders owning class b common stock . we converted all class b shares to class a shares in 2011 and currently have no outstanding class b shares . we organize our business in two segments : risk assessment and decision analytics . our risk assessment segment provides statistical , actuarial and underwriting data for the u.s. p & c insurance industry . our risk assessment segment revenues represented approximately 38.7 % and 41.2 % of our revenues for the years ended december 31 , 2013 and 2012 , respectively . effective december 31 , 2012 , we combined the statistical agency and data services and actuarial services into industry-standard insurance programs within our risk assessment segment . our decision analytics segment provides solutions our customers use 30 to analyze the processes of the verisk risk analysis framework : prediction of loss , detection and prevention of fraud , and quantification of loss . effective december 31 , 2011 , we realigned the revenue categories within our decision analytics segment , including fraud identification and detection solutions , loss prediction solutions and loss quantification solutions , into four vertical market-related groupings of insurance , financial services , healthcare , and specialized markets . we believe that this enhances financial reporting transparency and helps investors better understand the themes within the decision analytics segment . our decision analytics segment revenues represented approximately 61.3 % and 58.8 % of our revenues for the years ended december 31 , 2013 and 2012 , respectively . in january 2014 , we entered into an agreement to acquire 100 % of the stock of eagleview technology corporation ( “ evt ” ) , the parent company of pictometry international corp. , and eagle view technologies , inc. for a net cash purchase price of $ 650 million , which will be funded by the company 's operating cash and borrowings from our credit facility . evt is a provider of geo-referenced aerial image capture and visual-centric data analytics and solutions to insurers , contractors , government , and commercial customers in the united states . this acquisition is expected to advance our position in the imagery analytics market , adding new municipal and commercial customers . the transaction is expected to support the aerial imagery solution development in our decision analytics segment . the parties expect the transaction to close by july 2014 , subject to the completion of customary closing conditions , including receipt of regulatory and shareholder approvals . once the acquisition is completed , we plan to include evt in the insurance vertical of our decision analytics segment . in february 2014 , we entered into an agreement to sell our mortgage services business . the transaction is subject to regulatory approval and other customary closing conditions and is expected to close by march 31 , 2014. from 2009 to 2011 , the mortgage services business was in both risk assessment segment within the insurance services revenue category and decision analytics segment in the financial services revenue category . in 2012 , we reclassified the appraisal mortgage tools from risk assessment to our decision analytics segment in the financial services revenue category . therefore , in 2012 and 2013 , the mortgage services business is within decision analytics segment . results of operations for the mortgage services business are reported as a discontinued operation for the year ended december 31 , 2013 and for all prior periods presented . see note 10 of our consolidated financial statements included in this annual report form 10-k. as necessary , all amounts have been retroactively adjusted in all periods presented to give recognition to this discontinued operations . story_separator_special_tag % in 2002 to a trough of negative 3.1 % in 2009 and subsequently recovering to 4.4 % in 2012 and 4.1 % through nine-months 2013. based on reports of firming in insurance markets , and assuming modest growth in the economy , we expect premium growth near recent rates through 2014. growth or decline in premiums for the lines of insurance for which we perform services could positively or negatively affect our revenues , because premium growth can affect the volume of solutions as well as the number and types of solutions our customers buy . also , we link the invoices of certain solutions in part to an individual customer 's premiums from prior years for a portion of our customers . the pricing for those solutions is fixed at the beginning of each calendar year . we have also signed multiyear contracts with certain customers , and for those customers , pricing is fixed at the beginning of each multiyear period . trends in catastrophe and noncatastrophe weather losses can have an effect on our customers ' profitability and therefore their appetite for buying analytics to help them manage their risks . the apparent increase in the frequency and severity of weather events that cause losses for insurers could lead to increased demand for our catastrophe modeling , catastrophe loss information , and repair cost solutions . a significant decrease in the number or severity of catastrophes could negatively affect our revenues . we also have a portion of our revenue related to the number of claims processed due to losses which can be impacted by seasonal storm activity . the need by our customers to fight insurance fraud — both in claims and at policy inception — could lead to increased demand for our underwriting and claims solutions . additionally , a significant change in insurers ' profitability could positively or negatively affect demand for our solutions . 32 trends in the u.s. healthcare market can affect a portion of our revenues in the decision analytics segment . that market is undergoing significant change as the result of healthcare reform legislation . the specific trends we see affecting our current healthcare business include payment reform , expansion of insurance coverage , and efforts at cost containment . payment reform will likely drive the market to value-based reimbursement and require healthcare providers to bear increased financial risk and responsibility for quality outcomes . the expansion of insurance eligibility will increase medicaid rolls and promote participation in statewide health exchanges . and as the government seeks to control fraud , waste , and abuse , efforts to contain costs will likely become more prevalent . although such changes have the potential to disrupt the healthcare marketplace , we believe the requirements for reform could increase demand for our analytic solutions in the areas of population management , quality measurement , medicare advantage revenue management and compliance , risk adjustment , and detection of prepayment fraud and abuse . we experience seasonality in our medicare advantage business tied to third and fourth quarters of our fiscal year , related to cms deadlines . description of acquisitions we acquired six businesses since january 1 , 2011. as a result of these acquisitions , our consolidated results of operations may not be comparable between periods . on december 20 , 2012 , we acquired the net assets of insurance risk management solutions , or irms . irms provided integrated property risk assessment technology underlying one of our gis ( geographic information system ) underwriting solutions . at the end of 2012 , this long-term contract ( since 1992 ) with irms was expiring and precipitated a change in our business relationship . instead of continuing forward with a new services agreement , we acquired the technology and service assets of irms as this will enable us to better manage , enhance and continue to use the solutions as part of our risk assessment segment . this acquisition had minimal revenue and operating expense impact for the year ending december 31 , 2012 , given the timing of the acquisition . see note 9. to our consolidated financial statements included in this annual report on form 10-k for the preliminary purchase allocation . on august 31 , 2012 , we acquired argus information & advisory services , llc , or argus , a provider of information , competitive benchmarking , scoring solutions , analytics , and customized services to financial institutions and regulators in north america , latin america , and europe . argus leverages its comprehensive payment data sets and provides proprietary solutions to a client base that includes credit and debit card issuers , retail banks and other consumer financial services providers , payment processors , insurance companies , and other industry stakeholders . within our decision analytics segment , this acquisition enhances our position as a provider of data , analytics , and decision-support solutions to financial institutions globally . see note 9. to our consolidated financial statements included in this annual report on form 10-k for the preliminary purchase allocation . on july 2 , 2012 , we acquired the net assets of aspect loss prevention , llc , or alp , a provider of loss prevention and analytic solutions to the retail , entertainment , and food industries . within our decision analytics segment , this acquisition further advances our position as a provider of data , crime analytics , and decision-support solutions . see note 9. to our consolidated financial statements included in this annual report on form 10-k for the preliminary purchase allocation . on march 30 , 2012 , we acquired 100 % of the stock of mediconnect global , inc. , or mediconnect , a service provider of medical record retrieval , digitization , coding , extraction , and analysis . within our decision analytics segment , mediconnect further supports our objective to be the leading provider of data , analytics , and decision-support solutions to the healthcare and property casualty industries .
| quarterly results of operations the following table sets forth our quarterly unaudited consolidated statement of operations data for each of the eight quarters in the period ended december 31 , 2013 . in management 's opinion , the quarterly data has been prepared on the same basis as the audited consolidated financial statements included in this annual report on form 10-k , and reflects all necessary adjustments 40 for a fair presentation of this data . the results of historical periods are not necessarily indicative of the results of operations for a full year or any future period . replace_table_token_11_th 41 liquidity and capital resources as of december 31 , 2013 and 2012 , we had cash and cash equivalents and available-for-sale securities of $ 169.7 million and $ 94.7 million , respectively . subscriptions for our solutions are billed and generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period , which is usually for one year . subscriptions are automatically renewed at the beginning of each calendar year . we have historically generated significant cash flows from operations . as a result of this factor , as well as the availability of funds under our syndicated revolving credit facility , we believe we will have sufficient cash to meet our working capital and capital expenditure needs , and to fuel our future growth plans . we have historically managed the business with a working capital deficit due to the fact that , as described above , we offer our solutions and services primarily through annual subscriptions or long-term contracts , which are generally prepaid quarterly or annually in advance of the services being rendered . when cash is received for prepayment of invoices , we record an asset ( cash and cash equivalents ) on our balance sheet with the offset recorded as a current liability ( fees received in advance ) .
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deferred credit deferred credit represents tax credits recognized initially in conjunction with the nephrogenex asset acquisition that will be recognized within income tax provision in proportion to the realization of the story_separator_special_tag financial condition and results of operations you should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. this item and the related discussion contain forward-looking statements reflecting current expectations that involve risks and uncertainties . actual results and the timing of events may differ materially from those indicated in such forward-looking statements . important factors that may cause such differences include , but are not limited to , those discussed under the “ forward-looking statements ” above and “ item ia . risk factors ” in part i of this annual report on form 10-k. business overview we are one of the world 's leading clinical contract research organizations , or cros , by revenue , solely focused on providing scientifically-driven outsourced clinical development services to the biotechnology , pharmaceutical and medical device industries . our mission is to accelerate the global development of safe and effective medical therapeutics . we differentiate ourselves from our competitors by our disciplined operating model centered on providing full-service phase i-iv clinical development services and our therapeutic expertise . we believe this combination results in timely and cost-effective delivery of clinical development services for our customers . we believe that we are a partner of choice for small- and mid-sized biopharmaceutical companies based on our ability to consistently utilize our full-service , disciplined operating model to deliver timely and high-quality results for our customers . we focus on conducting clinical trials across all major therapeutic areas , with particular strength in cardiology , metabolic disease , oncology , endocrinology , central nervous system , or cns , antiviral and anti-infective , or avai , as well as therapeutic expertise in medical devices . our global platform includes approximately 2,500 employees across 35 countries , providing our customers with broad access to diverse markets and patient populations as well as local regulatory expertise and market knowledge . asset acquisition in may 2017 , the company acquired out of bankruptcy nephrogenex , inc. ( “ nephrogenex ” or the “ debtor ” ) , a publicly-held pharmaceutical company that had previously filed for relief under chapter 11 of the united states bankruptcy code . the company , which was the largest unsecured creditor of nephrogenex , entered into an agreement through the bankruptcy process , to exchange its unsecured claim for 100 % of the common stock in the post-bankruptcy , debt-free debtor . the assets of the acquired debtor consist primarily of tax attributes as well as in-process research and development and other intangible assets . an analysis by the company determined that substantially all the fair value of the assets on the date of acquisition is captured in the tax attributes , as the intangible assets account for a relatively immaterial portion of the fair market value of the total assets received . the acquisition of the debtor was accounted for as an asset purchase . the company allocated its consideration paid of $ 1.2 million , consisting of accounts receivable and unbilled receivables and transaction related costs , on a pro rata basis to the assets acquired based on their respective fair values . acquired assets include intangible assets of $ 0.5 million , deferred tax assets of $ 22.2 million , consisting of tax effected net operating losses in the amount of $ 13.5 million , tax effected capitalized research and development expenses of $ 8.5 million and tax effected federal tax credits of $ 0.2 million , and deferred tax liabilities of $ 0.1 million . the excess amount of fair value received over consideration paid of $ 21.4 million was recorded as a deferred credit in the consolidated balance sheets and will be recognized within income tax provision in proportion to the realization of the deferred tax assets and federal tax credits prospectively . during the fourth quarter of the year ended december 31 , 2017 , the deferred tax assets and related deferred credit balances were revalued due primarily to the impact of tax reform . see note 12 of the notes to consolidated financial statements for further discussion of the impact of tax reform on our consolidated financial statements . how we generate revenue our revenue consists of net service revenue and reimbursed-out-of-pocket revenue . - 58 - net service revenue we earn customer fees through the performance of services detailed in our customer contracts . contract scope and pricing is typically based on either a fixed-fee or unit-of-service model and our contracts can range in duration from a few months to several years . these contracts are individually priced and negotiated based on the anticipated project scope , including the complexity of the project and the performance risks inherent in the project . the majority of our contracts are structured with an upfront fee that is collected at the time of contract signing , and the balance of the fee is collected over the duration of the contract either through an arranged billing schedule or upon completion of certain performance targets or defined milestones . this payment structure is standard in the cro industry . net service revenue , which is distinct from billing and cash receipt , is generally recognized based on the proportional performance methodology , which is determined by assessing the proportion of performance completed or delivered to date compared to total specific measures to be delivered or completed under the terms of the contract . the measures utilized to assess performance are specific to the service provided . net service revenue for unit-of-service contracts is recognized as services are performed or delivered . cancellation provisions in our contracts allow our customers to terminate a contract either immediately or according to advance notice terms specified within the applicable contract , which is typically 30 days . story_separator_special_tag cancellations arise in the normal course of business and are reflected when we receive written confirmation from the customer to cease work on a contractual agreement . the majority of our customers can terminate our contracts without cause upon 30 days ' notice . similar to new business awards , the number and amount of cancellations can vary significantly period over period due to timing of customer correspondence and study-specific circumstances . net new business awards represent gross new business awards received in a period offset by total cancellations in that period . net new business awards were $ 426.1 million , $ 427.0 million and $ 359.5 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . - 60 - backlog represents anticipated future net service revenue from net new business awards that have commenced , but have not been completed . reported backlog will fluctuate based on new business awards , changes in the scope of existing contracts , cancellations , revenue recognition on existing contracts and foreign exchange adjustments fr om non-u.s. dollar denominated backlog . as of december 31 , 2017 , our backlog increased by $ 40.5 million , or 8.4 % , to $ 524.4 million compared to $ 483.9 million as of december 31 , 2016. included within backlog as of december 31 , 2017 was approximately $ 285 m illion to $ 295 million that we expect to convert to net service revenue in 2018 , with the remainder expected to convert to net service revenue in years after 2018 . the effect of foreign currency adjustments on backlog was as follows : favorable foreign currency adjustments of $ 3.2 million for the year ended december 31 , 2017 ; unfavorable foreign currency adjustments of $ 3.4 million for the year ended december 31 , 2016 ; and unfavorable foreign currency adjustments of $ 3.6 million for the year ended december 31 , 2015. backlog and net new business award metrics may not be reliable indicators of our future period revenue as they are subject to a variety of factors that may cause material fluctuations from period to period . these factors include , but are not limited to , changes in the scope of projects , cancellations , and duration and timing of services provided . exchange rate fluctuations the majority of our contracts and operational transactions are u.s. dollar denominated . the euro represents the largest foreign currency denomination of our contractual and operational exposure . as a result , a portion of our revenue and expenses is subject to exchange rate fluctuations . we have translated the euro into u.s. dollars using the following average exchange rates based on data obtained from www.xe.com : replace_table_token_4_th story_separator_special_tag normal ; '' > the 2017 tcja significantly reforms the internal revenue code of 1986 , as amended . the tcja , among other things , includes a reduction in the u.s. federal tax rate from 35 % to 21 % , allows for the expensing of capital expenditures and puts into effect the migration from a “ worldwide ” system of taxation to a territorial system . the provisional impact on the year ended december 31 , 2017 effective tax rate from the tcja was primarily attributable to a one-time transition tax of $ 0.6 million on unrepatriated earnings of foreign subsidiaries as well as a tax benefit of $ 3.4 million related to the revaluation of the deferred credit which was partially offset by the revaluation of our deferred tax assets and liabilities and other miscellaneous tax attributes due to the reduction of the u.s. corporate tax rate from 35 % to 21 % . we are still evaluating the impact of the tcja on our future effective tax rate , but at this time , we expect that the overall impact of the tcja will decrease our effective tax rate compared to prior years . year ended december 31 , 2016 compared to year ended december 31 , 2015 replace_table_token_6_th - 63 - service revenue , net and reimbursed out-of-pocket revenue for the year ended december 31 , 2016 service revenue , net increased by $ 50.5 million to $ 370.6 million , from $ 320.1 million for the year ended december 31 , 2015. the increase was primarily driven by strong activity within the oncology and avai therapeutic areas . reimbursed out-of-pocket revenue increased by $ 12.0 million to $ 51.0 million for the year ended december 31 , 2016 , from $ 39.0 million for the year ended december 31 , 2015. reimbursed out-of-pocket revenues can fluctuate significantly from period to period based on the timing of program initiation or closeout , and these changes do not necessarily correlate to changes in net service revenue . the reimbursements were offset by an equal amount of reimbursed out-of-pocket expenses . direct costs , excluding depreciation and amortization and reimbursed out-of-pocket expenses our direct costs , excluding depreciation and amortization increased by $ 34.8 million , to $ 198.5 million for the year ended december 31 , 2016 from $ 163.7 million for the year ended december 31 , 2015. the increase was primarily attributed to increases in employee related costs for additional personnel of $ 23.7 million , contracted services of $ 4.7 million , and laboratory costs of $ 2.3 million , all to support the growth in project activities .
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 replace_table_token_5_th - 61 - service revenue , net and reimbursed out-of-pocket revenue for the year ended december 31 , 2017 service revenue , net increased by $ 15.8 million to $ 386.5 million , from $ 370.6 million for the year ended december 31 , 2016. the increase was primarily driven by strong activity within the oncology , metabolic , and other uncategorized therapeutic areas . reimbursed out-of-pocket revenue decreased by $ 1.3 million to $ 49.7 million for the year ended december 31 , 2017 , from $ 51.0 million for the year ended december 31 , 2016. reimbursed out-of-pocket revenues can fluctuate significantly from period to period based on the timing of program initiation or closeout , and these changes do not necessarily correlate to changes in net service revenue . the reimbursements were offset by an equal amount of reimbursed out-of-pocket expenses . direct costs , excluding depreciation and amortization and reimbursed out-of-pocket expenses our direct costs , excluding depreciation and amortization increased by $ 13.3 million , to $ 211.8 million for the year ended december 31 , 2017 from $ 198.5 million for the year ended december 31 , 2016. the increase was primarily attributed to higher personnel costs of $ 9.3 million , laboratory costs of $ 2.8 million , office rents of $ 0.8 million and computer , software licenses and maintenance costs of $ 0.6 million in the year ended december 31 , 2017 , compared to the prior year , all to support the growth in project activities .
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( 2 ) the joint venture financial statements story_separator_special_tag overview and outlook industry conditions during 2010 , the economic downturn and high unemployment rates persisted , which continued to negatively impact demand in the homebuilding industry . based on statistics from realtytrac , processed foreclosures reached over one million in 2010 , the highest annual number of foreclosures since the downturn began . these record-high foreclosure rates contributed to the continued high housing inventory levels and , coupled with limited availability of mortgage financing resulting from the turmoil in the financial industry in prior years , exerted further pressure on home prices . consumer confidence remained weak , despite the affordability of new homes and historic low interest rates . we believe that the demand we experienced in the second half of 2010 after the expiration of the federal homebuyer tax credit reflected homebuyers ' reluctance to make a purchasing decision until they are comfortable that economic conditions have stabilized . although we are seeing some signs of the beginning of a recovery in certain markets and expect the second half of 2011 to improve as the economy begins to recover , we believe the current conditions could continue , and we expect that our operations will remain relatively flat until the entire u.s. economy rebounds . story_separator_special_tag preparation of our financial statements will change as new events occur , as more experience is acquired , as additional information is obtained and as our operating environment changes . changes in estimates are revised when circumstances warrant . such changes in estimates and refinements in methodologies are reflected in our reported results of operations and , if material , the effects of changes in estimates are disclosed in the notes to our consolidated financial statements . the judgments , assumptions and estimates we use and believe to be critical to our business are based on historical experience , knowledge of the accounts and other factors , which we believe to be reasonable under the circumstances . because of the nature of the judgments and assumptions we have made , actual results may differ from these judgments and estimates and could have a material impact on the carrying values of assets and liabilities and the results of our operations . the accounting policies that we deem most critical to us and involve the most difficult , subjective or complex judgments are as follows : revenue recognition we recognize revenue from a home sale when title passes to the homeowner , the homeowner 's initial and continuing investment is adequate to demonstrate a commitment to pay for the home , the receivable , if any , from the homeowner is not subject to future subordination and we do not have a substantial continuing involvement with the sold home . these conditions are typically achieved when a home closes . revenue from land sales is recognized when a significant down payment is received , the earnings process is relatively complete , title passes and collectability of the receivable is reasonably assured . although there is limited subjectivity in this accounting policy , we have designated revenue recognition as a critical accounting policy due to the significance of this balance in our statements of operations . real estate real estate is stated at cost unless the community or land is determined to be impaired , at which point the inventory is written down to fair value as required by financial accounting standards board ( fasb ) accounting standards codification ( asc ) 360-10 , property , plant and equipment . inventory includes the costs of land acquisition , land development and home construction , capitalized interest , real estate taxes , direct overhead costs incurred during development and home construction that benefit the entire community , less impairments , if any . land and development costs are typically allocated to and transferred to homes under construction when construction begins . home construction costs are accumulated on a per-home basis . cost of home closings includes the specific construction costs of the home and all related land acquisition , land development and other common costs ( both incurred and estimated to be incurred ) based upon the total number of homes expected to be closed in each community or phase . any changes to the estimated total development costs of a community or phase are allocated to the remaining homes in the community or phase . when a home closes , we may have incurred costs for goods and services that have not yet been paid . therefore , an accrual to capture such obligations is recorded in connection with the home closing and charged directly to cost of sales . 26 typically , an entitled community 's life cycle ranges from three to five years , commencing with the acquisition of the land and continuing through the land development phase and concluding with the sale , construction and closing of the homes . actual community lives will vary based on the size of the community , the absorption rates and whether the land purchased was raw land or finished lots . master-planned communities encompassing several phases and super-block land parcels may have significantly longer lives and projects involving finished lot purchases may be significantly shorter . additionally , the current slow-down in the housing market has negatively impacted our sales pace , thereby extending the lives of certain communities . all of our land inventory and related real estate assets are reviewed for recoverability at least quarterly , or more frequently if impairment indicators are present , as our inventory is considered long-lived in accordance with u.s. generally accepted accounting principles . if an asset is deemed not recoverable , we are required to record impairment charges to the extent the fair value of such assets is less than their carrying amounts . our determination of fair value is based on projections and estimates . changes in these expectations may lead to a change in the outcome of our impairment analysis and actual results may also differ from our assumptions . story_separator_special_tag the impairment charges were based on our fair value calculations , which are affected by current market conditions , assumptions and expectations , all of which are highly subjective and may differ significantly from actual results if market conditions change . due to the volume of possible outcomes that can be generated from changes in the various model inputs for each community , we do not believe it is possible to create a sensitivity analysis that can provide meaningful information for the users of our financial statements . warranty reserves we use subcontractors for nearly all aspects of home construction . although our subcontractors are generally required to repair and replace any product or labor defects , we are , during applicable warranty periods , ultimately responsible to the homeowner for making such repairs . as such , warranty reserves are recorded to cover our exposure to absorb the costs for materials and labor not expected to be covered by our subcontractors as they relate to warranty-type claims subsequent to the delivery of a home to the homeowner . reserves are reviewed on a regular basis and , with the assistance of an actuary , we determine their sufficiency based on our and industry-wide historical data and trends with respect to product types and geographical areas . at december 31 , 2010 , our warranty reserve was $ 29.3 million , reflecting an accrual of 0.2 % to 0.7 % of a home 's sale price depending on our loss history in the geographic area in which the home was built . a 10 % increase in our warranty reserve rate would have increased our accrual and corresponding cost of sales by approximately $ 700,000 in 2010. while we believe that the warranty reserve is sufficient to cover our projected costs , there can be no assurances that historical data and trends will accurately predict our actual warranty costs . furthermore , there can be no assurances that future economic or financial developments might not lead to a significant change in the reserve . off-balance sheet arrangements historically , we have invested in entities that acquire and develop land for sale to us in connection with our homebuilding operations or for sale to third parties . our partners generally are unaffiliated homebuilders , land sellers and financial or other strategic partners . all unconsolidated entities through which we acquire and develop land are accounted for by either the cost or the equity method of accounting as the criteria for consolidation set forth in asc 860-10 , consolidation , have not been met . we record our investments in these entities in our consolidated balance sheets as investments in unconsolidated entities and our pro rata share of the entities ' earnings or losses in our consolidated statements of earnings as earnings/ ( loss ) from unconsolidated entities , net. in order to determine if we should consolidate equity-basis joint ventures , we determine if the ventures are vies and if we are the primary beneficiary of the unconsolidated entity . factors considered in our determination include our ability to control the activities of the entity that most significantly impact its economic performance , and in cases where we do control such activities , if we also are expected to absorb the majority of the expected losses or expected gains of the entity . as of december 31 , 2010 , we believe that the equity method of accounting is appropriate for our investments in unconsolidated entities where we are not the primary beneficiary , we have a significant influence , and our ownership interest exceeds 20 % . at december 31 , 2010 , we had investments of $ 11.0 million related to equity-method unconsolidated entities with total assets of $ 56.0 million and total liabilities of $ 30.1 million . see note 4 in the accompanying consolidated financial statements for additional information related to these investments . 28 we enter into option or purchase agreements to acquire land or lots , for which we generally pay non-refundable deposits . we also analyze these agreements under asc 860-10 to determine whether we are the primary beneficiary of the variable interest entity ( vie ) , if applicable , using a similar analysis , as noted above . if we are deemed to be the primary beneficiary of the vie , we will consolidate the vie in our consolidated financial statements . see note 3 in the accompanying financial statements for additional information related to our off-balance-sheet arrangements . in cases where we are the primary beneficiary , even though we do not have title to such land , we are required to consolidate these purchase/option agreements and reflect such assets and liabilities as real estate not owned in our consolidated balance sheets . the liabilities related to consolidated vies are excluded from our debt covenant calculations . valuation of deferred tax assets we account for income taxes using the asset and liability method , which requires that deferred tax assets and liabilities be recognized based on future tax consequences of both temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the 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 in earnings in the period when the changes are enacted . in accordance with asc 740-10 , income taxes , we evaluate our deferred tax assets , including the benefit from nols , to determine if a valuation allowance is required . companies must assess , using significant judgments , whether a valuation allowance should be established based on the consideration of all available evidence using a more likely than not standard with significant weight being given to evidence that can be objectively verified .
| summary company results total home closing revenue was $ 940.4 million for the year ended december 31 , 2010 , decreasing 2.3 % from $ 962.8 million for 2009 and 37.5 % from $ 1.5 billion in 2008. we generated net income for 2010 of $ 7.2 million compared to a loss of ( $ 66.5 ) million in 2009 and ( $ 291.9 ) million in 2008. our 2010 results include $ 6.7 million of real estate-related impairments , a $ 3.5 million loss from early extinguishment of debt , and a $ 4.7 million tax benefit . in 2009 , results included $ 129.0 million of real estate-related impairments , $ 9.4 million gain from early extinguishment of debt , and an $ 88.3 million deferred tax valuation allowance charge . in 2008 , we incurred $ 263.4 million of real estate-related impairments , and had an additional charge of $ 118.6 million related to our deferred tax asset valuation . higher average home prices from the prior years are indicative of a shift to in-fill markets and different geographies , such as california , florida , and colorado during 2010 as compared to 2009 and 2008. at december 31 , 2010 , our backlog of $ 201.8 million was down 29.8 % from $ 287.5 million at december 31 , 2009. our december 31 , 2008 backlog was $ 338.0 million . fewer home sales per community and a slightly lower active community count in the second half of 2010 were primarily responsible for the decline in ending backlog . our average sales price for homes in backlog decreased from $ 262,600 at december 31 , 2009 to $ 259,400 at december 31 , 2010 , primarily due to mix of homes .
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also , this guidance requires that credit losses on available-for-sale story_separator_special_tag the following discussion should be read together with the consolidated financial statements and the notes thereto included elsewhere in this form 10-k. this discussion contains forward-looking statements that are based on management 's current expectations , estimates and projections about the company 's business , operations and financial performance . the cautionary statements made in this form 10-k should be read as applying to all related forward-looking statements whenever they appear in this form 10-k. the company 's actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors , including those that are discussed under “ forward-looking statements , ” item 1a—risk factors and elsewhere in this form 10-k. the company has a disclosure committee consisting of members of senior management and other key employees involved in the preparation of the company 's sec reports . the committee is actively involved in the review and discussion of the company 's sec filings . for a discussion and analysis of the company 's financial statements for fiscal 2018 compared to fiscal 2017 , please refer to item 7—management 's discussion and analysis of financial condition and results of operations in the company 's annual report on form 10-k for the year ended december 31 , 2018 , filed with the sec on february 19 , 2019. overview american water is the largest and most geographically diverse , publicly-traded water and wastewater utility company in the united states , as measured by both operating revenues and population served . the company employs approximately 6,800 professionals who provide drinking water , wastewater and other related services to approximately 15 million people in 46 states . the company 's primary business involves the ownership of utilities that provide water and wastewater services to residential , commercial , industrial , public authority , fire service and sale for resale customers , collectively presented as the “ regulated businesses . ” the company 's utilities operate in approximately 1,700 communities in 16 states in the united states , with over 3.4 million active customers with services provided by its water and wastewater networks . services provided by the company 's utilities are generally subject to regulation by pucs . the company also operates market-based businesses that provide complementary services to residential and smaller commercial customers , the u.s. government on military installations , as well as municipalities , utilities and industrial customers , collectively presented as the “ market-based businesses . ” these market-based businesses are not subject to regulation by state pucs . see item 1—business for additional information . 44 financial results presented in the table below are the company 's diluted earnings per share , as determined in accordance with gaap , and the company 's adjusted diluted earnings per share ( a non-gaap measure ) : replace_table_token_4_th for the year ended december 31 , 2019 , diluted earnings per share ( gaap ) were $ 3.43 , an increase of $ 0.28 per diluted share compared to the prior year , which includes the net adjustments presented in the table above and discussed in greater deta il in the “ adjustments to gaap ” section below . excluding the net adjustments presen ted in the table above , adjusted diluted earnings per share ( non-gaap ) were $ 3.61 for the year ended december 31 , 2019 , an increase of $ 0.31 per diluted share compared to the prior year . these results were driven by continued growth in the regulated businesses from infrastructure investment , acquisitions and organic growth , and growth in the market-based businesses , primarily from hos 's 2018 acquisition of pivotal and from msg 's addition of two new military contracts in 2018 ( wright-patterson air force base and fort leonard wood ) . 45 adjustments to gaap adjusted diluted earnings per share represents a non-gaap financial measure and , as shown in the table above , is calculated as gaap diluted earnings per share , excluding the impact of one or more of the following events : ( i ) a loss on the sale in the fourth quarter of 2019 of the keystone operations ; ( ii ) previously reported settlement activities related to the freedom industries chemical spill in west virginia ; ( iii ) a gain recognized in the third quarter of 2018 on the sale of the majority of csg 's o & m contracts ; ( iv ) a goodwill and intangible impairment charge in the third quarter of 2018 related to the keystone operations ; ( v ) an early extinguishment of debt charge at parent company in the third quarter of 2017 ; and ( vi ) non-cash re-measurement charges recorded in the fourth quarters of 2017 and 2018 resulting from the impact of the change in the federal corporate income tax rate on the company 's deferred income taxes from the enactment of the tcja . the company believes that this non-gaap measure provides investors with useful information by excluding certain matters that may not be indicative of its ongoing operating results , and that providing this non-gaap measure will allow investors to better understand the businesses ' operating performance and facilitate a meaningful year-to-year comparison of the company 's results of operations . although management uses this non-gaap financial measure internally to evaluate its results of operations , the company does not intend results reflected by this non-gaap measure to represent results as defined by gaap , and the reader should not consider them as indicators of performance . this non-gaap financial measure is derived from the company 's consolidated financial information but is not presented in the financial statements prepared in accordance with gaap . this measure should be considered in addition to , and not as a substitute for , measures of financial performance prepared in accordance with gaap . story_separator_special_tag the company 's expected future investments include : capital investment for infrastructure improvements in the regulated businesses of $ 8.2 billion over the next five years , and between $ 18.2 billion and $ 19.2 billion over the next 10 years , including $ 1.6 billion expected in 2020 ; and growth from acquisitions in the regulated businesses to expand the company 's water and wastewater customer base of between $ 600 million to $ 1.2 billion over the next five years , and between $ 2 billion to $ 3 billion over the next 10 years , including a range of $ 100 million to $ 300 million expected in 2020 . 47 presented in the following chart is the estimated allocation of the company 's expected capital investment for infrastructure improvements in its regulated businesses over the next five years , by purpose : operational excellence the company continues to strive for industry-leading operational efficiency , driven largely by technology . the company 's technology investments are aimed at enhancing its customer experience and operational efficiency . in 2019 : the regulated businesses achieved an adjusted o & m efficiency ratio ( a non-gaap measure ) of 34.5 % for the year ended december 31 , 2019 , compared to 35.6 % and 35.3 % for the years ended december 31 , 2018 and 2017 , respectively . the improvement in the company 's adjusted o & m efficiency ratio in 2019 , when compared to 2018 , was due to an increase in operating revenues as well as continued focus on operating costs of the regulated businesses ; the company worked to decrease costs and deploy capital efficiently , including using trenchless technologies for pipeline rehabilitation and leveraging its buying power and strategic sourcing to drive cost savings ; the company continued its commitment to water quality and the environment by leveraging new technologies ; the company now has advanced water quality sensors at all of its major drinking water intake sites and is automating its environmental reporting and compliance systems ; and the company implemented other technology tools that will enhance communication , collaboration and mobility , enable further business insights and process automation , and increase self-service capabilities , to help its employees work safely and efficiently , and enhance the customer experience . looking forward , the company will focus on technology and efficiency to : be the leader in optimizing technology across the water and wastewater industry , with a focus on specific , innovative projects that will set it apart from other utilities ; aiding the company in serving its customers with greater ease , making the company 's employees safer and helping the company operate more efficiently ; and further improve the company 's adjusted o & m efficiency ratio . 48 the company 's adjusted o & m efficiency ratio is defined as its operation and maintenance expenses from the regulated businesses , divided by the pro forma operating revenues from the regulated businesses , where both operation and maintenance expenses and pro forma operating revenues were adjusted to eliminate purchased water expense . also excluded from operation and maintenance expenses are the allocable portion of non-operation and maintenance support services costs , mainly depreciation and general taxes , which are reflected in the regulated businesses segment as operation and maintenance expenses , but for consolidated financial reporting purposes , are categorized within other line items in the accompanying consolidated statements of operations . in addition to the adjustments discussed above , for period-to-period comparability purposes , the estimated impact of the tcja on operating revenues for the regulated businesses has been presented on a pro forma basis for all periods prior to january 1 , 2018 , as if the lower federal corporate income tax rate was in effect for these periods . the company also made the following adjustments to the o & m efficiency ratio : ( i ) excluded from operation and maintenance expenses is the impact of certain freedom industries chemical spill settlement activities recognized in 2017 , 2018 and 2019 ( see note 16—commitments and contingencies in the notes to consolidated financial statements for additional information ) ; and ( ii ) excluded from operation and maintenance expenses is the impact of the company 's january 1 , 2018 adoption of accounting standards update 2017-07 , improving the presentation of net periodic pension cost and net periodic post-retirement benefit cost ( “ asu 2017-07 ” ) , for 2017 , 2018 and 2019. the items discussed above were excluded from the calculation as they are not reflective of management 's ability to increase the efficiency of the regulated businesses . the company evaluates its operating performance using this ratio , and believes it is useful to investors , because it directly measures improvement in the efficiency of the regulated businesses . this information is derived from the company 's consolidated financial information but is not presented in its financial statements prepared in accordance with gaap . this information is intended to enhance an investor 's overall understanding of the company 's operating performance . the company 's adjusted o & m efficiency ratio is not an accounting measure that is based on gaap , may not be comparable to other companies ' operating measures and should not be used in place of the gaap information provided elsewhere in this form 10-k. 49 presented in the table below is the calculation of the company 's adjusted o & m efficiency ratio and a reconciliation that compares operation and maintenance expenses and operating revenues , each as determined in accordance with gaap , to those amounts utilized in the calculation of its adjusted o & m efficiency ratio : replace_table_token_5_th ( a ) includes the impact of the company 's adoption of asu 2017-07 , compensation - retirement benefits ( topic 715 ) : improving the presentation of net periodic pension cost and net periodic post-retirement benefit , on january 1 , 2018 .
| consolidated results of operations presented in the table below are the company 's consolidated results of operations : replace_table_token_9_th the main factors contributing to the $ 54 million increase in net income attributable to common shareholders for the year ended december 31 , 2019 are described in “ segment results of operations ” below . segment results of operations the company 's operating segments are comprised of the revenue-generating components of its business for which separate financial information is internally produced and regularly used by management to make operating decisions , assess performance and allocate resources . the company operates its business primarily through one reportable segment , the regulated businesses segment . the company also operates market-based businesses that , individually , do not meet the criteria of a reportable segment in accordance with gaap , and are collectively presented as the market-based businesses , which is consistent with how management assesses the results of these businesses . 54 regulated businesses segment presented in the table below is financial information for the regulated businesses : replace_table_token_10_th operating revenues presented in the tables below is information regarding the main components of the regulated businesses ' operating revenues , with explanations for the material variances provided in the ensuing discussions : replace_table_token_11_th ( a ) includes other operating revenues consisting primarily of miscellaneous utility charges , fees and rents .
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during periods of net story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. forward-looking statements in addition to historical information , this annual report on form 10-k contains forward-looking statements as defined under federal securities laws . such statements , including statements about our plans , objectives , expectations , assumptions or future events , involve risks and uncertainties . these statements involve estimates , assumptions , known and unknown risks , uncertainties and other factors that could cause actual results to differ materially from any future results , performances or achievements expressed or implied by the forward-looking statements . typically , forward-looking statements can be identified by terminology such as anticipate , estimate , plan , project , continuing , ongoing , expect , believe , intend , may , will , should , could , and similar expressions . the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include but are not limited to the effect of governmental regulation ; changes in insurance regulations ; the frequency and extent of claims ; uncertainties inherent in reserve estimates ; catastrophic events ; changes in the demand for , pricing of , availability of or collectability of reinsurance ; restrictions on our ability to change premium rates ; increased rate pressure on premiums ; and other risks and uncertainties and other factors listed under item 1a - risk factors and elsewhere in this annual report on form 10-k and in our other securities and exchange commission filings . overview general hci group , inc. is a florida-based company which through its subsidiaries is engaged in a variety of business activities , including property and casualty insurance , reinsurance , real estate and information technology . its principal business is property and casualty insurance . based on our organizational structure , revenue sources , and evaluation of financial and operating performances by management , we manage four operating divisions under one reporting segment , which includes the following operations : a ) insurance operations property and casualty insurance reinsurance b ) other operations real estate information technology 37 we began insurance operations in 2007 by participating in a take-out program which is a legislatively mandated program designed to encourage private companies to assume policies from citizens , a florida state sponsored insurance carrier . our growth since inception has resulted primarily from a series of policy assumptions from citizens and policies assumed from one florida insurance company . this growth track was beneficial to us in terms of reduced policy acquisition costs and , depending on the timing of the transaction , temporarily lower reinsurance costs . our general operating and growth strategies are to continually optimize our existing book of insurance business , manage our costs and expenses , diversify our business operations , develop and deploy new technologies to streamline operational processes , and maintain a strong balance sheet so we can quickly pursue accretive opportunities when they arise . recent developments on january 16 , 2017 , our board of directors declared a quarterly dividend of $ 0.35 per common share . the dividends will be paid march 17 , 2017 to stockholders of record on february 17 , 2017 . 38 story_separator_special_tag policies that have renewed . salaries and wages for the years ended december 31 , 2016 and 2015 were approximately $ 19,037,000 and $ 20,140,000 , respectively . the $ 1,103,000 decrease in 2016 was primarily attributable to a decrease in discretionary incentive pay in 2016. the level of discretionary incentive pay in 2016 was influenced in large part by our financial results for the year , which were negatively impacted by hurricane matthew in the fourth quarter . as of december 31 , 2016 , we had 243 employees located at our offices in florida compared with 220 employees as of december 31 , 2015. we also had 80 employees located in noida , india at december 31 , 2016 versus 84 at december 31 , 2015. impairment loss for the year ended december 31 , 2016 was approximately $ 388,000. the loss resulted from the write-down of lease intangibles and other assets associated with the unexpected closure of one tenant 's business at one of our retail shopping centers . income tax expense for the years ended december 31 , 2016 and 2015 was approximately $ 17,835,000 and $ 40,331,000 , respectively , for state , federal and foreign income taxes resulting in an effective tax rate of 38.1 % for 2016 and 38.0 % for 2015. ratios : the loss ratio applicable to the year ended december 31 , 2016 ( losses and loss adjustment expenses incurred related to net premiums earned ) was 51.2 % compared with 30.9 % for the year ended december 31 , 2015. the increase was primarily attributable to losses in october 2016 from hurricane matthew as well as reserve strengthening throughout 2016. the expense ratio applicable to the year ended december 31 , 2016 ( defined as underwriting expenses , salaries and wages , interest and other operating expenses related to net premiums earned ) was 38.1 % compared with 32.7 % for the year ended december 31 , 2015. the increase in our expense ratio was primarily attributable to the decrease in 2016 net premiums earned . the combined ratio ( total of all expenses in relation to net premiums earned ) is the measure of overall underwriting profitability before other income . our combined ratio for the year ended december 31 , 2016 was 89.3 % compared with 63.6 % for the year ended december 31 , 2015. our combined ratio was negatively impacted by increased expenses for losses and loss adjustment expenses and a reduction in 2016 net premiums earned . story_separator_special_tag 43 policy fee income for the years ended december 31 , 2015 and 2014 was approximately $ 3,496,000 and $ 2,820,000 , respectively . the increase in 2015 is directly attributable to an increase in policy renewals . expenses our losses and loss adjustment expenses amounted to approximately $ 87,224,000 and $ 79,468,000 , respectively , for the years ended december 31 , 2015 and 2014. our 2015 losses and loss adjustment expenses were impacted by an increase in the number of policies in force throughout 2015 as compared to 2014 as well as by significant weather-related events during 2015 , which contributed to an increase in the volume of reported claims and losses incurred when compared to 2014. we also experienced unfavorable development during 2015 attributable to the settlement and further development of older claims , primarily those related to 2012 and 2014 loss dates . this development was considered in establishing our estimate for unpaid losses and loss adjustment expenses as of december 31 , 2015. see reserves for losses and loss adjustment expenses under critical accounting policies and estimates. policy acquisition and other underwriting expenses for the years ended december 31 , 2015 and 2014 of approximately $ 41,984,000 and $ 37,952,000 , respectively , primarily reflect brokerage fees and the amortization of deferred acquisition costs related to commissions payable to agents for production and renewal of policies and premium taxes . the increase in 2015 is primarily attributable to commissions and premium taxes related to the policies assumed from citizens that have renewed and are included in 2015 premiums . salaries and wages for the years ended december 31 , 2015 and 2014 were approximately $ 20,140,000 and $ 16,483,000 , respectively . the $ 3,657,000 increase in 2015 was primarily attributable to an increase in salaries due to an increase in employee headcount as well as merit increases during 2015. as of december 31 , 2015 , we had 220 employees located at our offices in florida compared with 200 employees as of december 31 , 2014. we also had 84 employees located in noida , india at december 31 , 2015 versus 79 at december 31 , 2014. other operating expenses for the years ended december 31 , 2015 and 2014 were approximately $ 19,658,000 and $ 20,790,000 , respectively . the $ 1,132,000 decrease in 2015 was primarily attributable to a $ 2,411,000 decrease in stock-based compensation partially offset by an increase in other administrative expenses . income tax expense for the years ended december 31 , 2015 and 2014 was approximately $ 40,331,000 and $ 38,298,000 , respectively , for state , federal and foreign income taxes resulting in an effective tax rate of 38.0 % for 2015 and 37.9 % for 2014 . 44 ratios : the loss ratio applicable to the year ended december 31 , 2015 was 30.9 % compared with 31.5 % for the year ended december 31 , 2014. losses on our wind-only policies , which we assumed from citizens in december 2014 , were minimal . this benefit , net of unfavorable development related to losses on our non-wind policies , contributed to this slight year over year improvement . the expense ratio applicable to the year ended december 31 , 2015 was 32.7 % compared with 34.0 % for the year ended december 31 , 2014. the decrease in our expense ratio is primarily attributable to the increase in net premiums earned . our combined ratio for the year ended december 31 , 2015 was 63.6 % compared with 65.5 % for the year ended december 31 , 2014. our combined ratio was positively impacted by an increase in net premiums earned . the combined ratio to gross premiums earned for the year ended december 31 , 2015 was 42.5 % compared with 45.2 % for the year ended december 31 , 2014. the decrease in 2015 was primarily attributable to the factors described above . seasonality of our business our insurance business is seasonal as hurricanes and tropical storms affecting florida typically occur during the period from june 1 through november 30 each year . also , with our reinsurance treaty year typically effective on june 1 each year , any variation in the cost of our reinsurance , whether due to changes in reinsurance rates or changes in the total insured value of our policy base , will occur and be reflected in our financial results beginning june 1 each year . liquidity and capital resources throughout our history , our liquidity requirements have been met through issuances of our common and preferred stock , debt offerings and funds from operations . we expect our future liquidity requirements will be met by funds from operations , primarily the cash received by insurance subsidiaries from premiums written and investment income . we may consider raising additional capital through debt and equity offerings to support our growth and future investment opportunities . our insurance subsidiaries require liquidity and adequate capital to meet ongoing obligations to policyholders and claimants and to fund operating expenses . in addition , we attempt to maintain adequate levels of liquidity and surplus to manage any differences between the duration of our liabilities and invested assets . in the insurance industry , cash collected for premiums from policies written is invested , interest and dividends are earned thereon , and losses and loss adjustment expenses are paid out over a period of years . this period of time varies by the circumstances surrounding each claim . substantially all of our losses and loss adjustment expenses , excluding litigated claims , are fully settled and paid within approximately 100 days of the claim receipt date . additional cash outflow occurs through payments of underwriting costs such as commissions , taxes , payroll , and general overhead expenses . 45 we believe that we maintain sufficient liquidity to pay claims and expenses , as well as to satisfy commitments in the event of unforeseen events such as reinsurer insolvencies , inadequate premium rates , or reserve deficiencies .
| results of operations comparison of the year ended december 31 , 2016 with the year ended december 31 , 2015 our results of operations for the year ended december 31 , 2016 reflect income available to common stockholders of $ 29,021,000 , or $ 2.92 earnings per diluted common share , compared with income available to common stockholders of $ 65,861,000 , or $ 5.90 earnings per diluted common share , for the year ended december 31 , 2015. the year over year decline in our income available to stockholders was primarily attributable to a $ 44,442,000 decrease in gross premiums earned , and a $ 37,443,000 increase in losses and loss adjustment expenses . these factors contributed to a $ 59,336,000 decrease in pre-tax income and , as a result , our income tax expense decreased $ 22,496,000 year over year . revenue gross premiums earned for the years ended december 31 , 2016 and 2015 were approximately $ 378,678,000 and $ 423,120,000 , respectively . the decrease in 2016 was primarily attributable to policy attrition as well as a rate decrease effective on new and renewal policies beginning in january 2016. premiums ceded for the years ended december 31 , 2016 and 2015 were approximately $ 135,051,000 and $ 140,614,000 , respectively , representing 35.7 % and 33.2 % , respectively , of gross premiums earned .
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we generated revenues from the manufacture and sale of high-power lithium batteries and raw materials for lithium batteries of $ 37.6 million and $ 22.2 million for the fiscal years ended december 31 , 2020 and 2019 , respectively . we incurred a net loss of $ 7.8 million and $ 10.9 million during the fiscal years ended december 31 , 2020 and 2019 , respectively . our revenues in relation to electric vehicles are , to some extent , adversely impacted by the reduction of government subsidies to new energy vehicles . however , new revenues driven from the trading of raw materials for lithium batteries , as well as the continuous climb of sales in uninterruptible supplies and light-electric-vehicle related products , contributed to the increase . for more details , see “ item 1. business—overview of our business. ” accordingly , net revenues from sales of batteries for uninterruptable supplies was $ 22.7 million for the fiscal year ended december 31 , 2020 , as compared to $ 17.7 million for fiscal year ended december 31 , 2019 , an increase of $ 5 million , or 28.2 % . net revenues from raw materials for lithium batteries was $ 14.5 million for the fiscal year ended december 31 , 2020 , as compared to nil for fiscal year ended december 31 , 2019 , an increase of $ 14.5 million , or 100 % . with the announced ultra-low-temperature battery technology , we believe that our revenues in the energy storage market will continue to grow . in addition , net revenues from sales of batteries for light electric vehicles was $ 39,428 for the fiscal year ended december 31 , 2020 , as compared to $ 16,147 for fiscal year ended december 31 , 2019 , an increase of $ 23,281 , or 144.0 % . we believe the government policies relating to new energy will in the long term encourage the production of new energy vehicles , optimize the structure of the new energy vehicles industry , enhance technical standards of the industry and strengthen its core competitiveness , which ultimately would foster strategic development of the new energy vehicles . in addition , our latest development of 32140 batteries and our planned investment in the r & d of 46800 batteries will help us regain competitiveness in both lev/ev markets with the appropriate products . therefore , the demand for new energy likely will grow in the future and we will be able to secure more potential orders from the new energy market . we have completed the construction of a cylindrical power battery manufacturing plant and a power battery packing plant of our dalian facilities which started commercial production in july 2015. we have received and been utilizing most of bak tianjin 's operating assets relocated to our dalian facilities , including its machinery and equipment for battery production and battery pack production , customers , management team and technical staff , patents and technologies . we also started the investments in and construction of our nanjing facilities , which is designed to comprise of two phases . the first phase is in the process of interior renovation and equipment purchase . phase one has an area of approximately 10,000 square meters at nearly no cost due to the government 's low rentals . phase two is currently under construction design process . the nanjing facilities , once built , are expected to provide at least 8gwh capacity to support our demand . we have also purchased machinery and equipment to expand our manufacturing capabilities . moreover , given the equity and debt financings we have obtained recently , we believe that with the booming future market demand for high power lithium-ion products , we can continue as a going concern and return to profitability . the consolidated financial statements contained in this annual report have been prepared assuming we will continue to operate as a going concern , which contemplates the realization of assets and the settlement of liabilities in the normal course of business . the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty related to our ability to continue as a going concern . 30 financial statement presentation net revenues . the company recognizes revenues when its customer obtains control of promised goods or services , in an amount that reflects the consideration which it expects to receive in exchange for those goods . the company recognizes revenues following the five-step model prescribed under asu no . 2014-09 : ( i ) identify contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenues when ( or as ) we satisfy the performance obligation . revenues from product sales are recognized when the customer obtains control of our product , which occurs at a point in time , typically upon delivery to the customer . we expense incremental costs of obtaining a contract as and when incurred it the expected amortization period of the asset that it would have recognized is on year or less or the amount is immaterial . revenue from product sales is recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers . product revenue reserves , which are classified as a reduction in product revenues , are generally characterized in the categories : discounts and returns . these reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to the company 's customer . cost of revenues . story_separator_special_tag according to the modification agreement , the remaining rmb141.8 million ( approximately $ 21.72 million ) loans are repayable in eight instalments consisting of rmb1.09 million ( $ 0.17 million ) on june 10 , 2020 , rmb1 million ( $ 0.15 million ) on december 10 , 2020 , rmb2 million ( $ 0.31 million ) on january 10 , 2021 , rmb2 million ( $ 0.31 million ) on february 10 , 2021 , rmb2 million ( $ 0.31 million ) on march 10 , 2021 , rmb2 million ( $ 0.31 million ) on april 10 , 2021 , rmb2 million ( $ 0.31 million ) on may 10 , 2021 , and rmb129.7 million ( $ 19.9 million ) on june 10 , 2021 , respectively . we repaid the bank loan of rmb1.09 million ( $ 0.17 million ) and rmb51 million ( $ 7.8 million ) in june and december 2020 , respectively . 34 as a result , the balance of loan that we borrowed from china everbright bank dalian branch as of december 31 , 2020 was rmb89.7 million ( $ 13.7 million ) . the facilities were secured by our dalian site 's land use rights and part of our dalian site 's buildings , machinery and equipment . further , in august 2018 , we borrowed a total of rmb60 million ( approximately $ 8.6 million ) in the form of bills payable from china everbright bank dalian branch for a term until august 14 , 2019 , which was secured by our cash totaled $ 8.6 million . we discounted these two bills payable of even date to china everbright bank at a rate of 4.0 % . we repaid these bills payable in august 2019. on august 22 , 2018 , we obtained one-year term facilities from china everbright bank dalian branch with a maximum amount of rmb100 million ( approximately $ 14.4 million ) including revolving loans , trade finance , notes discount , and acceptance of commercial bills etc . any amount drawn under the facilities requires security in the form of cash or banking acceptance bills receivables of at least the same amount . under the facilities as of december 31 , 2018 , we borrowed a series of bank acceptance bills totaled rmb28.8 million ( approximately $ 4.1 million ) for a term until march 7 , 2019 , which was secured by bills receivables of $ 4.1 million . we repaid the bank acceptance bills on march 7 , 2019. in november 2018 , we borrowed a total of rmb100 million ( approximately $ 14.4 million ) in the form of bills payable from china everbright bank dalian branch for a term until november 12 , 2019 , which was secured by our cash totaled rmb50 million ( approximately $ 7.2 million ) and the 100 % equity in cbak power held by bak asia . we discounted these five bills payable of even date to china everbright bank at a rate of 4.0 % . we repaid these bills payable in november 2019. we also borrowed a series of acceptance bill from industrial bank co. , ltd. dalian branch totaled rmb1.5 million ( approximately $ 0.2 million ) for various terms through may 21 , 2019 , which was secured by bills receivable of rmb1.5 million ( approximately $ 0.2 million ) . we repaid the bank acceptance bills on may 21 , 2019. in october 2019 , we borrowed a total of rmb28 million ( approximately $ 4.12 million ) in the form of bills payable from china everbright bank dalian branch for a term until october 15 , 2020 , which was secured by the company 's cash totaled rmb28 million ( approximately $ 4.12 million . we discounted these bills payable of even date to china everbright bank at a rate of 3.30 % . we repaid the bills on october 15 , 2020. in december 2019 , we obtained banking facilities from china everbright bank dalian branch totaled rmb39.9 million ( approximately $ 6.1 million ) for a term until november 6 , 2020 , bearing interest at 5.655 % per annum . the facility was secured by 100 % equity in cbak power held by bak asia and buildings of hubei bak real estate co. , ltd. , which our ceo mr. yunfei li holding 15 % equity interest . under the facilities , we borrowed rmb39.9 million ( approximately $ 6.1 million ) on december 30 , 2019. we repaid the bank loan of rmb39.9 million ( approximately $ 6.1 million ) in december 2020. from july to december 2020 , we borrowed a series of acceptance bills from china merchants bank totaled rmb24.9 million ( approximately $ 3.82 million ) for various terms through january to june 2021 , which was secured by our cash totaled rmb24.9 million ( approximately $ 3.82 million ) . in december 2020 , we borrowed a series of acceptance bills from agricultural bank of china totaled rmb32.5 million ( approximately $ 4.97 million ) for various terms through january to june 2021 , which was secured by our cash totaled rmb32.5 million ( approximately $ 4.97 million ) . in january 2019 , we obtained one-year term facilities from jilin province trust co. ltd. with a maximum amount of rmb40.0 million ( approximately $ 5.8 million ) , which was secured by land use rights and buildings of eodos liga energy co. , ltd. under the facilities , we borrowed rmb16.4 million ( $ 2.4 million ) , rmb15.4 million ( $ 2.2 million ) , rmb6.6 million ( $ 0.9 million ) and rmb1.2 million ( $ 0.2 million ) on february 1 , 2019 , february 22 , 2019 , march 8 , 2019 and march 21 , 2019 respectively . subsequent to december 31 , 2019 , we fully repaid the loan principal and accrued interest .
| results of operations comparison of years ended december 31 , 2019 and december 31 , 2020 the following table sets forth key components of our results of operations for the years indicated , both in dollars and as a percentage of our revenue . ( all amounts , other than percentages , in thousands of u.s. dollars ) replace_table_token_3_th net revenues . net revenues were $ 37.6 million for the fiscal year ended december 31 , 2020 , as compared to $ 22.2 million for the fiscal year ended december 31 , 2019 , an increase of $ 15.4 million , or 69 % . the following table sets forth the breakdown of our net revenues by end-product applications derived from high-power lithium batteries . ( all amounts , other than percentage , in thousands of u.s. dollars ) replace_table_token_4_th net revenues from sales of batteries for electric vehicles were $ 259,955 for the fiscal year ended december 31 , 2020 , as compared to $ 4.5 million for 2019 , a decrease of approximately $ 4.2 million , or 94 % . net revenues from sales of batteries for light electric vehicles was approximately $ 39,428 for the fiscal year ended december 31 , 2020 , as compared $ 16,147 for 2019 , representing an increase of $ 23,281 , or 144 % . 32 net revenues from sales of batteries for uninterruptable supplies was $ 22.7 million for the fiscal year ended december 31 , 2020 , as compared to $ 17.7 million for fiscal year ended december 31 , 2019 , an increase of $ 5 million , or 29 % . as we focused more on this market in 2020 , sale of batteries for uninterruptable power supplies increased significantly . net revenues from sales of raw materials used in lithium batteries were $ 14.5 million for the fiscal year ended december 31 , 2020 , as compared with nil in the same period in 2019 , representing an increase of $ 14.5 million .
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in june 2016 , the fasb issued an accounting standards update asu 2016‑13 financial instruments—credit losses ( topic story_separator_special_tag the following discussion should be read in conjunction with the financial statements and accompanying notes and the information contained in other sections of this form 10-k. it contains forward‑looking statements that involve risks and uncertainties , and is based on the beliefs of our management , as well as assumptions made by , and information currently available to , our management . our actual results could differ materially from those anticipated by our management in these forward‑looking statements as a result of various factors , including those discussed in this form 10-k and in our registration statement on form s-1 , particularly under the heading “ risk factors. ” overview legacy housing corporation builds , sells and finances manufactured homes and “ tiny houses ” that are distributed through a network of independent retailers and company‑owned stores and are sold directly to manufactured housing communities . we are the fourth largest producer of manufactured homes in the united states as ranked by number of homes manufactured based on information available from the manufactured housing institute and ibts for 2019. with current operations focused primarily in the southern united states , we offer our customers an array of quality homes ranging in size from approximately 390 to 2,667 square feet consisting of 1 to 5 bedrooms , with 1 to 3 1 / 2 bathrooms . our homes range in price , at retail , from approximately $ 18,000 to $ 140,000. during 2019 , we sold 3,904 home sections ( which are entire homes or single floors that are combined to create complete homes ) and in 2018 , we sold 3,950 home sections . the company has one reportable segment . all of our activities are interrelated , and each activity is dependent and assessed based on how each of the activities of company supports the others . for example , the sale of manufactured homes includes providing transportation and consignment arrangements with dealers . we also provide financing options to the customers to facilitate such sale of homes . in addition , the sale of homes is directly related to financing provided by us . accordingly , all significant operating and strategic decisions by the chief operating decision‑maker , the executive chairman of the board , are based upon analyses of our company as one segment or unit . we believe our company is one of the most vertically integrated in the manufactured housing industry , allowing us to offer a complete solution to our customers , from manufacturing custom‑made homes using quality materials and distributing those homes through our expansive network of independent retailers and company‑owned distribution locations , to providing tailored financing solutions for our customers . our homes are constructed in the united states at one of our three manufacturing facilities in accordance with the construction and safety standards of the u.s. department of housing and urban development ( “ hud ” ) . our factories employ high‑volume production techniques that allow us to produce , on average , approximately 75 home sections , or 62 fully‑completed homes depending on product mix , in total per week . we use quality materials and operate our own component manufacturing facilities for many of the items used in the construction of our homes . each home can be configured according to a variety of floor plans and equipped with such features as fireplaces , central air conditioning and state‑of‑the‑art kitchens . our homes are marketed under our premier “ legacy ” brand name and currently are sold primarily across 15 states through a network of 90 independent retail locations , 13 company‑owned retail locations and through direct sales to owners of manufactured home communities . our 13 company‑owned retail locations , including 11 heritage housing stores and two tiny house outlet stores exclusively sell our homes . during 2019 , approximately 48 % of our manufactured homes were sold in texas , followed by 8 % in georgia , 6 % in kansas , 5 % in oklahoma and 5 % in florida . during 2018 , 56 % of our manufactured homes were sold in texas , followed by 13 % in georgia , 11 % in louisiana and 4 % in oklahoma . we plan to deepen our distribution channel by using a portion of the net proceeds from the ipo to expand our company‑owned retail locations in new and existing markets . we offer three types of financing solutions to our customers . we provide floor plan financing for our independent retailers , which takes the form of a consignment arrangement between the retailer and us . we also provide consumer financing for our products which are sold to end‑users through both independent and company‑owned retail locations , and we provide financing solutions to manufactured housing community owners that buy our products for use in their manufactured housing communities . our ability to offer competitive financing options at our retail locations 21 provides us with several competitive advantages and allows us to capture sales which may not have otherwise occurred without our ability to offer consumer financing . factors affecting our performance we believe that the growth of our business and our future success depend on various opportunities , challenges , trends and other factors , including the following : · consistent with our long‑term strategy of conservatively deploying our capital to achieve above average rates of return , we intend to expand our retail presence in the geographic markets we now serve , particularly in the southern united states . each retail center requires between $ 500,000 and $ 1,500,000 to acquire the location , situate an office , provide inventory , and provide the initial working capital . we expect to open 2 to 4 additional retail centers by the end of 2020 . · we have purchased several properties in our market area for the purpose of developing manufactured housing communities and subdivisions . story_separator_special_tag our policy is to place a loan on nonaccrual status when there is a clear indication that the borrower 's cash flow may not be sufficient to meet payments as they become due , which is normally when either principal or interest is past 23 due and remains unpaid for more than 90 days . management implemented this policy based on an analysis of historical data and performance of loans and the likelihood of recovery once principal or interest payments became delinquent and were aged more than 90 days . payments received on nonaccrual loans are accounted for on a cash basis , first to interest and then to principal , as long as the remaining book balance of the asset is deemed to be collectible . the accrual of interest resumes when the past due principal or interest payments are brought within 90 days of being current . impaired loans are those loans where it is probable we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement , including scheduled principal and interest payments . impaired loans , or portions thereof , are charged-off when deemed uncollectible . a loan is generally deemed impaired if it is more than 90 days past due on principal or interest , is in bankruptcy proceedings , or is in the process of repossession . a specific reserve is created for impaired loans based on fair value of underlying collateral value , less estimated selling costs . we used certain factors to determine to the value of the underlying collateral for impaired loans . these factors were : ( 1 ) the length of time the unit was unsold after construction ; ( 2 ) the amount of time the house was occupied ; ( 3 ) the cooperation level of the borrowers , i.e. , loans requiring legal action or extensive field collection efforts will reduce the value ; ( 4 ) units located on private property present additional value loss because it tends to be more expensive to remove units from private property as opposed to a manufactured home park ; ( 5 ) the length of time the borrower has lived in the house without making payments ; ( 6 ) location and size , including market conditions ; and ( 7 ) the experience and expertise of the particular dealer assisting in collection efforts . collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home , less the costs to sell . at repossession , the fair value of the collateral is computed based on the historical recovery rates of previously charged‑off loans ; the loan is charged off and the loss is charged to the allowance for loan losses . at each reporting period , the fair value of the collateral is adjusted to the lower of the amount recorded at repossession or the estimated sales price less estimated costs to sell , based on current information . allowance for loan losses—mhp notes mhp notes are stated at amounts due from customers net of allowance for loan losses . we determine the allowance by considering several factors including the aging of the past due balance , the customer 's payment history , and our previous loss history . we establish an allowance reserve composed of specific and general reserve amounts that are deemed to be uncollectible . historically we have not experienced material losses on the mhp notes . inventories inventories consist of raw materials , work‑in‑process , and finished goods and are stated at the lower of cost or net realizable value . raw materials cost approximates the first‑in first‑out method . finished goods and work‑in‑process are based on a standard cost system that approximates actual costs using the specific identification method . estimates of the lower of cost and net realizable value of inventory are determined by comparing the actual cost of the product to the estimated selling prices in the ordinary course of business based on current market and economic conditions , less reasonably predictable costs of completion , disposal , and transportation of the inventory . we evaluate inventory based on historical experience to estimate our inventory not expected to be sold in less than a year . we classify our inventory not expected to be sold in one year as non‑current . property , plant and equipment property , plant and equipment are carried at cost less accumulated depreciation . depreciation expense is calculated using the straight‑line method over the estimated useful lives of each asset . estimated useful lives for significant classes of assets are as follows : buildings and improvements , 30 to 39 years ; vehicles , 5 years ; machinery and equipment , 7 years ; and furniture and fixtures , 7 years . repair and maintenance charges are expensed as incurred . expenditures for major renewals or betterments which extend the useful lives of existing property , plant , and equipment are capitalized and depreciated . we periodically evaluate the carrying value of long‑lived assets to be held and used and when events and circumstances warrant such a review . the carrying value of long‑lived assets is considered impaired 24 when the anticipated undiscounted cash flow from such assets is less than its carrying value . in that event , a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long‑lived assets . fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved . losses on long‑lived assets to be disposed of are determined in a similar manner , except that the fair values are based primarily on independent appraisals and preliminary or definitive contractual arrangements less costs to dispose .
| results of operations the following discussion should be read in conjunction with the information set forth in the financial statements and the accompanying notes appearing elsewhere in this form 10-k. comparison of years ended december 31 , 2019 and 2018 ( in thousands ) replace_table_token_5_th product sales primarily consist of direct sales , commercial sales , consignment sales and retail store sales . product sales increased $ 4.0 million , or 2.9 % , in 2019 as compared to 2018 even though the volume of homes sold remained flat . this change was driven by an increase in commercial sales and retail stores sales partially offset by a decline in direct sales , consignment sales and other product sales . the first quarter of 2018 included $ 8.9 million of sales as a subcontractor operating under a contract with fema to provide housing for victims of hurricane harvey . direct sales decreased $ 17.5 million to $ 15.2 million in 2019 from $ 32.7 million in 2018 primarily due to the nonrecurring sales to fema . commercial sales increased $ 31.3 million to $ 64.4 million in 2019 from $ 33.1 million in 2018 , and our company‑owned retail stores sales increased $ 3.0 million to $ 16.1 million in 2019 from $ 13.1 million in 2018. these increases were offset by a net $ 11.9 million decrease in consignment sales to $ 42.9 million from $ 54.8 million in 2018. other product sales decreased $ 0.8 million to $ 4.6 million in 2019 from $ 5.4 million in 2018 and is primarily due to a $ 1.3 million decline in direct freight related to the 2018 fema sales and a $ 0.9 million decline in used units partially offset by a $ 1.4 million increase in other miscellaneous product sales .
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in august 2016 , fasb story_separator_special_tag this discussion and analysis reviews our consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations . the information in this section has been derived from the consolidated financial statements and footnotes thereto that appear in item 8 of this form 10-k. the information contained in this section should be read in conjunction with these consolidated financial statements and footnotes and the business and financial information provided in this form 10-k. overview our principal business consists of attracting deposits from the general public and local governments and investing those funds , along with borrowed funds , in loans secured by first and second mortgages on one- to four-family residences ( including home equity loans and lines of credit ) , commercial and multifamily real estate , consumer and commercial business loans and construction and land loans . we offer a wide variety of secured and unsecured consumer loan products , including manufactured home loans , floating home loans , automobile loans , boat loans and recreational vehicle loans . we intend to continue emphasizing our residential mortgage , commercial and multifamily real estate and commercial business lending , while continuing to originate home equity and consumer loans . as part of our business , we focus on residential mortgage loan originations , many of which we sell to fannie mae and a portion of which we retain for our loan portfolio consistent with our asset/liability objectives . we sell many of these loans with servicing retained to maintain the direct client relationship and continue our emphasis on strong client service . we originated $ 109.7 million , $ 142.7 million and $ 112.3 million of one- to four-family residential mortgage loans during the years ended december 31 , 2017 , 2016 and 2015 , respectively . during these same periods , we sold $ 52.0 million , $ 85.1 million and $ 72.6 million , respectively , of one- to four-family residential mortgage loans . our operating revenues are derived principally from earnings on interest earning assets , service charges and fees , and gains on the sale of loans . our primary sources of funds are deposits , fhlb advances , and payments received on loans and securities . we offer a variety of deposit accounts that provide a wide range of interest rates and terms , including savings , money market , now , interest bearing and noninterest bearing demand accounts , and certificates of deposit . our noninterest expenses consist primarily of salaries , incentive pay , commissions , and employee benefits , expenses for occupancy , online and mobile services , marketing , professional fees , data processing , charitable contributions , fdic deposit insurance premiums and regulatory expenses . salaries and benefits consist primarily of the salaries and wages paid to our employees , payroll taxes , directors ' fees , retirement expenses , share-based compensation and other employee benefits . occupancy expenses , which are the fixed and variable costs of buildings and equipment , consist primarily of lease payments , property taxes , depreciation charges , maintenance and the cost of utilities . 41 our strategic plan targets consumers , small and medium size businesses , and professionals in our market area for loans and deposits . in pursuit of these goals and by managing the size of our loan portfolio , we focus on including a significant amount of commercial business and commercial and multifamily real estate loans in our portfolio . a significant portion of these loans have adjustable rates , higher yields or shorter terms and higher credit risk than traditional fixed-rate mortgages . our commercial loan portfolio ( commercial and multifamily real estate and commercial business loans ) increased to $ 252.1 million or 45.8 % of our loan portfolio at december 31 , 2017 , from $ 207.3 million or 41.3 % of our loan portfolio at december 31 , 2016 , and $ 194.6 million or 42.2 % of our loan portfolio at december 31 , 2015. in addition to higher balances in commercial lending , we also benefit from additional lending opportunities in our consumer loan portfolio . our consumer portfolio , which includes manufactured and floating homes and other consumer loans , increased to $ 51.1 million or 9.3 % of our loan portfolio at december 31 , 2017 , from $ 43.4 million or 8.7 % of our loan portfolio at december 31 , 2016 , and $ 36.8 million or 8.0 % of our loan portfolio as of december 31 , 2015. additional commercial and multifamily real estate and consumer loans have improved our net interest income and helped further diversify our loan portfolio mix . our provision for loan losses expense was significantly lower in 2017 , 2016 and 2015 than during the three previous years and reflects decreased levels of delinquencies , classified loans and net charge-offs . recent accounting standards for a discussion of recent accounting standards , please see note 2 - accounting pronouncements recently issued or adopted in the notes to consolidated financial statements contained in item 8 of this report on form 10-k. critical accounting policies certain of our accounting policies are important to an understanding of our financial condition , since they require management to make difficult , complex or subjective judgments , which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances . facts and circumstances that could affect these judgments include , but are not limited to , changes in interest rates , changes in the performance of the economy and changes in the financial condition of borrowers . management believes that its critical accounting policies include determining the allowance for loan losses , accounting for other-than-temporary impairment of securities , accounting for mortgage servicing rights , accounting for other real estate owned , and accounting for deferred income taxes . story_separator_special_tag revenue and expenses from operations and subsequent adjustments to the carrying amount of the property are included in other non-interest expense in the consolidated statements of income . in some instances , we may make loans to facilitate the sales of oreo . management reviews all sales for which it is the lending institution for compliance with sales treatment under provisions established by asc topic 360 , `` accounting for sales of real estate '' . any gains related to sales of oreo are deferred until the buyer has a sufficient initial and continuing investment in the property . income taxes . income taxes are reflected in our financial statements to show the tax effects of the operations and transactions reported in the financial statements and consist of taxes currently payable plus deferred taxes . asc topic 740 , `` accounting for income taxes , '' requires the asset and liability approach for financial accounting and reporting for deferred income taxes . deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of assets and liabilities . they are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled and are determined using the assets and liability method of accounting . the deferred income provision represents the difference between net deferred tax asset/liability at the beginning and end of the reported period . in formulating our deferred tax asset , we are required to estimate our income and taxes in the jurisdiction in which we operate . this process involves estimating our actual current tax exposure for the reported period together with assessing temporary differences resulting from differing treatment of items , such as depreciation and the provision for loan losses , for tax and financial reporting purposes . valuation allowances are established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not all or some portion of the potential deferred tax asset will not be realized . business and operating strategies and goals our goal is to deliver returns to shareholders by increasing higher-yielding assets ( including consumer , commercial and multifamily real estate and commercial business loans ) , increasing lower costing core deposit balances , managing expenses , managing problem assets and exploring expansion opportunities . we seek to achieve these results by focusing on the following objectives : focusing on asset quality . we believe that strong asset quality is a key to our long-term financial success . we are focused on monitoring existing performing loans , resolving nonperforming assets and selling foreclosed assets . nonperforming assets have decreased to $ 2.9 million at december 31 , 2017 from $ 4.5 million at december 31 , 2016. we continue to seek to reduce the level of non-performing assets through collections , write-downs , modifications and sales of oreo . we also take proactive steps to resolve our non-performing loans , including negotiating payment plans , forbearances , loan modifications and loan extensions and accepting short payoffs on delinquent loans when such actions have been deemed appropriate . our goal is to maintain or improve upon our level of nonperforming assets by managing all segments of our loan portfolio in order to proactively identify and mitigate risk . improving earnings by expanding product offerings . we intend to prudently maintain the percentage of our assets consisting of higher-yielding commercial and multifamily real estate and commercial business loans , which offer higher risk-adjusted returns , shorter maturities and more sensitivity to interest rate fluctuations than one-to four- family mortgage loans while maintaining our focus on residential lending . with our long experience and expertise in residential lending we believe we can be effective in capturing mortgage banking opportunities . we continue to develop correspondent relationships to sell nonconforming mortgage loans servicing-released . we also intend to selectively add additional products to further diversify revenue sources and to capture more of each client 's banking relationship by offering loan and deposit products and additional services to our clients . we intend to further build relationships with medium and small businesses through new and improving existing product offerings including remote deposit capture , online and mobile cash management , and online tools for wires , ach and bill payment . 44 emphasizing lower cost core deposits to manage the funding costs of our loan growth . our strategic focus is to emphasize total relationship banking with our clients to internally fund our loan growth . we are also focused on reducing wholesale funding sources , including fhlb advances , through the continued growth of core deposits . we believe that a continued focus on client relationships will help increase the level of core deposits and retail certificates of deposit from consumers and businesses in our market area . we intend to increase demand deposits by growing retail and business banking relationships . new technology and services are generally reviewed for business development and cost saving opportunities . we continue to experience growth in client use of our online and mobile banking services , which allow clients to conduct a full range of services on a real-time basis , including balance inquiries , transfers and electronic bill paying while providing our clients greater flexibility and convenience in conducting their banking . in addition to our retail branches , we maintain state of the art technology-based products , such as business cash management , business remote deposit products , business and consumer mobile banking applications and consumer remote deposit products .
| general . net income decreased $ 253,000 to $ 5.1 million , or $ 2.00 per diluted common share for the year ended december 31 , 2017 , from $ 5.4 million , or $ 2.09 per diluted common share for the year ended december 31 , 2016. the primary reasons for the decline in net income in 2017 compared to last year was a decrease in noninterest income , and increases in both noninterest expense and provision for income taxes , which were partially offset by higher net interest income . in addition , the provision for loan losses was slightly higher in 2017 compared to 2016. interest income . total interest income increased by $ 2.4 million , or 9.6 % , to $ 27.4 million for the year ended december 31 , 2017 , from $ 25.1 million for the year ended december 31 , 2016. the increase in interest income for the year primarily reflected the increase in the average balance of interest-earning assets , in particular our average balance of loans receivable and , to a lesser extent , a higher weighted-average yield on interest-earning assets during the year ended december 31 , 2017 as compared to the prior year . our weighted-average yield on interest-earning assets was 4.90 % for the year ended december 31 , 2017 , compared to 4.82 % for the year ended december 31 , 2016. the weighted-average yield on loans increased six basis points to 5.25 % for the year ended december 31 , 2017 from 5.19 % for the year ended december 31 , 2016. the average balance of total loans receivable increased $ 34.2 million , or 7.2 % , for the year ended december 31 , 2017 as compared to the prior year . the average outstanding balance in our loan portfolio increased in 2017 compared to the prior year due to strong loan demand in our market area .
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regulatory deferrals in new york include electric and gas supply costs , ppas , downward net plant reconciliations , revenue decoupling , system benefit charges , renewable portfolio standards , energy efficiency portfolio standards , economic development programs , low income programs , gross receipt taxes , pension costs , other post-employment benefits costs , environmental remediation costs , major storm costs , downward adjustments for vegetation management , research and development , incremental maintenance initiatives , property taxes and certain legislative , accounting , regulatory and tax related actions . regulatory deferrals in maine include stranded costs , revenue decoupling , power tax regulatory asset , environmental remediation , storm reserve accounting , electric thermal storage pilot costs , standard offer retainage costs , ami opt-out program costs , ami deferral costs , ami legal / health proceeding costs , conservation program costs , demand side management costs , low income program costs , electric lifeline program costs , make-ready line extension costs , electric vehicle pilot program costs and transmission planning and related cost allocation . regulatory deferrals in connecticut include electric and gas supply costs , ppas , revenue decoupling , system benefit charges , certain hardship bad debt expense , transmission revenue requirements , gas distribution integrity management program costs , gas system expansion costs , certain public policy costs , certain environmental remediation costs , major storm costs , and certain legislative , accounting , regulatory and tax related actions . regulatory deferrals in massachusetts include gas supply costs , gas supply-related bad debt costs , environmental remediation costs , arrearage management program costs , gas system enhancement program costs , energy efficiency program costs and certain other public policy costs . 50 nyseg 's and rge 's electric and natural gas rate plans and cmp 's and ui 's electric rates and cng 's gas rates , each contain a rdm under which their actual energy delivery revenues are compared on a periodic basis with the authorized delivery revenues and the difference accrued , with interest , for refund to or recovery from customers , as applicable . nyseg , rge and ui are energy delivery companies and provide energy supply as providers of last resort . energy costs that are set on the wholesale markets are passed on to consumers . the difference between actual energy costs that are incurred and those that are initially billed are reconciled in a process that results in either immediate or deferred tariff adjustments . these procedures apply to other costs , which are in most cases exceptional , such as the effects of extreme weather conditions , environmental factors , regulatory and accounting changes , and treatment of vulnerable customers , that are offset in the tariff process . pursuant to agreements with , or decisions of the nypsc and , the mpuc , networks ' maine and new york regulated utilities are each subject to a minimum equity ratio requirement that is tied to the capital structure assumed in establishing revenue requirements . pursuant to these requirements , each of nyseg , rge , cmp and mng must maintain a minimum equity ratio equal to the ratio in its currently effective rate plan or decision measured using a trailing 13-month average . on a monthly basis , each utility must maintain a minimum equity ratio of no less than 300 basis points below the equity ratio used to set rates . the minimum equity ratio requirement has the effect of limiting the amount of dividends that can be paid if the minimum equity ratio is not maintained and can , under certain circumstances , require that avangrid contribute equity capital . for cmp and mng , equity distributions that would result in equity falling below the minimum level are prohibited . for nyseg and rge , equity distributions that would result in a 13-month average common equity less than maximum equity ratio , utilized for the earnings sharing mechanism , are prohibited if the credit rating of nyseg , rge , avangrid or iberdrola , s.a. are downgraded by a nationally recognized rating agency to the lowest investment grade with a negative watch or downgraded to noninvestment grade . ui , scg , cng and bgc may not pay dividends if paying such dividend would result in a common equity ratio lower than 300 basis points below the equity percentage used to set rates in the most recent distribution rate proceeding as measured using a trailing 13-month average calculated as of the most recent quarter end . in addition , ui , scg , cng and bgc are prohibited from paying dividend to their parent if the utility 's credit rating as rated by any of the three major credit rating agencies , falls below investment grade , or if the utility 's credit rating , as determined by two of the three major credit rating agencies falls to the lowest investment grade and there is a negative watch or review downgrade notice . we believe that these minimum equity ratio requirements do not present any material risk with respect to our performance , cash flow or ability to pay quarterly dividends . in the ordinary course , networks utilities manage their capital structures to allow the maximum level of returns consistent with the levels of equity authorized to set rates , and accordingly , compliance with these requirements does not alter ordinary equity level management . additionally , the lower monthly minimum equity ratio requirement ( a cushion of 300 basis points ) provides flexibility to have short-term fluctuations that result in temporary shortfalls of the maximum equity ratio in any given month . the regulated utility subsidiaries are also prohibited by regulation from lending to unregulated affiliates . story_separator_special_tag rates on september 17 , 2009 , nyseg and rge initiated a distribution rate case to allow the companies to recover past and future investments , provide safe and adequate service , and improve their credit ratings . on february 19 , 2016 , the nyseg , rge and other signatory parties filed a joint proposal , or the proposal , with the nypsc for a three-year rate plan for electric and gas service at nyseg and rge commencing may 1 , 2016. the proposal balances the varied interests of the signatory parties including but not limited to maintaining the companies ' credit quality and mitigating the rate impacts to customers . the proposal reflects many customer attributes including : acceleration of the companies ' natural gas leak prone main replacement programs and enhanced electric vegetation management to provide continued safe and reliable service . the delivery rate increase in the proposal can be summarized as follows : replace_table_token_14_th the allowed rate of return on common equity for nyseg electric , nyseg gas , rge electric and rge gas is 9.00 % . the equity ratio for each company is 48 % . the proposal includes an esm applicable to each company . the customer share of earnings would increase at higher earnings levels , with customers receiving 50 % , 75 % and 90 % of earnings over 9.5 % , 10.0 % and 10.5 % of roe , respectively , in the first year . earnings thresholds would increase in subsequent years . the proposal reflects the recovery of deferred nyseg electric storm costs of approximately $ 262 million , of which $ 123 million will be amortized over ten years and the 51 remaining $ 139 million will be amortized over five years . the proposal also continues reserve accounting for qualifying major storms ( $ 21.4 million annually for nyseg electric and $ 2.5 million annually for rge electric ) . incremental maintenance costs incurred to restore service in qualifying divisions will be chargeable to the major storm reserve provided they meet certain thresholds . the administrative law judges assigned to the new york rate case will issue a procedural schedule establishing the remaining procedure for review and decision on the proposal . we expect hearings on the proposal to be held in april 2016 and a nypsc decision to be made in may 2016. on august 25 , 2014 , the mpuc approved a stipulation agreement for a cmp rate change which provided for a distribution rate increase of approximately $ 24.3 million effective july 1 , 2014 with an allowed roe of 9.45 % and an allowed equity ratio of 50 % . on december 22 , 2009 , mpuc approved a stipulation which provided for a rate increase to mng 's base distribution rates for a three year period , with a 12 % increase effective january 1 , 2010 , a 10 % increase effective december 1 , 2010 and another 10 % increase effective december 1 , 2011. on march 5 , 2015 , mng filed a rate case in order to further recover future investments and provide safe and adequate service . mng requested a 10.0 % roe and 50 % equity ratio . the mpuc staff has recommended a separate revenue requirement for mng 's augusta customers and mng 's non-augusta customers . staff has recommended a $ 19.95 million disallowance of the augusta expansion investment based upon the staff 's conclusion that mng 's management of the augusta expansion project was imprudent . on november 6 , 2015 , a stipulation was filed with the mpuc , which was executed by mng , the office of public advocate and the city of augusta . the stipulation contained a combined revenue requirement for augusta and non-augusta based on a 9.55 % roe and 50 % equity ratio . the stipulation also provided for an initial augusta investment disallowance of $ 6 million and an investment phase-in of $ 10 million . on december 22 , 2015 , mpuc rejected the proposed stipulation as not in the public interest . in january 2016 , the administrative law judge established a new litigation schedule . the litigation was suspended at the end of january 2016 for settlement discussions . we can not predict the outcome of the proceeding . we reserved $ 6 million for this case at the end of 2015. in august 2013 , pura approved distribution rate schedules for ui for two years that became effective at that time and which , among other things , increased the ui distribution allowed roe from 8.75 % to 9.15 % , continued ui 's existing earnings sharing mechanism , continued the existing decoupling mechanism , and approved the establishment of the requested storm reserve . in accordance with the approval by pura of the acquisition , ui agreed not to file a rate case for new rates effective before january 1 , 2017. on january 22 , 2014 , pura approved base delivery rates for cng , with an effective date of january 10 , 2014 , which , among other things , approved an allowed roe of 9.18 % , a decoupling mechanism , two separate ratemaking mechanisms that reconcile actual revenue requirements related to cng 's cast iron and bare steel replacement program and system expansion and an earnings sharing mechanism by which cng and customers share on a 50/50 basis all earnings above the allowed roe in a calendar year . in accordance with the approval by pura of the acquisition , scg and cng agreed not to file a rate case for new rates effective before january 1 , 2018. berkshire 's rates are established by the dpu . berkshire 's 10-year rate plan , which was approved by the dpu and included an approved roe of 10.5 % , expired on january 31 , 2012. berkshire continues to charge the rates that were in effect
| results of operations the following table sets forth our operating revenues and expenses items for each of the periods indicated and as a percentage of operating revenues : replace_table_token_15_th the following tables set forth our segment revenues and expenses by segment for each of the periods indicated and as a percentage of the total consolidated operating revenues and operating expenses , respectively : year ended december 31 , 2015 replace_table_token_16_th year ended december 31 , 2014 replace_table_token_17_th 58 year ended december 31 , 2013 replace_table_token_18_th ( 1 ) other amounts represent corporate and company eliminations . comparison of period to period results of operations our operating revenues decreased by 5 % , from $ 4.6 billion for the year ended december 31 , 2014 to $ 4.4 billion for the year ended december 31 , 2015. our purchased power , natural gas and fuel used decreased by 18 % from $ 1.2 billion for the year ended december 31 , 2014 to $ 972 million for the year ended december 31 , 2015. our operations and maintenance increased by 15 % from $ 1.6 billion for the year ended december 31 , 2014 to $ 1.8 billion for the year ended december 31 , 2015. details of the period to period comparison are described below at the segment level . year ended december 31 , 2015 compared to the year ended december 31 , 2014 networks operating revenues for the year ended december 31 , 2015 decreased by $ 11 million or less than 1 % from $ 3,397 million for the year ended december 31 , 2014 to $ 3,386 million . uil contributed $ 36 million in additional revenue , offset by underlying revenue being $ 47 million lower due to lower gas rates in 2015 as compared to 2014. there were also lower gas sales volumes , as consumption declined due to milder weather .
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the company 's reportable segments include : wireless , cable , wireline , and other . see note 17 , segment reporting , included with the notes to our consolidated financial statements for further information regarding our segments . the following provides a description of the operations within our segments : wireless provides digital wireless mobile service as a sprint pcs affiliate in a multi-state area covering large portions of central and western virginia , south-central pennsylvania , west virginia , and portions of maryland , north carolina , kentucky , and ohio , `` our wireless network coverage area '' . in these areas , we are the exclusive provider of sprint-branded wireless mobility communications network products and services on the 800 mhz , 1900 mhz and 2.5 ghz spectrum bands . wireless also owns 208 cell site towers built on leased and owned land , and leases space on these towers to both affiliates and non-affiliated third party wireless service providers . cable provides video , broadband and voice services in franchise areas in portions of virginia , west virginia , and western maryland , and leases fiber optic facilities throughout its service area . wireline provides regulated and unregulated voice services , internet broadband , long distance access services , and leases fiber optic facilities throughout portions of virginia , west virginia , maryland , and pennsylvania . additionally , our other operations are represented by shenandoah telecommunications company , the parent holding company , that provides investing and management services to the company 's subsidiaries . basis of presentation the company adopted asu no . 2014-09 , revenue from contracts with customers ( “ topic 606 ” ) , effective january 1 , 2018 , using the modified retrospective method as discussed in note 3 , revenue from contracts with customers . the following tables identify the impact of applying topic 606 to the company for the year ended december 31 , 2018 : 35 replace_table_token_7_th ( 1 ) amounts payable to sprint for the reimbursement of costs incurred by sprint in their national sales channel for commissions and device costs for both postpaid and prepaid , and to provide on-going support to their prepaid customers in our territory were historically recorded as expense when incurred . under topic 606 , these amounts represent consideration payable to our customer , sprint , and are recorded as a reduction of revenue . in 2017 , these amounts were approximately $ 44.8 million for the postpaid national commissions , previously recorded in selling , general and administrative , $ 18.7 million for national device costs previously recorded in cost of goods and services , and $ 16.9 million for the on-going service to sprint 's prepaid customers , previously recorded in selling , general and administrative . ( 2 ) costs incurred by the company for the sale of devices under sprint 's device financing and lease programs were previously recorded net against revenue . under topic 606 , the revenue and related costs from device sales are recorded gross . these amounts were approximately $ 63.8 million in 2017 . ( 3 ) amounts payable to sprint for the reimbursement of costs incurred by sprint in their national sales channel for commissions and device costs , which historically have been expensed when incurred and presented net of revenue , are deferred and amortized against revenue over the expected period of benefit of approximately 21 to 53 months . in cable and wireline , installation revenues are recognized over a period of approximately 10-11 months . the deferred balance as of december 31 , 2018 is approximately $ 75.8 million and is classified on the balance sheet as current and non-current assets , as applicable . recent developments big sandy broadband , inc. acquisition : effective february 28 , 2019 , the company completed its acquisition of the assets of big sandy broadband , inc. , ( `` big sandy '' ) . big sandy has served eastern kentucky for 56 years and is the leading provider of cable television , telephone , and broadband services in johnson and floyd counties . all customary closing conditions have been satisfied . the acquisition of big sandy furthers shentel 's strategy to expand the company 's cable segment with the addition of quality networks in contiguous markets . big sandy adds approximately 4,747 customers to shentel 's expanding cable segment . credit facility modification : on november 9 , 2018 , the company entered into an amended and restated credit agreement ( the “ amended 2016 credit agreement ” ) with various financial institutions ( the “ lenders ” ) and cobank , acb , as administrative agent for the lenders . these amendments resulted in several changes for the company . the amended 2016 credit agreement reduced near term principal payments , extended the maturity of both term loan a-1 and a-2 , allowed access to the revolver for an extended period of time , and reduced the applicable base interest rate by 75 basis points . it also shifted $ 108.8 million in principal from term loan a-1 to term loan a-2 . see note 14 , long-term debt for additional information . sprint territory expansion : effective february 1 , 2018 , we signed the expansion agreement with sprint to expand our wireless network coverage area to include certain portions of kentucky , pennsylvania , virginia and west virginia , ( the “ expansion area ” ) , effectively adding a population ( pops ) of approximately 1.1 million . the agreement includes certain network build out requirements , and the ability to utilize sprint 's spectrum in the expansion area along with certain other amendments to the affiliate 36 agreements . pursuant to the expansion agreement , sprint agreed to transition the provision of network coverage in the expansion area to us . story_separator_special_tag we completed the migration of ntelos subscribers to the sprint network during 2017. depreciation and amortization expense - our depreciation and amortization expense consists primarily of depreciation of fixed assets , and amortization of acquisition-related intangible assets . we expect our depreciation and amortization expense to increase as we expand our networks organically and through acquisitions . other income ( expense ) our other income ( expense ) consists primarily of interest expense , net gain ( loss ) on investments , and net non-operating income ( loss ) , described as follows : interest expense - interest expense represents interest incurred on our credit facilities ( as defined below , under the heading financial condition , liquidity and capital resources , and in note 14 , long-term debt ) . we expect our interest expense to fluctuate in proportion to the outstanding principal balance of the credit facilities and the prevailing london interbank offered rate ( `` libor '' ) interest rate . gain ( loss ) on investments , net - net gain ( loss ) on investments , consists of gains and losses realized as changes occur in the value of the assets and obligation underlying the company 's supplemental executive retirement plan ( `` serp '' ) 38 retirement plan . we expect our net gain ( loss ) on investments to fluctuate in proportion to the prevailing market conditions as they relate to our serp assets and obligations . non-operating income ( loss ) , net - net non-operating income ( loss ) , primarily represents interest and dividends earned from our investments , including our patronage arrangement that is connected to our credit facility . we expect our non-operating income ( loss ) to fluctuate in proportion to the amount of funds we invest and the continuation of the patronage arrangement . income tax expense ( benefit ) our provision for income taxes consists of federal and state income taxes in the united states , and the effect of the 2017 tax act , including deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes , and excess tax benefits or shortfalls derived from exercises of stock options and vesting of restricted stock . we expect that in the near-term our effective tax rate may fluctuate due to the effect of the 2017 tax act and the recognition of excess tax benefits and tax shortfalls associated with the exercise of stock options or the vesting of restricted stock . excluding discrete items impacting the effective tax rate , we expect our long-term tax rate to reflect the applicable federal and state statutory rates . refer to note 16 , income taxes , included with the notes to our consolidated financial statements for additional information concerning income taxes and the effects of the 2017 tax act . 39 story_separator_special_tag operations for the year ended december 31 , 2018 : replace_table_token_10_th ( 1 ) amounts payable to sprint for the reimbursement of costs incurred by sprint in their national sales channel for commissions and device costs for both postpaid and prepaid , and to provide on-going support to their prepaid customers in our territory were historically recorded as expense when incurred . under topic 606 , these amounts represent consideration payable to our customer , sprint , and are recorded as a reduction of revenue . in 2017 , these amounts were approximately $ 44.8 million for the postpaid national commissions , previously recorded in selling , general and administrative , $ 18.7 million for national device costs previously recorded in cost of goods and services , and $ 16.9 million for the on-going service to sprint 's prepaid customers , previously recorded in selling , general and administrative . ( 2 ) costs incurred by the company for the sale of devices under sprint 's device financing and lease programs were previously recorded net against revenue . under topic 606 , the revenue and related costs from device sales are recorded gross . these amounts were approximately $ 63.8 million in 2017 . ( 3 ) amounts payable to sprint for the reimbursement of costs incurred by sprint in their national sales channel for commissions and device costs , which historically have been expensed when incurred and presented net of revenue , are deferred and amortized against revenue over the expected period of benefit of approximately 21 to 53 months . the deferred balance as of december 31 , 2018 is approximately $ 75.8 million and is classified on the balance sheet as current and non-current assets , as applicable . the following tables indicate selected operating statistics of wireless , including sprint subscribers : 42 replace_table_token_11_th _ ( 1 ) as of september 2017 , the company is no longer including lifeline subscribers to be consistent with sprint 's policy . historical customer counts have been adjusted accordingly . ( 2 ) `` pops '' refers to the estimated population of a given geographic area . market pops are those within a market area which we are authorized to serve under our sprint pcs affiliate agreements , and covered pops are those covered by our network . the data source for pops is u.s. census data . historical periods previously referred to other third party population data and have been recast to refer to u.s. census data . ( 3 ) beginning february 1 , 2018 includes richmond expansion area except for gross pcs subscriber additions . ( 4 ) beginning april 6 , 2017 includes parkersburg expansion area except for gross pcs subscriber additions . ( 5 ) beginning may 6 , 2016 includes acquired ntelos area except for gross pcs subscriber additions . the subscriber statistics shown above , excluding gross additions , include the following : replace_table_token_12_th _ ( 1 ) excludes lifeline subscribers . ( 2 ) as of december 31 , 2018 we have shut down 107 overlap sites associated with the ntelos area .
| results of operations 2018 compared with 2017 the company 's consolidated results from operations are summarized as follows : replace_table_token_8_th operating revenue operating revenue increased approximately $ 18.9 million , or 3.1 % , in 2018 compared with 2017 . excluding the impact of adopting topic 606 , operating revenue increased approximately $ 28.6 million , or 4.7 % , driven by the wireless and cable operations . operating expenses operating expenses decreased approximately $ 27.9 million , or 4.9 % , in 2018 compared with 2017 . excluding the impact of adopting topic 606 , operating expenses decreased approximately $ 1.1 million , or 0.2 % , primarily due to the absence of acquisition , integration and migration costs related to the completion of the transformation of the ntelos network in 2017 as well as lower depreciation and amortization costs due to the retirement of assets acquired with ntelos , partially offset by increased costs necessary to support our continued growth and expansion . interest expense interest expense decreased approximately $ 3.4 million , or 8.9 % , in 2018 compared with 2017 . the decrease in interest expense was primarily attributable to the 2018 amendments to the credit facility agreement that reduced the applicable base interest rate by 75 basis points , partially offset by the effect of increases in the libor . other income ( expense ) , net other income , net decreased approximately $ 1.3 million , or 25.5 % , in 2018 compared with 2017 . the decrease was primarily attributable to a reduction in interest income related to the former ntelos equipment installment plan . the integration of the acquired ntelos business was completed during 2017. income tax expense ( benefit ) income tax expense increased $ 68.7 million from a $ 53.1 million benefit in 2017 to a $ 15.5 million expense in 2018 .
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in the accompanying consolidated statements of operations , and are primarily related to third party consulting costs . in 2015 , the material handling segment consolidated two manufacturing plants , streamlined brazilian operations , closed a canadian branch operation and sold a product line . the company recorded $ 2.3 million of restructuring cost for these initiatives , primarily related to severance and moving expenses for equipment and inventory . 7. other current liabilities as of december 31 , 2017 and 2016 , the balance in other current liabilities is comprised of the following : replace_table_token_34_th 42 myers industries , inc. and subsidiaries notes to consolidated financial statements - ( continued ) ( dollars in thousands , except where otherwise indicated ) 8. stock compensation subject to shareholder approval , which was received on april 26 , 2017 , the board of directors approved the company 's amended and restated 2017 incentive stock plan ( the “ 2017 plan ” ) on march 2 , 2017. the 2017 plan authorizes the compensation committee of the board of directors to issue up to 5,126,950 shares of various stock awards including stock options , performance stock units , restricted stock units and other forms of equity-based awards to key employees and directors . options granted and outstanding vest over the requisite service period and expire ten years from the date of grant . the following tables summarize stock option activity in the past three years : options granted in 2017 , 2016 and 2015 were as follows : replace_table_token_35_th options exercised in 2017 , 2016 and 2015 were as follows : replace_table_token_36_th in addition , options totaling 218,130 , 162,565 and 71,567 expired or were forfeited during the years ended december 31 , 2017 , 2016 and 2015 , respectively . options outstanding and exercisable at december 31 , 2017 , 2016 and 2015 were as follows : replace_table_token_37_th the fair value of options granted is estimated using an option pricing model based on the assumptions set forth in the following table . the company uses historical data to estimate employee exercise and departure behavior . the risk free interest rate is based on the u.s. treasury yield curve in effect at the time of grant and through the expected term . the dividend yield rate is based on the company 's historical dividend yield . the expected volatility is derived from historical volatility of the company 's shares and those of similar companies measured against the market as a whole . in 2017 , 2016 and 2015 , the company used the binomial lattice option pricing model based on the assumptions set forth in the following table . replace_table_token_38_th 43 myers industries , inc. and subsidiaries notes to consolidated financial statements - ( continued ) ( dollars in thousands , except where otherwise indicated ) the following table provides a summary of stock option activity for the period ended december 31 , 2017 : replace_table_token_39_th the intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds story_separator_special_tag story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > during the year ended december 31 , 2017 , the company recorded an impairment charge of $ 0.5 million related to assets held for sale at its scarborough , ontario , canada location , as discussed in note 2 to the consolidated financial statements . the building was sold in december 2017. the company recorded $ 1.3 million of non-cash impairment charges , primarily related to long-lived assets associated with the exit of a non-strategic product line in the material handling segment during the year ended december 31 , 2016 , as discussed in note 2 to the consolidated financial statements . net interest expense : replace_table_token_11_th net interest expense for the year ended december 31 , 2017 was $ 7.3 million compared to $ 8.6 million during 2016. the decrease in net interest expense is due to a decrease in average borrowings during the year ended december 31 , 2017 compared to the prior year , partially offset by a slightly higher borrowing rate . 20 loss on extinguishment of debt : during the year ended december , 31 , 2017 , the company recorded a loss on extinguishment of debt of approximately $ 1.9 million related to the purchase of a portion of the outstanding senior unsecured notes in 2017 , as discussed in note 10 to the consolidated financial statements . income taxes : replace_table_token_12_th the effective tax rate was 31.0 % for the year ended december 31 , 2017 compared to 39.5 % in the prior year . the 2017 effective tax rate is lower than our statutory rate and the effective tax rate for the same period in 2016 , primarily due to the enactment of the tax act in december 2017 , which reduces the u.s. federal corporate income tax rate from 35 % to 21 % , effective january 1 , 2018. as a result the company revalued its u.s. deferred tax assets and liabilities to reflect the lower u.s. corporate rates , which resulted in a tax benefit of $ 3.0 million in 2017. this was partially offset by a $ 1.8 million provision for one-time transition tax expense under the tax act related to certain foreign earnings previously not taxed in the u.s. discontinued operations : loss from discontinued operations , net of income taxes was $ 20.7 million for the year ended december 31 , 2017 compared to loss of $ 10.3 million for the year ended december 31 , 2016. in 2017 , this result included a loss on sale of the brazil business of $ 35.0 million ( pre-tax ) , offset primarily by a tax benefit of $ 15 million , which was generated as aresult of a worthless stock deduction for the brazil business . story_separator_special_tag income from continuing operations in 2017 includes gains on sale of assets of $ 3.5 million and non-cash deferred tax benefits of $ 5.7 million . the decrease in cash provided by continuing operations during the year ended december 31 , 2016 compared to 2015 was mainly due to an increase in the use of working capital , primarily due to a significant reduction in accounts payable in 2016. the decline in operating cash flow also included a decrease in income from continuing operations of $ 6.2 million , which includes non-cash impairment charges of $ 1.3 million , a decrease of $ 1.6 million in non-cash stock-based compensation expense . income from continuing operations was $ 11.3 million in 2016 compared to $ 17.5 million in 2015. depreciation and amortization costs from continuing operations were $ 31.8 million in the year ended december 31 , 2016 , compared to $ 32.3 million for the year ended december 31 , 2015. the lower depreciation and amortization are attributable to the reduction of $ 9.3 million in capital expenditures in 2016 compared to 2015. investing activities capital expenditures were $ 5.8 million , $ 12.5 million and $ 21.8 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . higher capital spending in 2016 and 2015 compared to 2017 was due to additional investments that were made for new manufacturing focused on growth and productivity improvements in addition to higher spending at scepter . the company paid a final working capital adjustment to the buyer of the lawn and garden business of approximately $ 4.0 million in the first quarter of 2016 as described in note 4 to the consolidated financial statements . during 2015 , the company received approximately $ 69.8 million in cash proceeds in connection with the sale of the lawn and garden business and $ 1.0 million in connection with the sale of wek ( which occurred in 2014 ) . financing activities net repayments on the credit facility were $ 16.5 million for the year ended december 31 , 2017 compared to net repayments of $ 3.8 million for the year ended december 31 , 2016. the company used cash of $ 23.8 million to purchase a portion of the outstanding senior unsecured notes in 2017 , as discussed in note 10 to the consolidated financial statements . the company used cash to pay dividends of $ 16.3 million , $ 16.2 million and $ 16.7 million for the years 2017 , 2016 and 2015 , respectively . in addition , under a share repurchase plan , the company used cash of $ 30.0 million to purchase 1,992,379 shares of its stock in 2015. the company did not repurchase any stock during the years ended december 31 , 2017 and 2016. credit sources in march 2017 , the company entered into a fifth amended and restated loan agreement ( the “ loan agreement ” ) . the loan agreement replaced the pre-existing $ 300 million senior revolving credit facility with a $ 200 million facility and extended the term from december 2018 to march 2022. in addition , the loan agreement provides for a maximum leverage ratio of 3.75 for the first and second quarters of 2017 , stepping down to 3.5 in the third quarter of 2017 , and 3.25 thereafter . 23 borrowings under the loan agreement bear interest at the libor rate , prime rate , federal funds effective rate , the canadian deposit offered rate , or the eurocurrency reference rate depending on the type of loan requested by the company , in each case plus the applicable margin as set forth in the loan agreement . the company has outstanding senior unsecured notes totaling $ 78 million with a group of investors pursuant to a note purchase agreement . the series of four notes range in face value from $ 11 million to $ 40 million , with interest rates ranging from 4.67 % to 5.45 % , payable semiannually , and maturing between 2021 and 2026. total debt outstanding at december 31 , 2017 was $ 151.0 million , net of deferred financing costs of $ 1.6 million , compared with $ 189.5 million at december 31 , 2016. the company 's loan agreement provides available borrowing up to $ 200 million , reduced for letters of credit issued . as of december 31 , 2017 , the company had $ 4.4 million of letters of credit issued related to insurance and other financing contracts in the ordinary course of business . as of december 31 , 2017 , there was $ 121.0 million available under our loan agreement . as of december 31 , 2017 , the company was in compliance with all its debt covenants . the most restrictive financial covenants for all of the company 's debt are an interest coverage ratio ( defined as earnings before interest , taxes , depreciation and amortization , as adjusted , divided by interest expense ) and a leverage ratio ( defined as total debt divided by earnings before interest , taxes , depreciation and amortization , as adjusted ) . the ratios as of and for the period ended december 31 , 2017 are shown in the following table : required level actual level interest coverage ratio 3.00 to 1 ( minimum ) 7.58 leverage ratio 3.25 to 1 ( maximum ) 2.40 the company believes that cash flows from operations and available borrowing under its loan agreement will be sufficient to meet expected business requirements including capital expenditures , dividends , working capital , debt service and to fund the stock repurchase program into the foreseeable future .
| results of operations and financial condition executive overview the company conducts its business activities in two distinct segments : the material handling segment and the distribution segment . the brazil business , which was sold in december 2017 , and the lawn and garden business , which was sold in february 2015 , are classified as discontinued operations in all periods presented . the company designs , manufactures , and markets a variety of plastic and rubber products . our material handling segment manufactures products that range from plastic reusable material handling containers and small parts storage bins to plastic oem parts , custom plastic products , consumer fuel containers , military water containers as well as ammunition packaging and shipping containers . our distribution segment is engaged in the distribution of tools , equipment and supplies used for tire , wheel and under vehicle service on passenger , heavy truck and off-road vehicles , as well as the manufacturing of tire repair and retreading products . results of operations : 2017 versus 2016 net sales : replace_table_token_8_th net sales for the year ended december 31 , 2017 were $ 547.0 million , an increase of $ 12.6 million or 2 % compared to the prior year . net sales were positively impacted by higher sales volumes of approximately $ 4.0 million , higher pricing of $ 7.5 million and the effect of favorable foreign currency translation of approximately $ 1.1 million . net sales in the material handling segment increased $ 27.4 million or 8 % for the year ended december 31 , 2017 compared to the prior year . the increase in net sales was due to higher sales volume of $ 19.9 million , mainly due to increased demand in the company 's consumer and food and beverage markets , higher pricing of $ 6.4 million , and the effect of favorable foreign currency translation of $ 1.1 million .
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nominating committee we have not yet established a nominating committee . our board of directors , sitting as a board , performs the role of a nominating committee . we are not currently subject to any law , rule or regulation requiring that we establish a nominating committee . 45 compensation committee we have not established a compensation committee . our board of directors , sitting as a board , performs the role of a compensation committee . we are not currently subject to any law , rule or regulation requiring that we establish a compensation committee . during the last fiscal year , mr. gunther than , an executive officer , participated in our board of directors ' deliberations concerning executive officer compensation . section 16 ( a ) beneficial ownership reporting compliance section 16 ( a ) of the securities exchange act of 1934 requires officers and directors , and persons who own more than ten percent of a registered class of our equity securities , to file reports of ownership and changes in ownership with the commission . officers , directors and greater than ten percent beneficial owners are required by commission regulations to furnish us with copies of all forms they file pursuant to section 16 ( a ) . based solely on our review of the copies of such forms received and written representations from reporting persons required to file reports under section 16 ( a ) , all of the section 16 ( a ) filing requirements applicable to such persons , with respect to fiscal year 2014 , appear not to have been complied with to the best of our knowledge . item 11. executive compensation . management has been compensated entirely in accrued salary , common stock , and reimbursement of fuel expense during the fiscal years ended december 31 , 2018 and 2019. the cash value of mr. gunther than 's compensation was determined in negotiations with directors drs . maassen and bagnoli ( former director ) and was determined based upon an informal survey of human resource firms as to the compensation awarded to chief executives in companies with similar revenues . our limited revenues have prevented our chief executive officer , mr. than , from receiving payment in cash for compensation for services . mr. than received $ -0- and $ 0 in cash for salary for 2018 and 2019 , respectively . we paid compensation to each of the directors and executive officers in the following amounts during fiscal year 2018 : name salary position gunther than ( 1 ) $ 0 as employee to the board , and director john campo $ 0 as president and chairman martin maassen $ 0 as independent director ( 1 ) mr. than is reimbursed for his living expenses while out of town from his home . mr. than earns an executive salary of $ 120,000 , which is more fully discussed below in the summary compensation table . summary compensation table ‡ replace_table_token_12_th ( 1 ) of the $ 120,000 salary , $ -0- was paid in cash , therefore , the entire amount accrued . 46 employment contracts and termination of employment and change-in-control arrangements john campo - executive employment agreement on january 1 , 2019 , our board of directors authorized the execution of an executive employment agreement with our president and chief executive officer , john campo . in accordance with the terms and provisions of the agreement : ( i ) the executive shall provide services and perform all duties typical of the offices held by the executive ; ( ii ) we shall pay to the executive a base salary of $ 10,000 per month , payable in form of cash or shares of our common stock as agreed upon , ( ii ) we shall pay to the executive an incentive bonus to be determined by the board of directors based upon our performance and the results achieved by the executive in his job performance ; ( iii ) and we shall issue stock options to the executive to purchase shares of our common stock , such stock options to accrue and vest in accordance with a set schedule to be decided by the board of directors . gunther than - executive employment agreement on january 1 , 2014 , our board of directors authorized the execution of that certain executive employment agreement ( the “ executive agreement ” ) with our president/chief executive officer , secretary , treasurer/chief financial officer , gunther than ( the “ executive ” ) . in accordance with the terms and provisions of the executive agreement : ( i ) the executive shall provide services and perform all duties typical of the offices held by the executive ; ( ii ) we shall pay to the executive a base salary of $ 10,000 per month , payable in form of cash or shares of our common stock as agreed upon , ( ii ) we shall pay to the executive an incentive bonus to be determined by the board of directors based upon our performance and the results achieved by the executive in his job performance ; ( iii ) we shall issue stock options to the executive to purchase shares of our common stock , such stock options to accrue and vest in accordance with a set schedule to be decided by the board of directors ; ( iv ) we shall pay to the executive a per annum payment of at least 1,600,000 shares of common stock and additionally whatever the board of directors may give as a bonus at their discretion in exchange for the non-compete provisions contained therein ; story_separator_special_tag and ( v ) in the event of a change in control of the board of directors or a buyout or a takeover or substantial change of management , we shall pay to the executive a minimum of three years salary plus 4,800,000 shares of s-8 common stock story_separator_special_tag the following analysis of our consolidated financial condition and results of operations for the years ended december 31 , 2019 and 2018 should be read in conjunction with the consolidated financial statements and other information presented elsewhere in this annual report . overview we have decided to include in our sales efforts other products aside the concealed weapons detection system . currently , customers can purchase extended warranties , which provide for replacement or repair of the unit beyond the period provided by the unconditional warranty . warranties can be purchased for various periods but generally they are for a one year period that begins after any other warranties expire . in the short term , management plans to self fund through personal investment of time and money . then the next phase of our business plan will be to raise additional funds through common stock offerings to provide working capital to finance several acquisitions . in the past , when possible we have conserved our cash by paying employees , consultants , and independent contractors with our common stock . on june 1 , 2010 , by majority shareholder consent , we adopted our 2010 service provider stock compensation plan . reserved for equity issuances under the service provider stock compensation plan are 50,000,000 shares of our common stock . on july 21 , 2010 , we registered the common stock issuable under the 2010 equity incentive plan and the 2010 service provider stock compensation plan . a total of 100,000,000 shares are reserved for issuances under the two plans . merger or acquisitions in 2019 as of this date , there are no pending acquisitions at the time of this filing . although we have agreed in a memorandum of understanding that the investments made into sannabis & new columbia resources give view systems a first right of refusal to acquire both companies at an discounted value for the investment . please find attachment of the mou in this filing . manufacturing we no longer manufacture the viewscan ( original ) since we have licensed it to a company called ip-video corporation since we have determined a new and enhanced wider opening model is needed to continue in continue in the walk through portal security market . until we patent the new enhanced unit we are quiescent in our manufacturing activities . 20 results of operations for fiscal years ended december 31 , 2019 and december 31 , 2018 the following discussions are based on the consolidated financial statements of view systems and its subsidiaries . these charts and discussions summarize our financial statements for the years ended december 31 , 2019 and 2018 and should be read in conjunction with the financial statements , and notes thereto , included with this annual report . story_separator_special_tag times , serif ; font-size : 10pt '' > commitments and contingent liabilities we share an office at 7833 walker dr. , greenbelt , maryland 20770. we rent on a quarter to quarter basis . our total current liabilities increased to ( $ 1,594,693 ) in fiscal year ended december 31 , 2019 compared to ( $ 953,885 ) at fiscal year ended december 31 , 2018. as of december 31 , 2019 , our short and long term notes payable consist of the following : stockholder demand loan payable with interest at 5 % per month dated september 18 , 2009. the loan is secured by the company 's accounts receivable . the note was payable in full on december 17 , 2009 and is currently in default . 50,000 50,000 convertible promissory note with interest at 12 % per year dated january 24 , 2018 , convertible into the company 's common stock 50 % discount to the lowest trading price during the 25 trading days immediately preceding conversion . the note was due october 24 , 2018 and is currently in default 16,831 53,000 convertible promissory note with interest at 12 % per year dated july 2 , 2018 , convertible into the company 's common stock 50 % discount to the lowest trading price during the 25 trading days immediately preceding conversion . the note was due july 2 , 2019 and is currently in default 40,000 40,000 convertible promissory note with interest at 12 % per year dated august 19 , 2019 , convertible into the company 's common stock 58 % discount to the lowest trading price during the 25 trading days immediately preceding conversion . the note is due august 19 , 2020 38,000 - convertible promissory note with interest at 12 % per year dated october 8 , 2019 , convertible into the company 's common stock 50 % discount to the lowest trading price during the 25 trading days immediately preceding conversion . the note is due october 20 , 2020 50,000 - convertible promissory note with interest at 12 % per year dated october 22 , 2019 , convertible into the company 's common stock 50 % discount to the lowest trading price during the 25 trading days immediately preceding conversion . the note is due october 22 , 2020 53,000 - 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 is material to investors . contractual obligations as a “ smaller reporting company ” as defined by item 10 of regulation s-k , we are not required to provide this information . critical accounting policies we have one main products
| summary comparison of operating results replace_table_token_2_th the following chart provides a breakdown of our sales in 2019 and 2018. replace_table_token_3_th our sales backlog at december 31 , 2019 was $ -0-. fiscal year ended december 31 , 2019 compared to fiscal year ended december 31 , 2018. our net loss for fiscal year ended december 31 , 2019 was $ ( 1,238,976 ) compared to a net income of $ 918,238 for fiscal year ended december 31 , 2018. we generated revenues of $ 1,400 during fiscal year ended december 31 , 2019 compared to revenues of $ 32,502 during fiscal year ended december 31 , 2018. we have experienced a cessation of sales of our products as a result of giving an exclusive license to manufacture our previous version to a large distributer of security products . we incurred an operating loss of ( $ 713,779 ) during fiscal year ended december 31 , 2019 as compared to an operating loss of ( $ 25,242 ) in fiscal year ended in december 31 , 2018. our expenses increased primarily due to a significant increase in professional fees , salaries and benefits , professional fees and administrative driven by our investment in then afore mentioned entities with the intent of adding other revenue streams to our core business . thus , our net loss f of ( $ 1,238,976 ) during fiscal year ended december 31 , 2019 included a ( $ 383,010 ) derivative , interest and loss on stock conversion expense .
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the story_separator_special_tag results of operations the following management 's discussion and analysis of financial condition and results of operations ( md & a ) is designed to assist the reader in understanding our consolidated financial statements , the changes in certain key items in those financial statements from year-to-year and the primary factors that accounted for those changes , as well as how certain accounting principles affect our consolidated financial statements . except for the historical information contained herein , the following discussion contains forward-looking statements that are subject to known and unknown risks , uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements . we discuss such risks , uncertainties and other factors throughout this annual report and specifically under the caption “ cautionary note regarding forward-looking statements ” and under “ item 1a . risk factors ” in this annual report . in addition , the following discussion of financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report . business overview we are a national provider of infusion solutions . we partner with physicians , hospital systems , skilled nursing facilities , healthcare payors and pharmaceutical manufacturers to provide patients access to post-acute care services . we operate with a commitment to bring customer-focused pharmacy and related healthcare infusion therapy services into the home or alternate site setting . by collaborating with the full spectrum of healthcare professionals and the patient , we aim to provide cost-effective care that is driven by clinical excellence , customer service and values that promote positive outcomes and an enhanced quality of life for those whom we serve . as of december 31 , 2015 , we had a total of 70 service locations in 28 states . our platform provides nationwide service capabilities and the ability to deliver clinical management services that offer patients a high-touch , community-based and home-based care environment . our core services are provided in coordination with , and under the direction of , the patient 's physician . our multidisciplinary team of clinicians , including pharmacists , nurses , dietitians and respiratory therapists , work with the physician to develop a plan of care suited to our patient 's specific needs . whether in the home , physician office , ambulatory infusion center , skilled nursing facility or other alternate sites of care , we provide products , services and condition-specific clinical management programs tailored to improve the care of individuals with complex health conditions such as gastrointestinal abnormalities , infectious diseases , cancer , multiple sclerosis , organ and blood cell transplants , bleeding disorders , immune deficiencies and heart failure . segments following the sale of our pbm business on august 27 , 2015 ( as further discussed below ) , infusion services is the only remaining operating segment . on an ongoing basis we will no longer report operating segments unless a change in the business necessitates the need to do so . strategic assessment and transactions in 2010 , we commenced a strategic assessment of our business and operations . the assessment examined our market strengths and opportunities and compared our position to that of our competitors . as a result of this assessment and subsequent assessments , we have focused our growth on investments in the infusion services business , which remains the primary driver of our growth strategy . subsequent transactions which executed the strategic plans were : on february 1 , 2012 , we entered into a community pharmacy and mail business purchase agreement by and among walgreen co. and certain subsidiaries with respect to the sale of certain assets , rights and properties relating to our traditional and specialty pharmacy mail operations and community retail pharmacy stores ( the “ pharmacy services asset sale ” ) . on july 31 , 2012 , we acquired 100 % of the ownership interest in infuscience , inc. ( “ infuscience ” ) . infuscience historically acquired , developed and operated businesses providing alternate site infusion pharmacy services through five infusion centers located in eagan , minnesota ; omaha , nebraska ; chantilly , virginia ; charleston , south carolina ; and savannah , georgia . 34 on february 1 , 2013 , we acquired 100 % of the ownership interest in homechoice partners , inc. ( “ homechoice ” ) . prior to our acquisition , homechoice serviced approximately 15,000 patients annually and had 14 infusion pharmacy locations in pennsylvania , washington , d.c. , maryland , virginia , north carolina , south carolina , georgia , missouri , and alabama . on august 23 , 2013 , we completed the acquisition of substantially all of the assets and assumption of certain liabilities that constituted the home infusion business ( the “ carepoint business ” ) of carepoint partners holdings llc . carepoint serviced approximately 20,500 patients annually and had 28 sites of service in nine states in the east coast and gulf coast regions prior to our acquisition . on march 31 , 2014 , we completed the sale of substantially all of our home health services segment ( the “ home health business ” ) to lhc group , inc. on august 27 , 2015 , we completed the sale of substantially all of our pharmacy benefit management services segment ( the “ pbm business ” ) pursuant to an asset purchase agreement dated as of august 9 , 2015 ( the “ pbm asset purchase agreement ” ) , by and among the company , bioscrip pbm services , llc and procare pharmacy benefit manager inc. ( the “ pbm buyer ” ) . under the pbm asset purchase agreement , the pbm buyer agreed to acquire substantially all of the assets used solely in connection with the pbm business and to assume certain pbm business liabilities ( the “ pbm sale ” ) . story_separator_special_tag see our audited consolidated financial statements and notes thereto appearing elsewhere in this annual report , which contain a description of our accounting policies and other disclosures required by gaap . revenue recognition we generate revenue principally through the provision of home infusion services to provide clinical management services and the delivery of cost effective prescription medications . financial accounting standards board accounting standards codification ( “ asc ” ) subtopic 605-25 , revenue recognition : multiple-element arrangements ( “ asc 605-25 ” ) , addresses situations in which there are multiple deliverables under one revenue arrangement with a customer and provides guidance in determining whether multiple deliverables should be recognized separately or in combination . for infusion-related therapies , we frequently provide multiple deliverables of drugs and related nursing services . after applying the criteria of asc 605-25 , we concluded that separate units of accounting exist in revenue arrangements with multiple deliverables . if the drug is shipped , the drug revenue is recognized at the time of shipment , and nursing revenue is recognized on the date of service . we allocate revenue consideration based on the relative fair value as determined by our best estimate of selling price to separate the revenue where there are multiple deliverables under one revenue arrangement . we recognize infusion nursing revenue as the estimated net realizable amounts from patients and payors for services rendered and products provided . this revenue is recognized as the treatment plan is administered to the patient and is recorded at amounts estimated to be received under reimbursement or payment arrangements with payors . allowance for doubtful accounts the allowance for doubtful accounts is based on estimates of losses related to receivable balances . the risk of collection varies based upon the service/product , the payor ( commercial health insurance and government ) and the patient 's ability to pay the amounts not reimbursed by the payor . we estimate the allowance for doubtful accounts based upon several factors including 36 the age of the outstanding receivables , the historical experience of collections , adjusting for current economic conditions and , in some cases , evaluating specific customer accounts for the ability to pay . collection agencies are employed and legal action is taken when we determine that taking collection actions is reasonable relative to the probability of receiving payment on amounts owed . management judgment is used to assess the collectability of accounts and the ability of our customers to pay . judgment is also used to assess trends in collections and the effects of systems and business process changes on our expected collection rates . we review the estimation process quarterly and make changes to the estimates as necessary . when it is determined that a customer account is uncollectible , that balance is written off against the existing allowance . the following table shows the aging of our net accounts receivable ( net of allowance for contractual adjustments and prior to allowance for doubtful accounts ) , aged based on date of service and categorized based on the three primary overall types of accounts receivable characteristics ( in thousands ) : replace_table_token_4_th at december 31 , 2015 , our allowance for doubtful accounts , as a percentage of total accounts receivable , was 35.5 % or $ 59.7 million , as compared to 33.5 % or $ 66.4 million at december 31 , 2014 . allowance for contractual discounts we are reimbursed by payors for products and services we provide . payments for medications and services covered by payors average less than billed charges . we monitor revenue and receivables from payors for each of our branches and record an estimated contractual allowance for certain revenue and receivable balances as of the revenue recognition date to properly account for anticipated differences between amounts estimated in our billing system and amounts reimbursed . accordingly , the total revenue and receivables reported in our financial statements are recorded at the amounts expected to be received from these payors . for the significant portion of our infusion services revenue , the contractual allowance is estimated based on several criteria , including unbilled claims , historical trends based on actual claims paid , current contract and reimbursement terms and changes in customer base and payor/product mix . contractual allowance estimates are adjusted to actual amounts as cash is received and claims are settled . we do not believe these changes in estimates are material . the billing functions for the remaining portion of our revenue are largely computerized , which enables on-line adjudication ( i.e. , submitting charges to third-party payors electronically , with simultaneous feedback of the amount the primary insurance plan expects to pay ) at the time of sale to record net revenue , exposure to estimating contractual allowance adjustments is limited on this portion of the business . amounts due to plan sponsors payables to plan sponsors primarily represent payments received from plan sponsors in excess of the contractually required reimbursement . these amounts are refunded to plan sponsors . these payables also include the sharing of manufacturers ' rebates with plan sponsors . 37 contingent consideration liabilities that may be owed to sellers after the closing of an acquisition transaction are recorded at fair value as of the opening balance sheet established for the acquired target . these contingent consideration provisions are frequently referred to as earnouts and are the subject of negotiation between the seller and the buyer at the time of sale . an earnout provision can compensate the seller with the value they believe the asset will deliver while also providing downside risk protection to the buyer should projections not materialize . as a result , the terms of potential earnouts vary with each transaction . fair value is assigned using multiple payout scenarios which each have a probability assigned based on factors including actual performance , evidence of business plans that have been implemented , and current market conditions that influence the ability to achieve the earnout .
| results from principal payments of $ 172.2 million related to our senior credit facilities and a $ 35.0 million reduction of our revolving credit facility partially offset by the net proceeds of our 2021 notes of $ 194.5 million . at december 31 , 2015 , we had net working capital ( excluding current assets and current liability of discontinued operations ) of $ 30.9 million compared to $ 25.4 million of net working capital at december 31 , 2014 . the $ 5.5 million increase in net working capital primarily results from an increase in our cash and cash equivalents of $ 14.8 million and a reduction of $ 6.5 million in other current assets . the reduction of current assets is primarily due to lower accounts receivable , net balance as a result of improved collections during 2015. current liabilities increased at december 31 , 2015 as compared to december 31 , 2014 primarily due to 45 the increased current portion of long-term debt of $ 22.3 million that was partially offset by a decrease in accounts payable and other accrued expenses of $ 19.5 million . as of december 31 , 2015 , approximately $ 54.6 million of our revolving credit facility was available for working capital needs after considering outstanding letters of credit totaling $ 5.4 million . our revolving credit facility borrowing capacity is subject to certain conditions described below in “ md & a - liquidity and capital resources - senior credit facilities. ” repurchase and redemption of 2015 notes on june 3 , 2013 , we commenced an offer to purchase and consent solicitation ( the “ offer ” ) to the holders of our outstanding 2015 notes to purchase any and all of the 2015 notes at $ 1,056.25 cash for each $ 1,000.00 of principal plus accrued but unpaid interest to the date of purchase .
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in analyzing the components of our revenue , we monitor changes and trends in the following key metrics : revenue per hundredweight - this measurement reflects the application of our pricing policies to the services we provide , which are influenced by competitive market conditions and our growth objectives . generally , freight is rated by a class system , which is established by the national motor freight traffic association , inc. light , bulky freight typically has a higher class and is priced at higher revenue per hundredweight than dense , heavy freight . fuel surcharges , accessorial charges , revenue adjustments and revenue for undelivered freight are included in this measurement . revenue for undelivered freight is deferred for financial statement purposes in accordance with our revenue recognition policy ; however , we believe including it in our revenue per hundredweight metrics results in a better indicator of changes in our yields by matching total billed revenue with the corresponding weight of those shipments . revenue per hundredweight is a commonly-used indicator of pricing trends , but this metric can be influenced by many other factors , such as changes in fuel surcharges , weight per shipment , length of haul and the class , or mix , of our freight . as a result , changes in revenue per hundredweight do not necessarily indicate actual changes in underlying base rates . weight per shipment – fluctuations in weight per shipment can indicate changes in the mix of freight we receive from our customers , as well as changes in the number of units included in a shipment . generally , increases in weight per shipment indicate higher demand for our customers ' products and overall increased economic activity . increases in weight per shipment may also reflect growth of our container delivery services , as the weight for a container shipment is significantly higher than a traditional ltl shipment . changes in weight per shipment generally have an inverse effect on our revenue per hundredweight , as an increase in weight per shipment will typically cause a decrease in revenue per hundredweight . average length of haul – we consider lengths of haul less than 500 miles to be regional traffic , lengths of haul between 500 miles and 1,000 miles to be inter-regional traffic , and lengths of haul in excess of 1,000 miles to be national traffic . this metric is used to analyze our tonnage and pricing trends for shipments with similar characteristics , and also allows comparison with other transportation providers serving specific markets . by analyzing this metric , we can determine the success and growth potential of our service products in these markets . changes in length of haul generally have a direct effect on our revenue per hundredweight , as an increase in length of haul will typically cause an increase in revenue per hundredweight . our primary revenue focus is to increase “ density , ” which is shipment and tonnage growth within our existing infrastructure that is measured by our revenue per service center . increases in density allow us to maximize our asset utilization and labor productivity , which we measure over many different functional areas of our operations including linehaul load factor , pickup and delivery ( “ p & d ” ) stops per hour , p & d shipments per hour , platform pounds handled per hour and platform shipments per hour . in addition to our focus on density and operating efficiencies , it is critical for us to obtain an appropriate yield on the shipments we handle . we manage our yields by focusing on individual account profitability . we believe yield management and improvements in efficiency are key components in our ability to produce profitable growth . our primary cost elements are direct wages and benefits associated with the movement of freight ; fuel and equipment repair expenses ; and depreciation of our equipment fleet and service center facilities . we gauge our overall success in managing these costs by monitoring our operating ratio , a measure of profitability calculated by dividing total operating expenses by revenue , which also allows industry-wide comparisons with our competition . 21 we continually upgrade our technological capabilities to improve our customer service and lower our operating costs . our technology provides our customers with visibility of their shipments throughout our network , increases the productivity of our workforce and provides key metrics from which we can monitor our processes . story_separator_special_tag due to our increased volume of shipments as well as to ensure sufficient labor capacity for future revenue growth . we also hired additional drivers in the second half of 2013 to address inefficiencies that resulted from changes to the fmcsa 's hours-of-service regulations . although our salaries and wages , excluding benefits , increased during 2013 , these costs decreased as a percent of revenue to 37.2 % from 37.4 % in 2012 as a result of increased efficiencies within our operations . our platform pounds handled per hour , p & d stops per hour and p & d shipments per hour improved 1.0 % , 0.7 % and 0.5 % , respectively , over the prior-year period . employee benefit costs increased $ 32.0 million as a result of the increase in the number of full-time employees eligible for benefits ; however , we also experienced a significant increase in the costs per employee for our group health and dental plans during 2013. our group health and dental costs increased $ 14.5 million , or 14.7 % in 2013 as compared to 2012 , with the majority of the increase occurring in the second half of the year . we experienced significant increases in both the number of claims and the average severity per claim during 2013. we believe there will be additional costs associated with the ongoing implementation of the 2010 patient protection and affordable care act , and consequently , we believe our group health and dental costs may continue to increase in future periods . story_separator_special_tag the fuel surcharge is one of many components included in the overall negotiated price for our transportation services with our customers , although it is generally considered to be a measure of the increase in cost of all petroleum products we use . we regularly monitor the components of our pricing , including base freight rates and fuel surcharges . we also address any individual account profitability issues with our customers as part of our effort to minimize the negative impact on our profitability that would likely result from a rapid and significant change in any of our operating expenses . 25 operating costs and other expenses salaries , wages and benefits increased $ 110.5 million , or 11.6 % in 2012 due to a $ 72.8 million increase in the costs for salaries and wages and a $ 37.7 million increase in benefit costs . the increase in the costs for our salaries and wages , excluding benefits , was due primarily to a 6.9 % increase in average full-time employees over 2011 and the impact of wage increases provided to employees in september 2011 and 2012. the increase in our headcount was necessary to ensure adequate labor capacity for the increase in shipments during 2012 as well as for projected growth . as a result , our direct labor costs for drivers , platform employees and fleet technicians increased $ 55.2 million , or 10.8 % in 2012 as compared to 2011. although these costs increased during 2012 , our salaries and wages as a percent of revenue improved to 37.4 % from 38.1 % in 2011 as a result of the increased density and efficiency in our operations . our platform pounds handled per hour , p & d stops per hour and p & d shipments per hour improved 4.0 % , 0.7 % and 0.5 % , respectively , over the prior-year period . employee benefit costs increased $ 37.7 million primarily due to an increase in the number of full-time employees eligible for benefits , an increase in paid time off for employees and an increase in the cost per employee for our group health and dental plans . as a percentage of salaries and wages , employee benefit costs increased to 33.7 % in 2012 from 31.9 % in 2011. operating supplies and expenses increased $ 23.3 million in 2012 primarily due to the increases in the costs of diesel fuel , excluding fuel taxes , which represents the largest component of operating supplies and expenses . diesel fuel costs can vary based on both consumption and average price per gallon , both of which increased over 2011. gallons consumed and average price per gallon increased 5.1 % and 2.4 % , respectively , in 2012 as compared to 2011. although we saw increases in these costs , operating supplies and expenses decreased as a percent of revenue to 17.7 % in 2012 from 18.7 % in 2011. we attribute this improvement primarily to certain operational initiatives and the increased use of newer , more fuel-efficient equipment during 2012. we do not use diesel fuel hedging instruments and are therefore subject to market price fluctuations . depreciation and amortization expense increased to 5.2 % of revenue in 2012 as compared to 4.8 % in 2011. this increase was primarily due to the increase in our capital expenditure program for 2012 , which included a significant increase in the number of tractors and trailers purchased . in addition , our unit costs for tractors have increased significantly , due primarily to the impact of increasingly stringent emission standard requirements . since 2002 , the average cost of a new tractor in our fleet has increased approximately $ 45,000 , or 85 % . although our capital expenditure plan for 2013 was lower than 2012 , we expect our continued growth and investments to increase depreciation costs in future periods . our effective tax rate for 2012 was 38.0 % as compared to 36.6 % in 2011. our effective tax rate in 2011 was favorably impacted by tax credits related to our investment in alternative energy-producing assets and alternative fuel tax credits for the use of propane in our operations . these alternative fuel tax credits expired on december 31 , 2011 ; however , congress retroactively reinstated these credits for 2012 and extended the credits through december 31 , 2013 by passing the american taxpayer relief act of 2012 on january 1 , 2013. the impact of the retroactive application was recorded as a favorable discrete tax benefit during the first quarter of 2013. liquidity and capital resources a summary of our cash flows is presented below : replace_table_token_12_th the changes in our cash flows provided by operating activities for the periods presented above are due primarily to the significant improvement in our net income , which increased $ 36.7 million in 2013 and $ 30.0 million in 2012 over the comparable prior-year periods . these increases are more fully described above in “ results of operations . ” depreciation and amortization expenses also increased $ 16.3 million in 2013 and $ 19.9 million in 2012 over the comparable prior year periods , which was primarily due to the ongoing execution of our capital expenditure programs that is more fully described below . 26 other changes in our cash flows provided by operating activities are related to various fluctuations within our working capital accounts , which primarily include changes in customer receivables and certain accrued liabilities . the changes in our cash flows used in investing activities are primarily due to fluctuations in our capital expenditure programs each year . the changes in our capital expenditure program are more fully described below in “ capital expenditures. ” the changes in our cash flows from financing activities consists primarily of fluctuations in our senior unsecured revolving line of credit and scheduled principal payments under our long-term debt agreements .
| results of operations the following table sets forth , for the years indicated , expenses and other items as a percentage of revenue from operations : replace_table_token_9_th ( 1 ) our prior-period results have been adjusted for an immaterial correction related to how we present the costs of purchased transportation for certain truckload brokerage and international freight forwarding services . for more information on these adjustments , see note 1 to the financial statements included in item 8 , `` financial statements and supplementary data '' below . ( 2 ) for the purpose of this table , interest expense is presented net of interest income . 22 2013 compared to 2012 key financial and operating metrics for 2013 and 2012 are presented below : replace_table_token_10_th our financial results for 2013 reflect the continued execution and success of our long-term strategies . we increased our revenue 9.5 % in 2013 primarily through increased market share , as we continued to win share by providing a value proposition consisting of superior service at a fair and equitable price . with a focus on yield management and operating efficiencies , we were able to improve our margins , which increased earnings per diluted share 21.3 % . as a result , our operating ratio improved by over 100 basis points for the fourth straight year to 85.5 % , which is the best annual operating ratio our company has ever produced . revenue our revenue increased $ 203.1 million , or 9.5 % during 2013 , which was a result of increases in both tonnage and price . as compared to 2012 , tonnage increased 7.4 % primarily due to a 6.6 % increase in shipments and a 0.7 % increase in weight per shipment . our tonnage growth in 2013 was primarily due to increased market share , as our growth exceeded both the growth rate of the u.s. economy as well as the growth rate for the ltl industry .
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the company has the right to require the purchasers to convert all or any part of their august 31 st notes into shares of its common stock at a conversion price of $ 2.50 if the price of the common stock remains at a closing price of $ 3.50 or more for a story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes appearing elsewhere in this annual report on form 10-k. this discussion and analysis includes certain forward-looking statements that involve risks , uncertainties and assumptions . you should review the risk factors section of this form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements . see “ forward-looking information ” at the beginning of this form 10-k. 43 introduction using our large scale polymerase chain reaction ( pcr ) based manufacturing platform we manufacture large quantities of linear dna for various markets . whether for supply chain security , brand protection , law enforcement or drug and biologic applications , it is our goal to help establish secure flourishing environments that foster quality , integrity and success . with secure taggants , high-resolution dna authentication , and comprehensive reporting , our signature molecular tag technologies are designed to deliver what we believe to be the greatest levels of security , deterrence and legal recourse strength . under our wholly owned subsidiary , lrx , we supply dna for the use in in vitro medical diagnostics , preclinical biotechnology and drug and biologic manufacturing markets , and are also engaged in preclinical and animal drug candidate development and commercialization activities focusing on therapeutically relevant dna drug constructs manufacturers via through our pcr-based dna production platform triathlon pcr systems . story_separator_special_tag recognized revenue of $ 748,040 and $ 249,348 , from these contract awards during the fiscal years ended september 30 , 2018 and 2017 , respectively . 45 the company has a licensing agreement with himatsingka that operates in the cotton industry . the shipment to this customer during june 2018 included extended payment terms , as compared to those defined in the contract . the extended payment terms for this shipment are three equal installments due 90 , 180 and 270 days from shipment . due to the extended payment terms , this shipment was originally recorded to deferred revenue and the deferred revenue will be recognized to revenue as the payments become due and assuming all other conditions for revenue recognition have been satisfied . at september 30 , 2018 , the amount included in deferred revenue related to the shipment with extended payment terms was $ 766,192. the cotton ginning season in the united states takes place between september and march each year ; therefore , revenues from these customer contracts may be seasonal and recognized primarily during the first and fourth quarters of our fiscal year . equity based compensation we account for stock-based compensation for employees and directors in accordance with as 718 , compensation ( “ asc 718 ” ) . asc 718 requires all share-based payments to employees , including grants of employee stock options , to be recognized in the statement of operations based on their fair values . under the provisions of asc 718 , stock-based compensation costs are measured at the grant date , based on the fair value of the award , and are recognized as expense over the employee 's requisite service period ( generally the vesting period of the equity grant ) . the fair value of our common stock options is estimated using the black scholes option-pricing model with the following assumptions : expected volatility , dividend rate , risk free interest rate and the expected life . we expense stock-based compensation by using the straight-line method . in accordance with asc 718 , excess tax benefits realized from the exercise of stock-based awards are classified as cash flows from operating activities . all excess tax benefits and tax deficiencies ( including tax benefits of dividends on share-based payment awards ) are recognized as income tax expense or benefit in the condensed consolidated statements of operations . we estimate the number of awards expected to be forfeited and adjust the estimate when it is no longer probable that the employee will fulfill the service conditions . we account for stock-based compensation awards issued to non-employees for services , as prescribed by asc 718-10 , at either the fair value of the services rendered , or the instruments issued in exchange for such services , whichever is more readily determinable , using the measurement date guidelines enumerated in asc 505-50. use of estimates the preparation of the financial statements in conformity with accounting principles generally accepted in the united states ( “ gaap ” ) requires management to make estimates and assumptions that affect certain reported amounts and disclosures . management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . the most complex and subjective estimates include recoverability of long-lived assets , including the values assigned to goodwill , intangible assets and property , plant and equipment , fair value calculations for stock based compensation , contingencies , allowance for doubtful accounts , and management 's anticipated liquidity . management reviews its estimates on a regular basis and the effects of any material revisions are reflected in the consolidated financial statements in the period they are deemed necessary . accordingly , actual results could differ from those estimates . story_separator_special_tag additionally , we had a net decrease in operating assets of $ 917,659 and a net increase in operating liabilities of $ 1,931,882. cash used in investing activities was $ 266,008 , for the purchase of property and equipment . cash provided by financing activities was $ 5,883,000 , which included net proceeds from the sale of common stock and warrants related to a private placement in december 2017 and the proceeds from the sale of senior secured convertible promissory notes during august 2018. in addition , on november 29 , 2018 , we closed on senior secured convertible promissory notes that resulted in gross proceeds to us of $ 550,000. we have recurring net losses , which have resulted in an accumulated deficit of $ 248,366,083 as of september 30 , 2018. we have incurred a net loss of $ 11,692,928 for the fiscal year ended september 30 , 2018. at september 30 , 2018 , we had cash and cash equivalents of $ 1,659,564. these factors raise substantial doubt about the company 's ability to continue as a going concern for one year from the issuance of the financial statements . the ability of the company to continue as a going concern is dependent on the company 's ability to further implement its business plan , raise capital , and generate revenues . the financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern . our current capital resources include cash and cash equivalents , accounts receivable and inventories . historically , we have financed our operations principally from the sale of equity securities . as discussed in note g , to the accompanying consolidated financial statements , on august 31 , 2018 and november 29 , 2018 , we closed on $ 1,650,000 million and $ 550,000 , respectively , of senior secured convertible notes by way of a private placement with accredited investors and certain members of our management team and board of directors . 48 we expect capital expenditures to be less than $ 200,000 in fiscal 2019. our primary investments will be in laboratory equipment to support prototyping , manufacturing , our authentication services , and outside services for our detector and reader development . these capital expenditures include one-time set up costs associated with the establishment of our laboratory space located in india . substantially all of the real property used in our business is leased under operating lease agreements . recent debt and equity financing transactions fiscal 2018 on december 22 , 2017 , we closed a securities purchase agreement with certain institutional investors for the purchase and sale of 2,735,000 shares of our common stock and warrants to purchase an aggregate of 2,735,000 shares of common stock in a registered direct offering with aggregate gross proceeds of $ 4,786,250 , at a combined purchase price of $ 1.75 per share . the warrants will be immediately exercisable at a price of $ 2.00 per share of common stock and will expire five years from the date of issuance . after deducting placement agent fees and other estimated expenses related to the registered direct offering , the aggregate net proceeds were approximately $ 4,200,000. the warrants include an adjustment provision that , subject to certain exceptions , reduces their exercise price if we issue common stock or common stock equivalents at a price lower than the then-current exercise price of the warrants , subject to a minimum exercise price of $ 0.44. the exercise price and number of the shares of our common stock issuable upon the exercise of the warrants will be subject to adjustment as set forth therein ( including for stock dividends and splits , reverse stock split , recapitalization , reorganization or similar transaction ) . the warrants are subject to a call provision whereby we may , subject to certain provisions , including that the weighted average price of our common stock has exceeded $ 5.00 for twenty consecutive trading days , call for cancellation of all or any portion of the warrants not yet exercised . in addition , if and only if there is no effective registration statement registering , or no current prospectus available for , the resale of the warrants , the investors may exercise the warrants by means of a “ cashless exercise. ” on august 31 , 2018 , we entered into a securities purchase agreement with accredited investors and certain members of our management team and board of directors ( the “ purchaser ” ) , pursuant to which we issued and sold an aggregate of $ 1,650,000 in principal amount of secured convertible notes ( the “ august 31 st notes ” ) bearing interest at a rate of 6 % per annum ( the “ private placement ” ) . as part of the august 31 st notes , our management and board of directors purchased notes with a principal amount of $ 1,185,000. the august 31 st notes are convertible , in whole or in part , at any time , at the option of the purchasers , into shares of our common stock , in an amount determined by dividing the principal amount of each note , together with any and all accrued and unpaid interest , by the conversion price of $ 2.50. we have the right to require the purchasers to convert all or any part of their notes into shares of our common stock at a conversion price of $ 2.50 if the price of the common stock remains at a closing price of $ 3.50 or more for a period of twenty consecutive trading days . upon any change in control ( as defined in the august 31 st notes ) , the purchasers have the right to require us to redeem the notes , in whole or in part , at a redemption price equal to such notes ' outstanding principal balance plus accrued interest .
| general to date , the substantial portion of our revenues have been generated from sales of our signature molecular tags and signature t molecular tags , our principal supply chain security and product authentication solutions . we expect to grow revenues from sales of our signature molecular tags , signature t molecular tags , signify , and certaint offerings as we work with companies and government to secure supply chains for various types of products and product labeling throughout the world . in addition , we expect to continue to grow revenues from our pcr-produced linear dna products and services for in vitro medical diagnostics , biotechnology research and drug and biologic manufacturing . we have continued to incur expenses in expanding our business and increasing our personnel to meet current and anticipated future demand . we have limited sources of liquidity . our products and services are offered in the united states , europe and asia . at the present time , we are focusing our efforts on textile and apparel , pharmaceuticals and nutraceuticals , microcircuits and other electronics , cannabis and pcr-produced linear dna products and services ( for therapeutics , diagnostics and vaccines ) . currently approximately twenty percent of our annual revenue comes from the textile market . the cotton ginning season in the united states takes place between september and march each year ; therefore , revenues from our cotton customer contracts may be seasonal and recognized primarily during our first and fourth fiscal quarters , which may cause operating results to fluctuate significantly quarterly and annually . the basic technology we use in various markets is very similar , and we believe our solutions are adaptable for many types of products and markets . we have continued to incur expenses in expanding our business to meet current and anticipated future demand . we have limited sources of liquidity .
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following is a breakout of total operating costs and expenses by segment and property for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 : · canada increased by $ 0.2 million , or 0.6 % , due to changes in the following operating segments : § edmonton decreased by ( $ 0.4 ) million , or ( 2.2 % ) . § calgary decreased by ( $ 0.1 ) million , or ( 1.3 % ) . § cdr increased by $ 0.7 million , or 1744.7 % . * · united states decreased by ( $ 1.0 ) million , or ( 3.8 % ) , due to changes in the following operating segments : § central city decreased by ( $ 0.8 ) million , or ( 5.2 % ) . § cripple creek decreased by ( $ 0.2 ) million , or ( 1.5 % ) . · poland increased by $ 16.9 million , or 48.9 % , due to our increased ownership in casinos poland throughout 2014 . * * · corporate and other increased by $ 2.4 million , or 18 . 2 % , due to changes in the following operating segments : § ship-based casinos and other in creased by $ 0.9 million , or 14.2 % . § corporate other increased by $ 1.5 million , or 22.0 % . * we began consolidating cdr as a minority owned subsidiary for which we have a controlling interest on november 29 , 2013 . * * we acquired a controlling interest in casinos poland on april 8 , 2013. earnings from operations decreased by ( $ 2.8 ) million , or ( 51.5 % ) , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 . following is a breakout of earnings from operations by segment and property for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 : · canada increased by $ 0.7 million , or 8.9 % , due to changes in the following operating segments : § edmonton increased by $ 0.3 million , or 3.8 % . § calgary increased by $ 0.6 million , or 266.8 % . § cdr decreased by ( $ 0.2 ) million , or ( 290.5 % ) . * · united states decreased by ( $ 1.5 ) million , or ( 42.4 % ) , due to changes in the following operating segments : § central city decreased by ( $ 0.8 ) million , or ( 41.3 % ) . § cripple creek de creased by ( $ 0.7 ) million , or ( 43.8 % ) . · poland de creased by ( $ 0.5 ) million , or ( 149.2 % ) , due to our increased own ership in casinos poland throughout 2014 . * * · corporate and other decreased by ( $ 1.5 ) million , or ( 24.1 % ) , due to changes in the following operating segments : § ship-based casinos and other de creased by ( $ 0.2 ) million , or ( 28.2 % ) . § corporate and other decreased by ( $ 1.3 ) million , or ( 19.6 % ) . * we began consolidating cdr as a minority owned subsidiary for which we have a controlling interest on november 29 , 2013 . * * we acquired a controlling interest in casinos poland on april 8 , 2013 . 44 net earnings de creased by ( $ 5.0 ) million , or ( 80.1 % ) for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 . items deducted from or added to earnings from operations to arrive at net earnings include gain s on business combination s related to the acquisition of the additional equity interest in cpl and the acquisition of cdr , interest income , interest expense , gains or losses on foreign currency transactions , income tax expense and non-controlling interest . for the year ended december 31 , 2013 , we recognized an increase in net earnings of $ 2.1 million because of measuring at fair value our 33.3 % equity interest in cpl held prior to the acquisition of the additional equity interest in cpl . we also recognized a $ 0.4 million gain because of the fair value measurement of the company 's 15 % controlling ownership interest in cdr . we reported the total $ 2.5 million gain in the corporate other category for the year ended december 31 , 2013 . for a discussion of certain of these items , see “ non-operating income ( expense ) ” and “ taxes ” below in this item 7 . non-gaap measures – adjusted ebitda we define adjusted ebitda as net earnings ( loss ) before interest , income taxes ( benefit ) , depreciation , amortization , non-controlling interest , p re -opening expenses , acquisition costs , non-cash stock based compensation charges , asset impairment costs , ( gain ) loss on disposition of fixed assets , discontinued operations , realized foreign currency ( gains ) losses , gain on business combination and certain other one-time items . intercompany transactions consisting primarily of management and royalty fees and interest , along with their related tax effects , are excluded from the presentation of net earnings ( loss ) and adjusted ebitda reported for each property . not all of the aforementioned items occur in each reporting period , but have been included in the definition based on historical activity . these adjustments have no effect on the consolidated results as reported under accounting principles generally accepted in the united states of america ( “ us gaap ” ) . adjusted ebitda is not considered a measure of performance recognized under us gaap . management believes story_separator_special_tag following is a breakout of total operating costs and expenses by segment and property for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 : · canada increased by $ 0.2 million , or 0.6 % , due to changes in the following operating segments : § edmonton decreased by ( $ 0.4 ) million , or ( 2.2 % ) . § calgary decreased by ( $ 0.1 ) million , or ( 1.3 % ) . § cdr increased by $ 0.7 million , or 1744.7 % . * · united states decreased by ( $ 1.0 ) million , or ( 3.8 % ) , due to changes in the following operating segments : § central city decreased by ( $ 0.8 ) million , or ( 5.2 % ) . § cripple creek decreased by ( $ 0.2 ) million , or ( 1.5 % ) . · poland increased by $ 16.9 million , or 48.9 % , due to our increased ownership in casinos poland throughout 2014 . * * · corporate and other increased by $ 2.4 million , or 18 . 2 % , due to changes in the following operating segments : § ship-based casinos and other in creased by $ 0.9 million , or 14.2 % . § corporate other increased by $ 1.5 million , or 22.0 % . * we began consolidating cdr as a minority owned subsidiary for which we have a controlling interest on november 29 , 2013 . * * we acquired a controlling interest in casinos poland on april 8 , 2013. earnings from operations decreased by ( $ 2.8 ) million , or ( 51.5 % ) , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 . following is a breakout of earnings from operations by segment and property for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 : · canada increased by $ 0.7 million , or 8.9 % , due to changes in the following operating segments : § edmonton increased by $ 0.3 million , or 3.8 % . § calgary increased by $ 0.6 million , or 266.8 % . § cdr decreased by ( $ 0.2 ) million , or ( 290.5 % ) . * · united states decreased by ( $ 1.5 ) million , or ( 42.4 % ) , due to changes in the following operating segments : § central city decreased by ( $ 0.8 ) million , or ( 41.3 % ) . § cripple creek de creased by ( $ 0.7 ) million , or ( 43.8 % ) . · poland de creased by ( $ 0.5 ) million , or ( 149.2 % ) , due to our increased own ership in casinos poland throughout 2014 . * * · corporate and other decreased by ( $ 1.5 ) million , or ( 24.1 % ) , due to changes in the following operating segments : § ship-based casinos and other de creased by ( $ 0.2 ) million , or ( 28.2 % ) . § corporate and other decreased by ( $ 1.3 ) million , or ( 19.6 % ) . * we began consolidating cdr as a minority owned subsidiary for which we have a controlling interest on november 29 , 2013 . * * we acquired a controlling interest in casinos poland on april 8 , 2013 . 44 net earnings de creased by ( $ 5.0 ) million , or ( 80.1 % ) for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 . items deducted from or added to earnings from operations to arrive at net earnings include gain s on business combination s related to the acquisition of the additional equity interest in cpl and the acquisition of cdr , interest income , interest expense , gains or losses on foreign currency transactions , income tax expense and non-controlling interest . for the year ended december 31 , 2013 , we recognized an increase in net earnings of $ 2.1 million because of measuring at fair value our 33.3 % equity interest in cpl held prior to the acquisition of the additional equity interest in cpl . we also recognized a $ 0.4 million gain because of the fair value measurement of the company 's 15 % controlling ownership interest in cdr . we reported the total $ 2.5 million gain in the corporate other category for the year ended december 31 , 2013 . for a discussion of certain of these items , see “ non-operating income ( expense ) ” and “ taxes ” below in this item 7 . non-gaap measures – adjusted ebitda we define adjusted ebitda as net earnings ( loss ) before interest , income taxes ( benefit ) , depreciation , amortization , non-controlling interest , p re -opening expenses , acquisition costs , non-cash stock based compensation charges , asset impairment costs , ( gain ) loss on disposition of fixed assets , discontinued operations , realized foreign currency ( gains ) losses , gain on business combination and certain other one-time items . intercompany transactions consisting primarily of management and royalty fees and interest , along with their related tax effects , are excluded from the presentation of net earnings ( loss ) and adjusted ebitda reported for each property . not all of the aforementioned items occur in each reporting period , but have been included in the definition based on historical activity . these adjustments have no effect on the consolidated results as reported under accounting principles generally accepted in the united states of america ( “ us gaap ” ) . adjusted ebitda is not considered a measure of performance recognized under us gaap . management believes
| result ing primarily from managing the construction of the rec project and were partially offset by insurance proceeds received due to a barn that was damaged by wind . construction of the rec project began in march 2014 and we anticipate that the rec will open in april 2015. the casino and off-track betting at the rec will be available year-round and the horse racing season will be from march to november each year . the 2015 horse racing season will be from april to november . united states central city replace_table_token_13_th net operating revenue at our property in central city decreased by ( $ 1.6 ) million , or ( 9.3 % ) , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 . the decrease was due to a decrease in all revenue categories and was primarily due to gaming revenue , which decreased by ( $ 1.4 ) million , or ( 7.7 % ) , as a result of lower customer volumes of 5.6 % for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. the decrease in customer volumes of 5.6 % was due to a declining central city market and ongoing road construction on interstate 70 along with the closure of the central city parkway , the main thoroughfares connecting denver to central city . the parkway was closed from august 12-15 , 2014 and was reopened to weekday evening and weekend traffic only through october 10 , 2014. the central city market decreased by 8.2 % for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. we believe that the central city market decreased due to lost market share to the black hawk market .
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ubam 's sales are paid at the time the product is ordered . these sales accounted for 83 % and 65 % of net revenues in fiscal years 2016 and 2015 , respectively . estimated allowances for sales returns are recorded as sales are recognized and recorded . management uses a moving average calculation to estimate the allowance for sales returns . we are not responsible for product damaged in transit . damaged returns are primarily from the retail stores . the damages occur in the stores , not in shipping to the stores . it is industry practice to accept returns from wholesale customers . transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped . management has estimated and included a reserve for sales returns of $ 100,000 for the years ended february 29 , 2016 and february 28 , 2015. allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to make required payments . an estimate of uncollectible amounts is made by management based upon historical bad debts , current customer receivable balances , age of customer receivable balances , customers ' financial conditions and current economic trends . management has estimated an allowance for doubtful accounts of $ 401,900 and $ 234,500 as of february 29 , 2016 and february 28 , 2015 , respectively . inventory management continually estimates and calculates the amount of noncurrent inventory . the inventory arises due to occasional purchases of book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of our primary supplier . noncurrent inventory was estimated by management using the current year turnover ratio by title . all inventory in excess of 2 ½ years of anticipated sales was classified as noncurrent inventory . noncurrent inventory balances prior to valuation allowances were $ 469,000 and $ 718,900 at february 29 , 2016 and february 28 , 2015 , respectively . inventories are presented net of a valuation allowance . management has estimated and included a valuation allowance for both current and noncurrent inventory . this allowance is based on management 's identification of slow moving inventory on hand . management has estimated a valuation allowance for both current and noncurrent inventory of $ 325,000 and $ 393,100 as of february 29 , 2016 and 2015 , respectively . 13 our product line contains approximately 2,000 titles , each with different rates of sale , depending upon the nature and popularity of the title . almost all of our product line is saleable as the books are not topical in nature and remain current in content today as well as in the future . most of our products are printed in europe , china , singapore , india , malaysia and dubai resulting in a three to four-month lead-time to have a title reprinted and delivered to us . our principal supplier , based in england , generally requires a minimum reorder of 6,500 or more of a title in order to get a solo print run . smaller orders would require a shared print run with the supplier 's other customers , which can result in more lengthy delays to receive the ordered title . anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series . we then place the initial order or re-order based upon this analysis . these factors and historical analysis have led management to determine that 2 ½ years represents a reasonable estimate of the normal operating cycle for our products . new accounting pronouncements the financial accounting standards board ( “ fasb ” ) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting . we have reviewed the recently issued pronouncements and concluded that the following recently issued accounting standards apply to us . in may 2014 , fasb issued asu no . 2014-09 , and amended with asu no . 2015-14 “ revenue from contracts with customers , ” which provides a single revenue recognition model which is intended to improve comparability over a range of industries , companies and geographical boundaries and will also result in enhanced disclosures . the changes are effective for fiscal years , and interim periods within those years , beginning after december 15 , 2017 , which means the first quarter of our fiscal year 2019. we are currently reviewing the asu and assessing the potential impact on our financial statements . in august 2015 , fasb issued asu no . 2015-15 “ interest—imputation of interest , ” which modifies the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements . these changes allow an entity to defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement , regardless of whether there are any outstanding borrowings on the line-of-credit arrangement . the changes are effective for financial statements issued for annual periods beginning after december 15 , 2015 , and interim periods within those annual periods , which means the first quarter of our fiscal year 2017.we are currently reviewing the asu and assessing the potential impact on our financial statements . in november 2015 , fasb issued asu no . 2015-17 , which is intended to improve how deferred taxes are classified on organizations ' balance sheets by eliminating the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet . instead , organizations will now be required to classify all deferred tax assets and liabilities as noncurrent . the changes are effective for financial statements issued for annual periods beginning after december 15 , 2016 , and interim periods within those annual periods , which means the first quarter of story_separator_special_tag ubam 's sales are paid at the time the product is ordered . these sales accounted for 83 % and 65 % of net revenues in fiscal years 2016 and 2015 , respectively . estimated allowances for sales returns are recorded as sales are recognized and recorded . management uses a moving average calculation to estimate the allowance for sales returns . we are not responsible for product damaged in transit . damaged returns are primarily from the retail stores . the damages occur in the stores , not in shipping to the stores . it is industry practice to accept returns from wholesale customers . transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped . management has estimated and included a reserve for sales returns of $ 100,000 for the years ended february 29 , 2016 and february 28 , 2015. allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to make required payments . an estimate of uncollectible amounts is made by management based upon historical bad debts , current customer receivable balances , age of customer receivable balances , customers ' financial conditions and current economic trends . management has estimated an allowance for doubtful accounts of $ 401,900 and $ 234,500 as of february 29 , 2016 and february 28 , 2015 , respectively . inventory management continually estimates and calculates the amount of noncurrent inventory . the inventory arises due to occasional purchases of book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of our primary supplier . noncurrent inventory was estimated by management using the current year turnover ratio by title . all inventory in excess of 2 ½ years of anticipated sales was classified as noncurrent inventory . noncurrent inventory balances prior to valuation allowances were $ 469,000 and $ 718,900 at february 29 , 2016 and february 28 , 2015 , respectively . inventories are presented net of a valuation allowance . management has estimated and included a valuation allowance for both current and noncurrent inventory . this allowance is based on management 's identification of slow moving inventory on hand . management has estimated a valuation allowance for both current and noncurrent inventory of $ 325,000 and $ 393,100 as of february 29 , 2016 and 2015 , respectively . 13 our product line contains approximately 2,000 titles , each with different rates of sale , depending upon the nature and popularity of the title . almost all of our product line is saleable as the books are not topical in nature and remain current in content today as well as in the future . most of our products are printed in europe , china , singapore , india , malaysia and dubai resulting in a three to four-month lead-time to have a title reprinted and delivered to us . our principal supplier , based in england , generally requires a minimum reorder of 6,500 or more of a title in order to get a solo print run . smaller orders would require a shared print run with the supplier 's other customers , which can result in more lengthy delays to receive the ordered title . anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series . we then place the initial order or re-order based upon this analysis . these factors and historical analysis have led management to determine that 2 ½ years represents a reasonable estimate of the normal operating cycle for our products . new accounting pronouncements the financial accounting standards board ( “ fasb ” ) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting . we have reviewed the recently issued pronouncements and concluded that the following recently issued accounting standards apply to us . in may 2014 , fasb issued asu no . 2014-09 , and amended with asu no . 2015-14 “ revenue from contracts with customers , ” which provides a single revenue recognition model which is intended to improve comparability over a range of industries , companies and geographical boundaries and will also result in enhanced disclosures . the changes are effective for fiscal years , and interim periods within those years , beginning after december 15 , 2017 , which means the first quarter of our fiscal year 2019. we are currently reviewing the asu and assessing the potential impact on our financial statements . in august 2015 , fasb issued asu no . 2015-15 “ interest—imputation of interest , ” which modifies the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements . these changes allow an entity to defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement , regardless of whether there are any outstanding borrowings on the line-of-credit arrangement . the changes are effective for financial statements issued for annual periods beginning after december 15 , 2015 , and interim periods within those annual periods , which means the first quarter of our fiscal year 2017.we are currently reviewing the asu and assessing the potential impact on our financial statements . in november 2015 , fasb issued asu no . 2015-17 , which is intended to improve how deferred taxes are classified on organizations ' balance sheets by eliminating the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet . instead , organizations will now be required to classify all deferred tax assets and liabilities as noncurrent . the changes are effective for financial statements issued for annual periods beginning after december 15 , 2016 , and interim periods within those annual periods , which means the first quarter of
| condition and results of operations management 's discussion and analysis contains statements that are forward-looking and include numerous risks which you should carefully consider . additional risks and uncertainties may also materially and adversely affect our business . you should read the following discussion in connection with our financial statements , including the notes to those statements , included in this document . our fiscal years end on february 29 ( 28 ) . 6 management summary educational development corporation is the sole distributor in the united states of the usborne line of children 's books and is the owner of kane miller book publishers . we operate two separate divisions , edc publishing and usborne books & more ( “ ubam ” ) , to sell these books . our corporate headquarters , including the distribution facility for both divisions , is located in tulsa , oklahoma . these two divisions each have their own customer base . edc publishing markets its products on a wholesale basis to various retail accounts . ubam markets its products to individual consumers as well as to school and public libraries through direct-selling consultants . publishing division edc publishing operates in a market that is highly competitive , with a large number of companies engaged in the selling of books . the publishing division 's customer base includes national book chains , regional and local bookstores , toy and gift stores , school supply stores and museums . to reach these markets , the publishing division utilizes a combination of commissioned sales representatives located throughout the country and a commissioned inside sales group located in our headquarters . the vice president of the publishing division manages sales to the national chain customers . replace_table_token_4_th edc publishing uses a variety of methods to attract potential new customers and maintain current customers . company personnel attend many of the national trade shows held by the book selling industry each year , allowing us to make contact with potential buyers who may be unfamiliar with our books .
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the low point of the year for the decline in customer demand was the second quarter and all of our businesses have been showing some recovery since that time , although they have not yet returned to pre-pandemic levels . we also successfully navigated a number of world trade disputes which threatened to have a negative impact on our business . performance chemicals continued its organic growth driven by new product development and the development of new customers in the personal care , home care , agrochemical and metal extraction markets . both fuel specialties and oilfield services suffered from the dramatic drop in demand . in oilfield services , we responded by making substantial cuts in costs to reflect the reduced customer activity levels . we believe that both markets were showing signs of good recovery by the end of the year . the octane additives business concluded its trading with its last customer for motor gasoline during the year , as its sole customer completed their transition to unleaded fuel . critical accounting estimates note 2 of the notes to the consolidated financial statements includes a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements . environmental liabilities we are subject to environmental laws in the countries in which we conduct business . ellesmere port in the united kingdom is our principal site giving rise to environmental remediation liabilities associated with the production of tel . there are also environmental remediation liabilities on a much smaller scale in respect of our other manufacturing sites in the u.s. and europe . at ellesmere port there is a continuing asset retirement program related to certain manufacturing units that have been closed . remediation provisions at december 31 , 2020 amounted to $ 58.5 million and relate principally to our ellesmere port site in the united kingdom . we recognize environmental liabilities when they are probable and costs can be reasonably estimated , and asset retirement 28 obligations when there is a legal obligation and costs can be reasonably estimated . the company has to anticipate the program of work required and the associated future expected costs , and comply with environmental legislation in the countries in which it operates or has operated in . we develop these assumptions utilizing the latest information available together with recent costs . while we believe our assumptions for environmental liabilities are reasonable , they are subjective judgements and it is possible that variations in any of the assumptions will result in materially different calculations to the liabilities we have reported . income taxes we are subject to income and other taxes in the u.s. , the u.k. , the e.u . and other jurisdictions . tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied . the calculation of our tax liabilities involves evaluating uncertainties in the application of accounting principles and complex tax regulations . we recognize liabilities for anticipated tax audit issues based on our estimate of whether , and the extent to which , additional taxes will be required . if we ultimately determine that payment of these amounts is unnecessary , we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary . we also recognize tax benefits to the extent that it is more likely than not that our positions will be sustained , based on technical merits of the position , when challenged by the taxing authorities . to the extent that we prevail in matters for which liabilities have been established or are required to pay amounts in excess of the liabilities recorded in our financial statements , our effective tax rate in a given period may be materially affected . an unfavourable tax settlement may require cash payments and result in an increase in our effective tax rate in the year of resolution . we report interest and penalties related to uncertain tax positions as income taxes . for additional information regarding uncertain income tax positions , see note 11 of the notes to the consolidated financial statements . pensions the company maintains a defined benefit pension plan covering a number of its current and former employees in the united kingdom . the company also has other smaller pension arrangements in the u.s. and overseas as disclosed in note10 of the notes to the consolidated financial statements . the united kingdom plan is closed to future service accrual , but has a large number of deferred and current pensioners . movements in the united kingdom 's underlying plan asset value and projected benefit obligation ( “ pbo ” ) are dependent on actual return on investments as well as our assumptions in respect of the discount rate , annual member mortality rates , future return on assets and future inflation . a change in any one of these assumptions could impact the plan asset value , pbo and pension charge recognized in the income statement . such changes could adversely impact our results of operations and financial position . for example , a 0.25 % change in the 29 discount rate assumption would change the pbo by approximately $ 26 million while the net pension credit for 2020 would change by approximately $ 0.4 million . a 0.25 % change in the level of price inflation assumption would change the pbo by approximately $ 19 million and the net pension credit for 2021 would change by approximately $ 1.2 million . further information is provided in note 10 of the notes to the consolidated financial statements . goodwill the company 's reporting units , the level at which goodwill is assessed for potential impairment , are consistent with the reportable segments . story_separator_special_tag 31 as we operate in the chemical industry , we continue to be focused on protecting the health and safety of our employees and have procedures in place at each of our operating facilities to help ensure their well-being . we do not know how long the pandemic and current economic environment will continue and while we have made estimates as to potential impacts on our financial position and operations , the ultimate impact on our business will depend on many factors which are very difficult to predict with certainty and substantially beyond our control . story_separator_special_tag none ; '' > the most significant factors impacting on our effective tax rate in 2020 are explained in note 11 of the notes to the consolidated financial statements . 37 results of operations – fiscal 2019 compared to fiscal 2018 : replace_table_token_10_th financial information with respect to our domestic and foreign operations is contained in note 3 of the notes to the consolidated financial statements . fuel specialties net sales : the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate : replace_table_token_11_th 38 lower volumes in the americas were primarily driven by a specific issue in the second half of 2019 related to disruption from one supplier . volumes in emea and aspac were higher , driven by increased demand for our products and technology . price and product mix in the americas , emea and aspac benefited from increased sales of higher margin products . avtel volumes were higher than the prior year due to variations in the demand from customers , partly offset by an adverse price and product mix . emea and aspac were negatively impacted by exchange rate movements year over year , driven by a weakening of the british pound sterling and the european union euro against the u.s. dollar . gross margin : the year on year increase of 1.1 percentage points benefitted from an improvement in the mix of product sales . operating expenses : the year on year increase of $ 9.2 million was driven by increased selling expenses including higher agents ' commissions and higher personnel related performance-based remuneration due to increased share-based compensation accruals . performance chemicals net sales : the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate : replace_table_token_12_th lower volumes in the americas and emea were driven by a customer taking some volume in-house . higher volumes in aspac were driven by increased demand for our personal care products , partly offset by an adverse price and product mix . price and product mix in the americas benefitted from increased sales of higher margin products , while emea was adversely impacted by lower raw material prices driving lower selling prices for certain products . emea and aspac were negatively impacted by exchange rate movements year over year , due to a weakening of the british pound sterling and the european union euro against the u.s. dollar . gross margin : the year on year increase of 2.5 percentage points was driven by an improved sales mix , lower raw material prices and the continued benefit of several improvement projects . operating expenses : the year on year decrease of $ 1.4 million was primarily due to the benefit of a weaker european union euro against the u.s. dollar and lower costs as a result of the closure of our operation in belgium in the prior year . 39 oilfield services net sales : the year on year increase of $ 79.3 million , or 20 percent , was due to improved customer activity in stimulation and production driving increased demand for our technology and customer service . sales of higher margin products have benefited the price and product mix . gross margin : the year on year increase of 0.7 percentage points was due to an improved customer and product mix leading to increased sales of higher margin products . operating expenses : the year on year increase of $ 11.9 million was driven by higher selling and technical support expenses required to deliver the increase in customer demand . octane additives net sales : were $ 21.0 million for 2019 compared to $ 33.7 million in 2018. reduced sales are in line with our expectations as the one remaining customer moves closer to completing their transition to unleaded fuel . gross margin : the year on year decrease of 27.8 percentage points was due to lower production volumes spread over the predominantly fixed cost of manufacturing operations . operating expenses : the year on year increase of $ 0.2 million was principally due to higher year-end provisions for personnel related performance-based remuneration . other income statement captions corporate costs : the year on year increase of $ 2.0 million primarily relates to higher personnel related performance-based remuneration including higher share-based compensation accruals ; partly offset by a reduction for the amortization of our internally developed software following the completed amortization of our first deployment to the americas which ended in the third quarter of 2018 , together with the benefit of a weakening of the british pound sterling against the u.s. dollar for our united kingdom cost base . restructuring charge : there was no charge in 2019 compared to a charge of $ 7.1 million in the prior year related to the closure costs , including redundancies and onerous leases , for our operation in belgium . other net income/ ( expense ) : for 2019 and 2018 , includes the following : replace_table_token_13_th 40 interest expense , net : was $ 4.8 million for 2019 compared to $ 6.9 million in the prior year , driven by lower average net debt as the business generated cash inflows . income taxes : the effective tax rate was 25.4 % and 35.4 % in 2019 and 2018 , respectively .
| results of operations the following table provides operating income by reporting segment : replace_table_token_4_th 32 results of operations – fiscal 2020 compared to fiscal 2019 : replace_table_token_5_th financial information with respect to our domestic and foreign operations is contained in note 3 of the notes to the consolidated financial statements . 33 fuel specialties net sales : the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate : replace_table_token_6_th volumes in all our regions have suffered from the adverse impact of the covid-19 pandemic , which has reduced the global demand for fuel additive products . during the second half of 2020 , we have seen customer demand recovering steadily as lockdowns in countries around the world have been eased . however , the reintroduction of lockdowns for european countries in january 2021 could slow the return of customer demand to the pre-pandemic level . price and product mix in all our regions was adverse due to lower sales of our higher margin products . avtel volumes were higher than the prior year due to variations in the demand from customers , being offset by an adverse price and product mix . emea benefitted from favorable exchange rate movements year over year , due to a strengthening of the british pound sterling and the european union euro against the u.s. dollar . gross margin : the year over year decrease of 3.7 percentage points was driven by the impact of the covid-19 pandemic reducing demand for our higher margin products , together with adverse raw material costs and higher provisions for slow moving inventory .
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we believe we are one of the top two providers of nurse and allied staffing services , one of the top four providers of temporary physician staffing ( locum tenens ) services , and one of the top five providers of retained physician and healthcare executive search services . we are also a leading provider of education and training programs specifically for the healthcare marketplace . we report our financial results according to three business segments : ( 1 ) nurse and allied staffing , ( 2 ) physician staffing , and ( 3 ) other human capital management services . we have a diversified revenue mix across healthcare customers . for the year ended december 31 , 2012 , our nurse and allied staffing business segment represented approximately 63 % of our revenue and is comprised of travel nurse and per diem nurse staffing , and allied health staffing . travel nurse staffing represented approximately 48 % of our total revenue and 76 % of our nurse and allied staffing business segment revenue . other nurse and allied staffing services include the placement of per diem nurses and allied healthcare professionals , such as radiology technicians , rehabilitation therapists , nurse practitioners and respiratory therapists . our physician staffing business segment represented approximately 28 % of 2012 revenue and consists of temporary physician staffing services ( locum tenens ) . our other human capital management services business segment represented approximately 9 % of our revenue and consists of education and training and retained search services . during the fourth quarter of 2012 , we decided to sell our clinical trial services business segment as a result of an extensive review of our business and the changing competitive landscape in the pharmaceutical outsourcing industry . this segment consisted of service offerings that include traditional contract staffing and functional outsourcing , as well as drug safety monitoring and regulatory services to pharmaceutical and biotechnology customers . as of december 31 , 2012 , our clinical trial services segment is classified as a disposal group held for sale and the results of operations have been classified as discontinued operations for all periods presented . the long-term macro drivers of our business are demographic in nature and consist of a growing and aging u.s. population demanding more healthcare services and an aging workforce of healthcare professionals . additionally , there are projected shortages of healthcare professionals including registered nurses ( rns ) and physicians . we believe demand for our nurse , allied and physician staffing services is primarily influenced by two factors : ( 1 ) national labor market dynamics that affect the number of hours worked by healthcare professionals , especially nurses , and ( 2 ) the strength or weakness in acute care hospital admissions relative to expectations and the volume of patients at medical facilities and physician offices . during 2012 , demand substantially improved for our nurse and allied staffing services and improved for our physician staffing services . however , overall demand for our healthcare staffing services remains somewhat reduced from levels prior to the economic downturn that began in the fall of 2008. the supply of healthcare professionals in the marketplace is dependent upon the number of rns and physicians entering their respective professions versus retiring from the workforce . the supply of rns available for our staffing services is variable and influenced by current labor market dynamics , as well as dependent upon the desire of rns to work temporary assignments versus being directly employed by hospitals as staff nurses or working in non-hospital settings such as insurance companies , health clinics and doctor offices . the supply of physicians available for our physician staffing services is variable and is influenced by several factors , including the desire of physicians to work temporary assignments versus being in private practice or directly employed at healthcare facilities , the desire of older physicians to work fewer hours , work-lifestyle balance among younger physicians , and the trend toward more female physicians in the workforce working fewer hours than their male counterparts . for the year ended december 31 , 2012 , our revenue from continuing operations was $ 442.6 million , and we had a net loss from continuing operations of $ 20.7 million , or $ ( 0.67 ) per diluted share , which included a non-cash goodwill impairment charge in the second quarter of 2012 of $ 18.7 million ( $ 12.1 million after-tax ) or $ ( 0.39 ) per diluted share , related to the nurse and allied staffing business segment . during 2012 , we generated $ 10.1 million in cash flow from operations and reduced our total debt by $ 8.7 million . we ended the year with total debt of $ 33.9 million and $ 10.5 million of cash , resulting in a ratio of debt , net of cash , to total capitalization of 9.6 % . 30 for the year ended december 31 , 2012 , discontinued operations , net of income taxes were a loss of $ 21.5 million . discontinued operations includes non-cash goodwill and trademark impairment charges of $ 35.4 million ( $ 24.2 million after-tax ) , or $ ( 0.79 ) per diluted share related to this business segment . in general , we evaluate our financial condition and operating results by revenue , contribution income ( see segment information ) , and net income ( loss ) . we also use measurement of our cash flow generation and operating and leverage ratios to help us assess our financial condition . in addition , we monitor several key volume and profitability indicators such as number of orders , contract bookings , number of ftes , days filled and price . nurse and allied staffing our nurse and allied staffing services business segment is headquartered in boca raton , florida . story_separator_special_tag historically , high national unemployment typically results in rns increasingly seeking employment as hospital staff nurses and those already employed as staff nurses become more willing to work more hours at prevailing wages , which combine to reduce the need for our outsourced staffing services . the reverse begins to occur as the economy and more specifically the labor markets improve , although there is a lag between the improvement in demand for our nurse and allied staffing services and the improvement in supply of rns and other healthcare professionals . typically , as admissions increase for our hospital customers , temporary employees are often added before full-time employees are hired . as admissions decline , clients tend to reduce their use of temporary employees before undertaking layoffs of their staff employees . in general , we evaluate the nurse and allied staffing business segment 's financial condition and operating results by revenue and contribution income ( see segment information ) . in addition , we monitor several key volume and profitability indicators such as number of open orders , contract bookings , number of ftes and bill rate per hour of service provided . 32 physician staffing we added the physician staffing business segment in 2008 with the acquisition of mda holdings , inc. and its subsidiaries ( collectively , mda ) as described in the acquisitions section , that follows . mda is headquartered in norcross , georgia and offers multi-specialty locum tenens ( temporary physician staffing ) services to the healthcare industry in all 50 states . our physician staffing business revenue and earnings are impacted by the demand for temporary physician staffing services and the supply of qualified physicians . when there are not enough physicians to fill the number of vacancies at hospitals , practice groups or other healthcare facilities , demand increases for our services . in general , we believe that in periods when physicians are looking for more flexibility , have concerns with cost and availability of malpractice insurance , or want to avoid managing a practice , supply increases . in periods where the physicians are looking for more stability , supply decreases . demand and supply constraints may vary based on the specialty of the physician . we monitor several key volume and profitability indicators for each specialty area of this business , such as physician staffing days filled and revenue per days filled . in addition , we monitor this segment 's revenue , contribution income and contribution income as a percentage of revenue . during 2012 , our physician staffing revenue grew 4 % from the prior year in a marketplace that reflected a modest improvement in the economy and continuing concerns by hospital administrators and practice group leaders with respect to changes in the delivery of health care under the patient protection and affordable care act . given these ongoing uncertainties , physicians have increasingly opted to become employees of hospitals and health care systems . while we expect this trend to continue in the short-term , we believe the future outlook for the physician staffing industry is positive as demand for physicians is projected to increase by 2025 due to the demographics of a growing and aging population along with healthcare reform that is expected to be directionally favorable to our business . the needs will be particularly strong in the primary care specialties due to recent decreases in medical school graduates entering the primary care field . locum tenens should benefit from these shortage trends and demands particularly with an ever increasing aging population and the anticipated increase in utilization of healthcare services . mda is well positioned to respond to the current and future needs of its healthcare partners . other human capital management services education and training services our cross country education ( cce ) subsidiary , headquartered in brentwood , tennessee , provides regulatory and clinical skill-based continuing education development for healthcare professionals . cce is an approved provider of continuing education with more than 35 professional healthcare associations , and also works with national and state boards and associations . cce coordinates with various independent contractors in order to offer one-day seminars , conferences and elearning to healthcare professionals on topics pertaining to healthcare . since 1995 , cce has trained over 1,200,000 licensed professionals in the fields of physical and occupational therapy , behavioral health , nursing , long-term care , coding and billing , regulatory compliance , dentistry , health information and healthcare administration . in 2012 , cce held approximately 5,330 seminars and conferences that were attended by more than 140,000 registrants in 175 cities in the u.s. and canada . we extend these educational services to our field employees on favorable terms as a recruitment and retention tool . in 2012 , cce 's live seminar attendance decreased approximately 7 % from the prior year due to what we believe are several factors . first , significant budget cuts to both non-medicaid and medicaid-based mental health services negatively impacted employment for public mental health programs . we believe this reduced demand for our programs as these professionals may have obtained to a greater degree continuing education credits via e-learning offerings . second , the education industry is increasingly offering live webcasting and rebroadcasting of seminars . to address this shift , cce has significantly expanded its offerings in this area while continuing to provide thousands of live seminars each year . cce is also expanding its online presence and will continue to move toward a greater offering of blended learning opportunities for professionals that combine live seminar offerings with audio and e-learning products . cce is also focusing greater efforts on developing strategic partnerships with provider organizations that can extend our learning programs to their licensed employees . 33 retained search our cejka search subsidiary is headquartered in creve coeur , missouri , a business district centered within the st. louis metropolitan area .
| results of operations the following table summarizes , for the periods indicated , selected consolidated statements of operations data expressed as a percentage of revenue . our historical results of operations are not necessarily indicative of future operating results . replace_table_token_5_th segment information in accordance with the segment reporting topic of the fasb asc , we historically reported four business segments – nurse and allied staffing , clinical trial services , physician staffing , and other human capital management services . during the fourth quarter of 2012 , we decided to divest our clinical trial services business segment . their results of operations have been classified as discontinued operations for all period presented . see note 4- assets held for sale and discontinued operations . the remaining three business segments in continuing operations are described below : nurse and allied staffing - the nurse and allied staffing business segment provides travel nurse and allied staffing services and per diem nurse services primarily to acute care hospitals . nurse and allied staffing services are marketed to public and private healthcare and for-profit and not-for-profit facilities throughout the u.s. we aggregate the different brands that we markets to our customers in this business segment . physician staffing – the physician staffing business segment provides multi-specialty locum tenens services to the healthcare industry throughout the u.s. other human capital management services - the other human capital management services business segment includes the combined results of our education and training and retained search businesses that both have operations within the u.s. 36 information on operating segments and reconciliation to ( loss ) income from operations for the periods indicated are as follows : replace_table_token_6_th _ ( a ) we define contribution income as income from operations before depreciation , amortization , impairment charges , and other corporate expenses not specifically identified to a reporting segment .
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see note 5 of the accompanying consolidated financial statements for further details on the acquisition of zulily . our “ corporate and other ” category includes entire or majority interests in consolidated subsidiaries , which operate online commerce businesses in a broad range of retail categories , ownership interests in unconsolidated businesses and corporate expenses . these consolidated subsidiaries include evite , inc. ( “ evite ” ) , provide commerce , inc. ( “ provide ” ) ( through december 31 , 2014 , see note 9 of the accompanying consolidated financial statements ) , backcountry.com , inc. ( `` backcountry '' ) ( through june 30 , 2015 , see note 6 of the accompanying consolidated financial statements ) , commercehub , inc. ( “ commercehub ” ) ( through july 22 , 2016 , see note 6 of the accompanying consolidated financial statements ) and bodybuilding.com , llc ( `` bodybuilding '' ) ( through november 4 , 2016 , see note 6 of the accompanying consolidated financial statements ) ( collectively , the “ digital commerce businesses ” ) . evite is an online invitation and social event planning service on the web . provide operates an e-commerce marketplace of websites for perishable goods , including flowers , fruits and desserts , as well as upscale personalized gifts . backcountry operates websites offering sports gear and clothing for outdoor and active individuals in a variety of categories . commercehub provides a cloud-based platform for online retailers and their suppliers ( manufacturers and distributors ) to sell products to consumers without physically owning inventory , or managing the fulfillment of those products . bodybuilding manages websites related to sports nutrition , bodybuilding and fitness . we also hold ownership interests in ftd companies , inc. ( “ ftd ” ) , hsn , inc. ( “ hsn ” ) and lendingtree , which we account for as equity method investments ; an interest in liberty broadband corporation ( “ liberty broadband ” ) , which we account for at fair value ; and we maintain investments and related financial instruments in public companies such as charter communications , inc. ( “ charter ” ) , interval leisure group , inc. ( “ interval ” ) and time warner inc. ( “ time warner ” ) , which are accounted for at their respective fair market values . on august 9 , 2012 , liberty completed the approved recapitalization of its common stock through the creation of the liberty interactive common stock and liberty ventures common stock as tracking stocks . in the recapitalization , each holder of liberty interactive corporation common stock remained a holder of the same amount and series of liberty interactive common stock and received 0.05 of a share of the corresponding series of liberty ventures common stock , by means of a dividend , with cash issued in lieu of fractional shares of liberty ventures common stock . on october 3 , 2014 , liberty reattributed from the qvc group to the ventures group its digital commerce businesses . in connection with the reattribution , each holder of liberty interactive common stock received 0.14217 of a share of the corresponding series of liberty ventures common stock for each share of liberty interactive common stock held as of the record date , with cash paid in lieu of fractional shares . the distribution date for the dividend was on october 20 , 2014 , and the liberty interactive common stock began trading ex-dividend on october 15 , 2014 which resulted in an aggregate of 67.7 million shares of series a and series b liberty ventures common stock being issued . the reattribution of the digital commerce businesses is presented on a prospective basis from the date of the reattribution in liberty 's consolidated financial statements and attributed financial information , with october 1 , 2014 used as a proxy for the date of the reattribution . other than the issuance of liberty ventures shares in the fourth quarter of 2014 , the reattribution had no consolidated impact on liberty . effective june 4 , 2015 , the name of the “ liberty interactive common stock ” was changed to the “ qvc group common stock. ” ii-6 the term `` ventures group '' does not represent a separate legal entity , rather it represents those businesses , assets and liabilities that have been attributed to that group . following the reattribution , the ventures group is comprised primarily of our interests in ftd , lendingtree , inc. ( “ lendingtree ” ) and liberty broadband , the digital commerce businesses , investments in charter , interval and time warner , as well as cash in the amount of approximately $ 487 million ( at december 31 , 2016 ) , including subsidiary cash . the ventures group also has attributed to it certain liabilities related to our exchangeable debentures and certain deferred tax liabilities . the ventures group is primarily focused on the maximization of the value of these investments and investing in new business opportunities . the term `` qvc group '' does not represent a separate legal entity , rather it represents those businesses , assets and liabilities that have been attributed to that group . the qvc group is primarily focused on our video operating businesses . following the reattribution , the qvc group has attributed to it the remainder of our businesses and assets , including our wholly-owned subsidiaries qvc and zulily ( as of october 1 , 2015 ) , and our 38 % interest in hsn , inc. as well as cash in the amount of approximately $ 338 million ( at december 31 , 2016 ) , including subsidiary cash . story_separator_special_tag among these strategies are to ( i ) extend the breadth , relevance and exposure of the qvc brand ; ( ii ) source products that represent unique quality and value ; ( iii ) create engaging presentation content in televised programming , mobile and online ; ( iv ) leverage customer loyalty and continue multi-platform expansion ; and ( v ) create a compelling and differentiated customer experience . in addition , qvc expects to expand globally by leveraging its existing systems , infrastructure and skills in other countries around the world . qvc 's future net revenue growth will primarily depend on sales growth from e-commerce and mobile platforms , additions of new customers from households already receiving qvc 's television programming , and increased spending from existing customers . qvc 's future net revenue may also be affected by ( i ) the willingness of cable television and direct-to-home satellite system operators to continue carrying qvc 's programming service ; ( ii ) qvc 's ability to maintain favorable channel positioning , which may become more difficult due to governmental action or from distributors converting analog customers to digital ; ( iii ) changes in television viewing habits because of personal video recorders , video-on-demand and internet video services ; and ( iv ) general economic conditions . the prolonged economic uncertainty in various regions of the world in which qvc 's subsidiaries and affiliates operate could adversely affect demand for qvc 's products and services since a substantial portion of qvc 's revenue is derived from discretionary spending by individuals , which typically falls during times of economic instability . global financial markets continue to experience disruptions , including increased volatility and diminished liquidity and credit availability . if economic and financial market conditions in the united states ( “ u.s. ” ) or other key markets , including japan and europe , remain uncertain , persist , or deteriorate further , qvc 's customers may respond by suspending , delaying , or reducing their discretionary spending . a suspension , delay or reduction in discretionary spending could adversely affect revenue . accordingly , qvc 's ability to increase or maintain revenue and earnings could be adversely affected to the extent that relevant economic environments remain weak or decline . such weak economic conditions may also inhibit qvc 's expansion into new european and other markets . qvc is currently unable to predict the extent of any of these potential adverse effects . on june 23 , 2016 , the united kingdom ( “ u.k. ” ) held a referendum in which british citizens approved an exit from the european union ( the `` eu '' ) , commonly referred to as “ brexit. ” as a result of the referendum , the global markets and currencies have been adversely impacted , including a sharp decline in the value of the u.k. pound sterling as compared to the u.s. dollar . volatility in exchange rates is expected to continue in the short term as the u.k. negotiates its exit from the eu in the longer term , any impact from brexit on qvc will depend , in part , on the outcome of tariff , trade , regulatory and other negotiations . although it is unknown what the result of those negotiations will be , it is possible that new terms may adversely affect qvc 's operations and financial results . during his campaign in the 2016 u.s. presidential election , the current president of the u.s. expressed apprehension towards existing trade agreements , such as the north american free trade agreement and the trans-pacific partnership , ii-8 and suggested that the u.s. would renegotiate or withdraw from these agreements . he also raised the possibility of significantly increasing tariffs on goods imported into the united states , particularly from china and mexico , which , if implemented , could adversely affect our subsidiaries ' businesses because they sell imported products . zulily . zulily 's objective is to be the leading online retail destination for moms . zulily 's goal is to be part of its customers ' daily routine , allowing them to visit zulily sites and discover a selection of fresh , new and affordable merchandise curated for them every morning . zulily intends to employ the following strategies to achieve these goals and objectives ( i ) acquire new customers ; ( ii ) increase customer loyalty and repeat purchasing ; ( iii ) add new vendors and strengthen existing vendor relationships ; and ( iv ) invest in mobile platform . in addition , zulily expects to invest in and develop international markets . zulily has limited contractual assurances of continued supply , pricing or access to new products , and vendors could change the terms upon which they sell to zulily or discontinue selling to zulily for future sales at any time . as zulily grows , continuing to identify a sufficient number of new emerging brands and smaller boutique vendors may become more and more of a challenge . if zulily is not able to identify and effectively promote these new brands , it may lose customers to competitors . even if zulily identifies new vendors , it may not be able to purchase desired merchandise in sufficient quantities or on acceptable terms in the future , and products from alternative sources , if any , may be of a lesser quality or more expensive than those from existing vendors . in addition , larger national brands may offer products that are less unique , and it may be easier for zulily 's competitors to offer such products at prices or upon terms that may be compelling to consumers . an inability to purchase suitable merchandise on acceptable terms or to source new vendors could have an adverse effect on zulily 's business . to support its large and diverse base of vendors and its flash sales model that requires constantly changing products , zulily must incur costs related to its merchandising team , photography studios and creative personnel .
| operating results replace_table_token_6_th revenue . our consolidated revenue increased 6.6 % and decreased 4.9 % for the years ended december 31 , 2016 and 2015 , respectively , as compared to the corresponding prior year periods . qvc 's revenue decreased $ 61 million and $ 58 million for the years ended december 31 , 2016 and 2015 , respectively , as compared to the corresponding prior year periods . zulily 's revenue for the period october 1 , 2015 ( date of acquisition ) through december 31 , 2015 was $ 426 million . corporate and other revenue decreased $ 392 million for the year ended december 31 , 2016 , as compared to the ii-10 corresponding prior year period due to the sale of backcountry in june 2015 ( $ 227 million ) , the disposition of bodybuilding in november 2016 as part of the expedia holdings split-off ( $ 109 million ) and the commercehub spin-off in july 2016 ( $ 38 million ) . ignoring the reattribution , total corporate and other revenue decreased $ 878 million for the year ended december 31 , 2015 , as compared to the corresponding prior year period , primarily due to the sale of provide in december 2014 ( $ 666 million ) and sale of backcountry in june 2015 ( $ 244 million ) , partially offset by an increase of $ 23 million at commercehub and an increase of $ 8 million at bodybuilding . commercehub 's revenue growth was driven by an acquisition during the first quarter of 2015 and growth in active customers ( vendors and suppliers ) , which increased the number of aggregate transactions processed through the commercehub platform . the increase in bodybuilding revenue for the year ended december 31 , 2015 was primarily due to increased order volume , driven by increased unique website visitors , on slightly decreased average order values .
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reimbursable expenses are reflected in equal amounts in both total revenue and total direct expenses . because these pass-through revenue/costs are subject to significant fluctuation from year to year , we measure the performance of many of our key operating metrics as a percentage of cfr , as we believe that this is a better and more consistent measure of operating performance than total revenue . since 2011 , the amount of cfr attributable to operations in the middle east and africa has grown from approximately 32 % in 2011 to approximately 53 % of total consolidated cfr in 2015. there has been significant political upheaval and civil unrest in this region , most notably in libya where we had substantial operations . in 2012 , we reserved a $ 59,937,000 receivable from the libyan organization for development of administrative centres ( `` odac '' ) . subsequently , we have received payments totaling approximately $ 9,511,000 , but this situation with odac has put a considerable strain on our liquidity . as a result , we have had to rely heavily on debt and equity transactions to fund our operations . we have recently seen further slowing of collections from our clients in the middle east , primarily oman . in 2012 , we commenced operations on the muscat international airport ( `` oman airport '' ) project with the ministry of transport and communications ( the `` motc '' ) in oman . the original contract term was to expire in november 2014. in october 2014 , we applied for a twelve-month extension of time . while we awaited approval , we continued to work on the project . the client paid us on account through may 2015 when payments stopped . in connection with the work performed there , our consolidated financial statements for the years ended december 31 , 2015 , 2014 and 2013 reflected the following ( in thousands ) : replace_table_token_10_th ( 1 ) the client has resumed payments and we received approximately $ 15,000,000 against this receivable in march 2016. going forward , we will closely monitor this receivable as well as any other receivable where collections are not received in a timely manner . this may result in increases in the allowance for doubtful accounts which may have a significant negative impact on our financial position and results of operations . 28 2015 business overview story_separator_special_tag size= '' 2 '' > we generate revenue primarily from providing professional services to our clients . revenue is generally recognized upon the performance of services . in providing these services , we may incur reimbursable expenses , which consist of amounts paid to subcontractors and other third parties as well as travel and other job related expenses that are contractually reimbursable from clients . we will include reimbursable expenses in computing and reporting our total contract revenue as long as we remain responsible to the client for the fulfillment of the contract and for the overall acceptability of all services provided . we earn our revenue from cost-plus , fixed-price and time-and-materials contracts . if estimated total costs on any contract indicate a loss , we charge the entire estimated loss to operations in the period the loss becomes known . the cumulative effect of revisions to revenue , estimated costs to complete contracts , including penalties , incentive awards , change orders , claims , anticipated losses , and other effects are recorded in the accounting period in which the events indicating a loss are known and the loss can be reasonably estimated . such revisions could occur at any time and the effects may be material . the majority of our contracts are for work where we bill the client monthly at hourly billing rates . the hourly billing rates are determined by contract terms . for governmental clients , the hourly rates are generally calculated as either ( i ) a negotiated multiplier of our direct labor costs or ( ii ) as direct labor costs plus overhead costs plus a negotiated profit percentage . for commercial clients , the hourly rates are generally taken from a standard fee schedule by staff classification or they can be at a negotiated discount from this schedule . in some cases , primarily for foreign work , a fixed monthly staff rate is negotiated rather than an hourly rate . this monthly rate is determined based upon a buildup of direct labor costs plus overhead and profit . we account for these contracts on a time-and-expenses method , recognizing revenue as costs are incurred . we account for fixed-price contracts on the `` percentage-of-completion '' method , wherein revenue is recognized as costs are incurred . under the percentage-of-completion method for revenue recognition , we estimate the progress towards completion to determine the amount of revenue and profit to be recognized . we generally utilize a cost-to-cost approach in applying the percentage-of-completion method , where revenue is earned in proportion to total costs incurred divided by total costs expected to be incurred . under the percentage-of-completion method , recognition of profit is dependent upon the accuracy of estimates . we have a history of making reasonably dependable estimates of contract revenue , the extent of progress towards completion and contract completion costs on our long-term construction 31 management contracts . however , due to uncertainties inherent in the estimation process , it is possible that actual completion costs may vary from estimates . allowance for doubtful accounts we make ongoing estimates relating to the collectability of our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our clients to make required payments . estimates used in determining accounts receivable allowances are based on our evaluation of specific client accounts and contracts involved and the financial condition of our clients . story_separator_special_tag these judgments and interpretations affect the provision for income taxes , deferred tax assets and liabilities and the valuation allowance . we evaluate the deferred tax assets to determine on the basis of objective factors whether the net assets will be realized through future years ' taxable income . in the event that actual results differ from these estimates and assessments , additional valuation allowances may be required . we will recognize a tax benefit in the financial statements for an uncertain tax position only if management 's assessment is that the position is `` more likely than not '' ( i.e. , a likelihood greater than 50 percent ) to be allowed by the tax jurisdiction based solely on the technical merits of the position . the term `` tax position '' refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods . stock options we recognize compensation expense for all stock-based awards . these awards have included stock options and restricted stock grants . while fair value may be readily determinable for awards of stock , market quotes are not available for long-term , nontransferable stock options because these instruments are not traded . we currently use the black-scholes option pricing model to estimate the fair value of options . option valuation models require the input of highly subjective assumptions , including but not limited to stock price volatility , expected life and stock option exercise behavior . 33 contingencies estimates are inherent in the assessment of our exposure to insurance claims that fall below policy deductibles and to litigation and other legal claims and contingencies , as well as in determining our liabilities for incurred but not reported insurance claims . significant judgments by us and reliance on third-party experts are utilized in determining probable and or reasonably estimable amounts to be recorded or disclosed in our financial statements . the results of any changes in accounting estimates are reflected in the financial statements of the period in which the changes are determined . we do not believe that material changes to these estimates are reasonably likely to occur . results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 consulting fee revenue ( `` cfr '' ) ( dollars in thousands ) replace_table_token_12_th the increase in cfr included an organic increase of 8.0 % primarily in the middle east and the united states and an increase of 1.3 % due to the acquisitions of angus octan scotland ltd. ( `` cadogans '' ) in october 2014 and ims proje yonetimi ve danismanlik a.s. ( `` ims '' ) in april 2015. the increase in project management cfr included an organic increase of 8.1 % and an increase of 1.0 % due to the acquisition of ims . the increase in cfr consisted of a $ 20,173,000 increase in domestic projects and an increase of $ 18,877,000 in foreign projects . the increase in domestic project management cfr was due primarily to increases in our northeast , mid-atlantic and western regions . the increase in foreign project management cfr included increases from new work of $ 37,614,000 in the united arab emirates and $ 5,088,000 in saudi arabia . these increases were partially offset by a decrease of $ 8,914,000 in brazil primarily due to an economic slowdown in 2014 and 2015 , a decrease of $ 13,883,000 in iraq due to the political turmoil and a decrease of $ 8,092,000 in oman due to the winding down of the first phase of a major infrastructure project . the increase in construction claims cfr was comprised of an organic increase of 7.6 % and an increase of 2.4 % from the acquisition of cadogans . the organic increase was primarily due to increases in the middle east , africa and the united states . reimbursable expenses ( dollars in thousands ) replace_table_token_13_th reimbursable expenses consist of amounts paid to subcontractors and other third parties , and travel and other job-related expenses that are contractually reimbursable from clients . these items are reflected as separate line items in both our revenue and cost of services captions in our consolidated statements of operations . the increase in project management reimbursable expense is primarily due to higher use of subcontractors in our northeast and mid-atlantic regions . 34 cost of services ( dollars in thousands ) replace_table_token_14_th cost of services consists of labor expenses for time charged directly to contracts and non-reimbursable job-related travel and out-of-pocket expenses . the increase in project management cost of services is primarily due to an increase in the middle east and the united states in support of increased work . the increase in the cost of services for construction claims was due primarily to increases in direct costs in the middle east , the united states and africa in support of the increase in cfr plus costs arising from the acquisition of cadogans . gross profit ( dollars in thousands ) replace_table_token_15_th the increase in project management gross profit included an increase of $ 9,823,000 from domestic operations , primarily related to cfr increases in the northeast , mid-atlantic and western regions . there was an increase of $ 4,188,000 from foreign operations related to cfr increases in the united arab emirates , saudi arabia and qatar partially offset by decreases in brazil , oman and iraq . the increase in construction claims gross profit was driven by cfr increases in the middle east , united kingdom ( including cadogans ) and the united states , partially offset by decreases in asia/pacific . the overall gross profit percentage decreased slightly due to lower margins achieved in the middle east , primarily oman and iraq , partially offset by an increase in the united arab emirates .
| consolidated results ( in thousands ) replace_table_token_11_th overall , 2015 was a turnaround year for the company in terms of growth and profitability despite some unusual events and items negatively impacting the year . our project management and construction claims segments had strong years with cfr increasing 9.1 % and 10.0 % , respectively , and operating profit increasing 5.8 % and 6.8 % , respectively . during 2015 , we initiated and completed a review of our global overhead cost structure and these efforts have reduced our overhead costs on an annualized basis by approximately $ 21,000,000. interest expense was lower by $ 15,822,000 compared to the prior year as a result of our debt refinancing in 2014. in addition , we incurred a higher level of expenses , reflected within selling , general and administrative expenses , that negatively impacted our profitability in 2015. these expenses included legal and professional fees related to a shareholder proxy contest ( $ 1,369,000 ) , the settlement of a labor dispute with a former executive ( $ 1,048,000 ) , severance costs associated with our cost optimization plan ( $ 1,495,000 ) , a write-down of a note receivable to the value of the underlying collateral ( $ 959,000 ) and restatement of our consolidated financial statements for 2014 , 2013 and 2012 ( $ 460,000 ) . the company also experienced an increase in bad debt expense ( $ 3,350,000 ) primarily in the fourth quarter related to certain receivables primarily in the middle east . in 2014 , sg & a was reduced by a credit ( $ 4,948,000 ) for collections from libya . cfr increased $ 53,834,000 , or 9.3 % , to $ 630,951,000 in 2015. cfr for the project management segment increased $ 39,050,000 , or 9.1 % , principally due to increased work in the united states , primarily in our northeast , mid-atlantic and western regions , along with increases in the middle east , primarily in the united arab emirates .
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these goodwill and intangible 34 impairments primarily resulted from lower forecasted oil and gas services revenues for our gulf of mexico operations and certain operations in australia , due to the extended low commodity price environment . additionally , we recorded a property and equipment impairment of $ 6.6 million related to certain international renewable energy services operations . ( b ) the effective tax rate was higher in 2015 due to a lower proportion of income before taxes from international jurisdictions , which are generally taxed at lower statutory rates . additionally , certain of the asset impairments recorded were not deductible for tax purposes . a change in the alberta provincial statutory income tax , effective as of june 1 , 2015 resulted in additional taxes of $ 5.0 million . these negative impacts were partially offset by the realization of $ 4.2 million in tax benefits associated with the realization of a previously unrecognized deferred tax asset related to our investment in a foreign subsidiary . the effective tax rate in 2015 did not reflect a significant decrease in reserves for uncertain tax positions because the statute of limitations remains open for various tax years currently under audit . the effective tax rates in 2014 , 2013 , 2012 and 2011 were impacted by the recording of $ 8.1 million , $ 9.9 million , $ 7.8 million and $ 8.4 million of tax benefits in each respective year primarily due to decreases in reserves for uncertain tax positions resulting from the expiration of various federal and state statute of limitations periods . ( c ) in 2014 , selling , general and administrative expenses included a $ 102.5 million charge to provision for long-term contract receivable associated with an electric power infrastructure services project completed in 2012. additionally , we recorded $ 38.8 million of expense resulting from an arbitration decision associated with a contract dispute on a 2010 directional drilling project . ( d ) in 2013 , we recorded a pre-tax gain of approximately $ 112.7 million from the sale of all of our equity ownership interest in howard midstream energy partners , llc ( hep ) . ( e ) in 2011 , cost of services included a $ 32.6 million charge related to our partial withdrawal from an underfunded pension plan . for additional information , see collective bargaining agreements in note 15 of the notes to consolidated financial statements in item 8. financial statements and supplementary data . replace_table_token_6_th ( a ) during the quarter ended december 31 , 2015 , we adopted an accounting update that was issued by the fasb that requires deferred tax assets and liabilities to be classified as non-current in a classified balance sheet . the guidance has been applied retrospectively to all periods presented . 35 item 7. management ' s discussion and analysis of financial condition and results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and related notes thereto in item 8. financial statements and supplementary data . the discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances . actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties , including those identified in uncertainty of forward-looking statements and information below and in item 1a . risk factors . introduction we are a leading provider of specialty contracting services , offering infrastructure solutions primarily to the electric power and oil and gas industries in the united states , canada and australia and select other international markets . the services we provide include the design , installation , upgrade , repair and maintenance of infrastructure within each of the industries we serve , such as electric power transmission and distribution networks , substation facilities , renewable energy facilities , pipeline transmission and distribution systems and facilities , and infrastructure services for the offshore and inland water energy markets . we report our results under two reportable segments : ( 1 ) electric power infrastructure services and ( 2 ) oil and gas infrastructure services . this structure is generally focused on broad end-user markets for our services . our consolidated revenues for the year ended december 31 , 2015 were approximately $ 7.57 billion , of which 65 % was attributable to the electric power infrastructure services segment and 35 % to the oil and gas infrastructure services segment . as a result of the sale of our fiber optic licensing operations on august 4 , 2015 , we have presented our fiber optic licensing operations as discontinued operations and our ancillary telecommunications infrastructure services as part of our electric power infrastructure services segment . our customers include many of the leading companies in the industries we serve . we have developed strong strategic alliances with numerous customers and strive to develop and maintain our status as a preferred vendor to our customers . we enter into various types of contracts , including competitive unit price , hourly rate , cost-plus ( or time and materials basis ) , and fixed price ( or lump sum basis ) , the final terms and prices of which are frequently negotiated with the customer . although the terms of our contracts vary considerably , most are made on either a unit price or fixed price basis in which we agree to do the work for a price per unit of work performed ( unit price ) or for a fixed amount for the entire project ( fixed price ) . we complete a substantial majority of our fixed price projects , other than certain large transmission projects , within one year , while we frequently provide maintenance and repair work under open-ended unit price or cost-plus master service agreements that are renewable periodically . we recognize revenue on our unit price and cost-plus contracts as units are completed or services are performed . story_separator_special_tag these acquisitions should enable us to further enhance our electric power and oil and gas infrastructure service offerings in the united states , canada and australia . on april 29 , 2015 , we entered into a stock purchase agreement with crown castle international corp. pursuant to which we agreed to sell our fiber optic licensing operations . the purchase agreement contained customary representations and warranties , covenants and indemnities . on august 4 , 2015 , we completed the sale for a purchase price of approximately $ 1 billion in cash , resulting in after-tax net proceeds of approximately $ 848 million . in the third quarter of 2015 , we recognized a net of tax gain of approximately $ 171 million . we have presented the results of operations , financial position , cash flows and disclosures of the fiber optic licensing operations as discontinued operations for all periods in our consolidated financial statements . during 2014 , we completed nine acquisitions , which enabled us to further enhance our electric power and oil and gas infrastructure service offerings in the united states and canada and expand our capabilities in australia to include electric power infrastructure service offerings . these acquisitions included four electric power infrastructure services companies located in canada ; two oil and gas infrastructure services businesses located in canada ; an electric power infrastructure services company located in australia ; a u.s.-based general engineering and construction company specializing in hydrant fueling , waterfront and utility construction for the u.s. department of defense the results of which are generally included in our oil and gas infrastructure services segment ; and a geotechnical and geological engineering services company based in the united states the results of which are generally included in our electric power infrastructure services segment . the aggregate consideration for these acquisitions was approximately $ 279.5 million in cash , 686,382 shares of quanta common stock and 3,825,971 exchangeable shares of canadian subsidiaries of quanta that are exchangeable on a one-for-one basis for quanta common stock . the exchangeable shares provide holders with rights equivalent to quanta common stockholders with respect to dividends and other economic rights . in addition , we issued one share of series g preferred stock associated with 899,858 of the exchangeable shares , which generally votes on the same matters as quanta common stock and is entitled to a number of votes equal to the number of such exchangeable shares outstanding at that time . exchangeable shares not associated with preferred stock do not have voting rights . the aggregate value of the securities issued on the settlement dates of the acquisitions totaled approximately $ 134.5 million . as these transactions were effective during 2014 , the results of each acquired company have been included in our consolidated financial statements beginning on the respective dates of acquisition . during 2013 , we acquired six businesses , which included three electric power and three oil and gas infrastructure services companies . the electric power acquisitions expanded our geographic presence primarily in the northeastern , midwestern and western regions of the united states and in the central region of canada , while the oil and gas infrastructure services companies increased our capacity to provide mechanical installations for the offshore oil and gas industry and pipeline logistics services throughout the united states and expanded our geographic presence to include pipeline construction services in australia . the aggregate consideration paid for these acquisitions consisted of approximately $ 341.1 million in cash and 3,547,482 shares of our common stock valued , as of the respective dates of issuance , at approximately $ 88.9 million . the results for each company have been included in our consolidated financial statements beginning on the respective dates of acquisition . on december 6 , 2013 , we sold all of our equity ownership interest in howard midstream energy partners , llc ( hep ) for proceeds of approximately $ 220.9 million in cash , which resulted in a pre-tax gain of approximately $ 112.7 million . seasonality ; fluctuations of results ; economic conditions our revenues and results of operations can be subject to seasonal and other variations . these variations are influenced by weather , customer spending patterns , bidding seasons , receipt of required regulatory approvals , 38 permits and rights of way , project timing and schedules , and holidays . typically , our revenues are lowest in the first quarter of the year because cold , snowy or wet conditions can cause delays on projects . in addition , many of our customers develop their capital budgets for the coming year during the first quarter and do not begin infrastructure projects in a meaningful way until their capital budgets are finalized . second quarter revenues are typically higher than those in the first quarter , as some projects begin , but continued cold and wet weather can often impact second quarter productivity . third quarter revenues are typically the highest of the year , as a greater number of projects are underway , and weather is more accommodating . generally , revenues during the fourth quarter of the year are lower than the third quarter but higher than the second quarter . many projects are completed in the fourth quarter , and revenues are often impacted positively by customers seeking to spend their capital budgets before the end of the year ; however , the holiday season and inclement weather can sometimes cause delays , reducing revenues and increasing costs . any quarter may be positively or negatively affected by atypical weather patterns in any of the areas we serve , such as severe weather , excessive rainfall or warmer winter weather , making it difficult to predict these variations and their effect on particular projects quarter to quarter . the timing of project awards and unanticipated changes in project schedules as a result of delays or accelerations can also create variations in the level of operating activity from quarter to quarter .
| consolidated results replace_table_token_7_th 42 2015 compared to 2014 revenues . revenues decreased $ 174.8 million , or 2.3 % , to $ 7.57 billion for the year ended december 31 , 2015. this decrease was primarily attributable to a decrease in electric power infrastructure services revenues of $ 365.4 million , or 6.9 % , partially offset by an increase in oil and gas infrastructure services revenues of $ 190.6 million , or 7.8 % . revenues from electric power infrastructure services were adversely impacted primarily by reduced customer spending and delays in project timing due to regulatory and permitting issues associated with large electric transmission projects during the year ended december 31 , 2015. in addition , revenues contributed by our international operations were negatively impacted by approximately $ 227 million due to less favorable foreign currency exchange rates as the u.s. dollar strengthened against the canadian and australian dollars . partially offsetting these decreases for the year ended december 31 , 2015 was the favorable impact of approximately $ 375 million in revenues generated by acquired companies , primarily in the oil and gas infrastructure services segment . gross profit . gross profit decreased $ 245.1 million , or 21.0 % , to $ 923.7 million for the year ended december 31 , 2015. gross profit as a percentage of revenues decreased to 12.2 % for the year ended december 31 , 2015 from 15.1 % for the year ended december 31 , 2014. these decreases were primarily due to the decrease in revenues from large electric transmission and mainline transmission projects , which typically yield higher margins , and an increase in revenues from services that typically yield lower margins . gross profit was also negatively impacted by approximately $ 73 million in aggregate losses recorded during the year ended december 31 , 2015 on three projects due to increased costs associated with performance and site related factors that adversely impacted production .
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additionally , the authorized number of shares of common stock were reduced to 10,000,000 comprised of 7,200,000 shares of class a common stock , 2,500,000 shares of class b common stock ( “ class b common stock ” ) , and 300,000 shares of class z common stock ( “ class z common stock ” ) . the par value of each class of common stock remained the same at $ 0.0001 per common share . all share and per share data in the accompanying consolidated financial statements have been retroactively restated to reflect the effect of the reverse stock split and authorized shares . the company is also authorized to issue 20,000,000 shares of preferred stock , par value $ 0.0001 per share ( “ preferred stock ” ) . preferred stock the preferred stock may be issued in one or more series . the company 's board of directors are authorized to issue the shares of preferred stock in such series and to fix from time to time before issuance thereof the number of shares to be included in any such series and the designation , powers , preferences and relative , participating , optional or other rights , and the qualifications , limitations or restrictions thereof , of such series . common stock – general the rights of each share of class a common stock , each share of class b common stock and each share of class z common stock are the same with respect to dividends , distributions and rights upon liquidation . class a common stock holders of the class a common stock are entitled to one vote per share in the election of directors and other matters submitted to a vote of the stockholders . class b common stock conversion rights . shares of class b common stock can be converted , one-for-one , into shares of class a common stock at any time at the option of the holder . shares of class b common stock will automatically be converted into shares of class a common stock if the shares of class b common stock are not owned by the company 's chief executive officer , his spouse , or their descendants and their spouses , or by entities or trusts wholly-owned by them . voting rights holders of pen class b common stock are entitled to 100 votes per share in the election of directors and other matters submitted to a vote of the stockholders . 34 class z common stock conversion rights . shares of class z common stock can be converted , one-for-one , into shares of class a common stock at any time at the option of the holder . shares of class z common stock will automatically be converted into shares of class a common stock if the shares of class z common stock are not owned by zeiss or an entity wholly owned by the ultimate parent of zeiss . voting rights . holders of pen class z common stock do not vote in the election of directors or otherwise , but they do have the right to designate a director to the pen board , have anti-dilution rights described below and have consent rights with respect to certain amendments to pen 's certificate of incorporation . other rights . the class z common stock has anti-dilutive rights that , subject to limited exceptions , permit holders of class z common stock to purchase additional shares or equity rights issued by pen ( on the same terms as made available to third parties by pen ) to maintain their economic ownership percentage . the holders of class z common stock are also entitled to receive a copy of any notice sent to the holders of class a common stock or class b common stock , as and when the notice is sent to such holders . issuances of common stock common stock issued for services on february 24 , 2017 , the company issued an aggregate of 3,846 shares of class a common stock and 2,564 shares of class b common stock to the company 's directors as payment for their service on the company 's board . these shares were valued on the date of grant at $ 1.56 per share based on the quoted price of the stock for a total value of $ 10,000 recognized as stock-based compensation expense . on april 28 , 2017 , the company issued an aggregate of story_separator_special_tag the following is management 's discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements . overview pen develops , commercializes and markets consumer and industrial products enabled by nanotechnology that solve everyday problems for customers in the optical , transportation , military , sports and safety industries . our primary business is the formulation , marketing and sale of products enabled by nanotechnology including the ultra clarity brand eyeglass cleaner , clarity defogit brand defogging products and clarity ultraseal nanocoating products for glass and ceramics . we also sell an environmentally friendly surface protector , fortifier , and cleaner . our design center conducts development services for us and for government and private customers and develops and sells printable inks and pastes , thermal management materials , and graphene foils and windows . our principal operating segments coincide with the types of products to be sold . the products from which revenues are derived are consistent with the reporting structure of the company 's internal organization . story_separator_special_tag the company 's two reportable segments for the year ended december 31 , 2018 and for the 2017 period were ( i ) the product segment and ( ii ) the contract services segment . story_separator_special_tag font-size : 10pt '' > net loss as a result of the foregoing , for the year ended december 31 , 2018 , our net loss amounted to $ 53,135 as compared to a net loss of $ 687,068 for the year ended december 31 , 2017 , an improvement of $ 633,933 or 92 % . for the years ended december 31 , 2018 and 2017 , net loss amounted to $ ( 0.02 ) per common share ( basic and diluted ) , and a net loss of $ ( 0.22 ) per common share ( basic and diluted ) , respectively . liquidity and capital resources liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements . we had a working capital deficit of $ 983,822 and unrestricted cash of $ 221,502 as of december 31 , 2018. the following table sets forth a summary of changes in our working capital from december 31 , 2017 to december 31 , 2018 : replace_table_token_5_th the change in working capital was in part because of a reduction in current assets when comparing december 31 , 2017 with december 31 , 2018. the biggest part of that change was the decline in accounts receivable . current liabilities decreased with a reduction in accrued expenses , customer deposits and a reduction in the line of credit . this working capital deficit raises substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued . management can not provide assurance that we will ultimately achieve profitable operations or become cash flow positive , or raise additional debt and or equity capital . our principal future uses of cash are for working capital requirements , including sales and marketing expenses , legal and other professional fees , capital expenditures and reduction of accrued liabilities . these uses will depend on numerous factors including our sales and other revenues , and our ability to control costs . recently , we have financed our working capital needs primarily through internally generated funds , and bank loans . we collect cash from our customers based on our sales to them and their respective payment terms . over the past year we have reduced the scope of our operations to reduce our costs and enable us to operate without raising additional capital , although there can be no assurance that additional capital will not be needed in future periods . we will continue to look for opportunities to raise funds to permit us to increase the marketing of our products . our consolidated financial statements included elsewhere in this annual report on form 10-k have been prepared in conformity with accounting principles generally accepted in the united states of america , or u.s. gaap , which contemplate our continuation as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business . the carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily purport to represent realizable or settlement values . the consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty . 16 net cash provided by operating activities was $ 155,889 for the year ended december 31 , 2018 as compared to net cash provided in operating activities of $ 438,558 for the year ended december 31 , 2017 , a change of $ 282,669 , or 64 % . ● net cash provided by operating activities for the year ended december 31 , 2018 primarily reflected a net loss of $ 53,135 , partially offset by the add-back of non-cash items totaling $ 251,109 , and $ ( 42,088 ) provided by changes in operating assets and liabilities . ● net cash used in operating activities for the year ended december 31 , 2017 primarily reflected a net loss of $ 687,068 , partially offset by the add-back of non-cash items totaling $ 328,972 , and $ 796,654 provided by changes in operating assets and liabilities . net cash used in investing activities was $ ( 3,917 ) for the year ended december 31 , 2018 as compared to cash provided by investing activities of $ 165,906 for the year ended december 31 , 2017. in 2017 , the proceeds from sales of property and equipment exceeded the cost of equipment purchases . net cash used by financing activities was $ ( 78,769 ) for the year ended december 31 , 2018 as compared to net cash used by financing activities of $ 560,293 for the year ended december 31 , 2017. during the year ended december 31 , 2018 , we paid down $ 374,735 more than we received under the line of credit and received $ 344,944 in net proceeds from the sale of securities . during the year ended december 31 , 2017 , we paid down $ 578,645 more than we received under the line of credit and repaid other debt in the amount of $ 96,648 , partially offset by proceeds of $ 115,000 from advances from related parties . critical accounting policies our critical accounting policies are included in note 2 - significant accounting policies of our consolidated financial statements included within this annual report . recent accounting pronouncements our recently issued accounting standards are included in note 2 - significant accounting policies of our consolidated financial statements included within this annual report . off-balance sheet arrangements we have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties . we have not entered into any derivative contracts that are indexed to
| results of operations the following comparative analysis on results of operations was based primarily on the comparative consolidated financial statements , footnotes and related information for the periods identified below and should be read in conjunction with the consolidated financial statements and the notes to those statements that are included elsewhere in this report . the results discussed below are for the years ended december 31 , 2018 and 2017. comparison of results of operations for the year ended december 31 , 2018 and 2017 revenues for the years ended december 31 , 2018 and 2017 , revenues consisted of the following : replace_table_token_1_th for the year ended december 31 , 2018 , sales from the product segment decreased by $ 3,824,288 , or 56 % , as compared to the year ended december 31 , 2017. this was primarily attributable to reduced sales volume of our optical cleaners and reduced volume of sales for anti-fog products to our traditional customers and delays in putting our products into other channels . as noted above , several key customers of optical cleaners stopped placing new orders in may , 2018. for the year ended december 31 , 2018 , revenues of our contract services segment increased by $ 276,941 or 28 % as compared to the year ended december 31 , 2017 , due primarily to the start of several new research projects . cost of revenues cost of revenues includes inventory costs , materials and supplies costs , internal labor and related benefits , subcontractor costs , depreciation , overhead and shipping and handling costs incurred including costs related to government and private contracts in our contract services segment . for the year ended december 31 , 2018 , cost of revenues decreased by $ 2,158,094 , or 38 % .
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for gaap , most of the changes are clarifications of existing guidance or wording changes to align with ifrs 13. asu 2011-04 eliminates the concepts of in-use and in-exchange when measuring fair value of all financial instruments . for level 3 fair value measurements , the asu requires that our disclosure include quantitative information about significant unobservable inputs , a qualitative discussion about the sensitivity of the fair value measurement to changes in the unobservable inputs and the interrelationship between inputs , and a description of our valuation process . public companies are required to apply asu 2011-04 prospectively for interim and annual periods beginning after december 15 , 2011. upon adoption of asu 2011-04 , it is not expected that it will have a significant impact on the company 's financial statements and the company is currently evaluating the impact on its disclosures . 73 item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures ( a ) evaluation of disclosure controls and procedures as of december 31 , 2011 ( the end of the period covered by this report ) , we , including our chief executive officer and chief financial officer , evaluated the effectiveness of the design and operation of our disclosure controls and procedures ( as defined in rule 13a-15 ( e ) of the 1934 act ) . based on that evaluation , our management , including the chief executive officer and chief financial officer , concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic sec filings is recorded , processed , summarized and reported within the time periods specified in the sec s rules and forms , and that such information is accumulated and communicated to our management , including our chief executive officer and chief financial officer , as appropriate , to allow timely decisions regarding required disclosure . however , in evaluating the disclosure controls and procedures , management recognized that any controls and procedures , no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives , and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures . ( b ) management 's report on internal control over financial reporting this annual report does not include a report of management 's assessment regarding internal control over financial reporting or an attestation report of the company 's registered public accounting firm due to a transition period established by rules of the securities and exchange commission for newly public companies . ( c ) changes in internal control over financial reporting management has not identified any change in the company 's internal control over financial reporting that occurred during the fourth quarter of 2011 that has materially affected , or is reasonably likely to materially affect , the company 's internal control over financial reporting . item 9b . other information none . 74 part iii we will file a definitive proxy statement for our 2012 annual meeting of stockholders with the sec , pursuant to regulation 14a , not later than 120 days after the end of our fiscal year . accordingly , certain information required by part iii has been omitted under general instruction g ( 3 ) to form 10-k. only those sections of our definitive proxy statement that specifically address the items set forth herein are incorporated by reference . item 10. directors , executive officers and corporate governance the information required by item 10 is hereby incorporated by reference from our definitive proxy statement relating to our 2012 annual meeting of stockholders , to be filed with the securities and exchange commission within 120 days following the end of our fiscal year . item 11. executive compensation the information required by item 11 is hereby incorporated by reference from our definitive proxy statement relating to our 2012 annual meeting of stockholders , to be filed with the securities and exchange commission within 120 days following the end of our fiscal year . item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by item 12 is hereby incorporated by reference from our definitive proxy statement relating to our 2012 annual meeting of stockholders , to be filed with the securities and exchange commission within 120 days following the end of our fiscal year . item 13. certain relationships and related transactions story_separator_special_tag the information contained in this section should be read in conjunction with the selected financial and other data and our financial statements and notes thereto appearing elsewhere in this report . story_separator_special_tag quarter , and ( b ) each portfolio investment that is presently in default ; ( iv ) the board of directors will discuss valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the investment adviser and , where appropriate , the respective third-party valuation firms . 47 the recommendation of fair value will generally be based on the following factors , as relevant : the nature and realizable value of any collateral ; the portfolio company 's ability to make payments ; the portfolio company 's earnings and discounted cash flow ; the markets in which the issuer does business ; and comparisons to publicly traded securities . story_separator_special_tag 49 new accounting pronouncements and accounting standards updates in may 2011 , the financial accounting standards board issued accounting standards update ( asu ) 2011-04 , fair value measurement ( topic 820 ) : amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss ( asu 2011-04 ) . asu 2011-04 was issued concurrently with international financial reporting standards no . 13 ( ifrs 13 ) , fair value measurements , to provide largely identical guidance about fair value measurement and disclosure requirements as is currently required under asu 2010-06 , fair value measurements and disclosures ( topic 820 ) . the new standards do not extend the use of fair value but , rather , provide guidance about how fair value should be applied where it already is required or permitted under ifrs or gaap . for gaap , most of the changes are clarifications of existing guidance or wording changes to align with ifrs 13. asu 2011-04 eliminates the concepts of in-use and in-exchange when measuring fair value of all financial instruments . for level 3 fair value measurements , the asu requires that our disclosure include quantitative information about significant unobservable inputs , a qualitative discussion about the sensitivity of the fair value measurement to changes in the unobservable inputs and the interrelationship between inputs , and a description of our valuation process . public companies are required to apply asu 2011-04 prospectively for interim and annual periods beginning after december 15 , 2011. upon adoption of asu 2011-04 , it is not expected that it will have a significant impact on the company 's financial statements and the company is currently evaluating the impact on its disclosures . portfolio investments the total value of our investments was approximately $ 177.7 million at december 31 , 2011. during the period from january 28 , 2011 to december 31 , 2011 , we originated approximately $ 219.1million of new investments in 23 portfolio companies . in certain instances , we receive payments on our debt investments based on scheduled amortization of the outstanding balances . in addition , we may receive repayments of certain debt investments prior to their scheduled maturity date . the frequency or volume of these repayments may fluctuate significantly from period to period . our portfolio activity also reflects sales of securities . during the year ended december 31 , 2011 , we received approximately $ 32.0 million in sales from 7 portfolio companies and approximately $ 2.2 million of principal repayments from 11 portfolio companies . at december 31 , 2011 , we had investments in debt securities of 21 portfolio companies , totaling approximately $ 177.7 million . the following table shows the fair value of our portfolio of investments by asset class as of december 31 , 2011 : december 31 , 2011 cost fair value bank debt/senior secured investments $ 176,839 $ 174,701 unsecured bonds 3,184 3,048 total $ 180,023 $ 177,749 as of december 31 , 2011 , the weighted average yield on income producing investments in our portfolio was approximately 8.5 % . as of december 31 , 2011 , there were no investments on non-accrual status . results of operations for the period january 28 , 2011 to december 31 , 2011 solar senior capital was formed in december 2010 and commenced operations on january 28 , 2011. as a result , there is no comparable period to compare results of operations for the period january 28 , 2011 to december 31 , 2011 . 50 revenue investment income of approximately $ 7.89 million for the period ended december 31 , 2011 was primarily attributable to interest earned from investments in the 21 portfolio companies and from interest earned on cash and cash equivalents . expenses the largest expense component was for debt issuance costs of approximately $ 2.80 million which were incurred for upfront commitment and legal fees related to the establishment of the credit facility on august 26 , 2011. investment advisory and management fees of approximately $ 0.94 million were calculated at an annual rate of 1.00 % of gross assets . remaining expenses of approximately $ 1.55 million were mostly for recurring general and administrative expenses . net realized and unrealized loss on investments net realized and unrealized losses of approximately $ 2.85 million were attributable to general weakness in fixed income prices and widening of credit market spreads , which occurred mostly during the third quarter of 2011. liquidity and capital resources our liquidity and capital resources were generated and are generally available through the credit facility , the proceeds of the ipo and concurrent private placement , cash flows from operations , investment sales of liquid assets , repayments of loans , income earned on investments and cash equivalents , and we expect through periodic follow-on equity and or debt offerings . we may from time to time issue securities in either public or private offerings . the issuance of debt or equity securities will depend on future market conditions , funding needs and other factors and there can be no assurance that any such issuance will occur or be successful . the primary use of existing funds and any funds raised in the future is expected to be for investments in portfolio companies , cash distributions to our shareholders or for other general corporate purposes . at december 31 , 2011 , we had cash and cash equivalents of approximately $ 2.9 million . cash used in operating activities for the period ended december 31 , 2011 was approximately $ 175.6 million . we expect that all current liquidity needs will be met with cash flows from operations , borrowings , and other activities .
| overview solar senior capital ltd. , a maryland corporation formed in december 2010 , is a closed-end , externally managed , non-diversified management investment company that has elected to be treated as a bdc under the 1940 act . in addition , for tax purposes we intend to elect to be treated as a ric under subchapter m of the code . on february 24 , 2011 , we priced our ipo , selling 9.0 million shares , including the underwriters ' over-allotment , at a price of $ 20.00 per share . concurrent with this offering , management purchased an additional 500,000 shares through a concurrent private placement , also at $ 20.00 per share . on august 26 , 2011 , we established the $ 200 million credit facility with citigroup global markets inc. acting as administrative agent . in connection with the credit facility , our wholly-owned subsidiary , suns spv llc was formed . the credit facility matures on august 26 , 2016 and generally bears interest at a rate of libor plus 2.25 % . under the credit facility , $ 150 million will be available initially with an additional $ 50 million available as a delayed draw . the credit facility can also be expanded up to $ 600 million . the credit facility is secured by all of the assets held by the spv . under the credit facility , solar senior and the spv , as applicable , have made certain customary representations and warranties , and are required to comply with various covenants , including leverage restrictions , reporting requirements and other customary requirements for similar credit facilities . the credit facility includes usual and customary events of default for credit facilities of this nature . we invest primarily in u.s. middle market companies , where we believe the supply of primary capital is limited and the investment opportunities are most attractive .
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our principal operating subsidiary is pacific mercantile bank ( the “ bank ” ) , which is a california state chartered bank . the bank accounts for substantially all of our consolidated revenues , expenses and income and our consolidated assets and liabilities . accordingly , the following discussion focuses primarily on the bank 's results of operations and financial condition . as of december 31 , 2015 , our total assets , net loans and total deposits were $ 1.1 billion , $ 850 million and $ 894 million , respectively . the bank , which is headquartered in orange county , california , approximately 40 miles south of los angeles , conducts a commercial banking business in orange , los angeles , san bernardino and san diego counties in southern california . the bank is also a member of the federal reserve system and its deposits are insured , to the maximum extent permitted by law , by the federal deposit insurance corporation ( the “ fdic ” ) . for the years ended december 31 , 2015 , 2014 and 2013 , we operated as one reportable segment , commercial banking , and one non-reportable segment , discontinued operations . unless the context otherwise requires , the “ company , ” “ we , ” “ our , ” “ ours , ” and “ us ” refer to pacific mercantile bancorp and its consolidated subsidiaries . current developments during the first quarter of 2015 , the company made the strategic decision to discontinue its business of funding broker-originated small business administration ( “ sba ” ) loans . the bank employed a group that was originally hired in may 2012 which focused on originating loans through the sba 504 and 7 ( a ) lending programs ( “ sba group ” ) . the sba group sourced loans through broker relationships , which generally did not result in the bank having the borrower 's full banking relationship . we concluded that the transactional nature of the business model in the sba group was not in line with our strategy of transitioning to a relationship-oriented commercial banking model . as a result of this decision , during the first quarter of 2015 , we terminated the 15 employees within the sba group and we incurred total personnel expense including severance pay of $ 611 thousand , which is recorded within noninterest expense for the year ended december 31 , 2015 and will be nonrecurring . we do not expect any additional expenses to be incurred as a result of this decision . the bank continues to be in good standing with the sba as a preferred lender and we will continue to originate sba 504 and 7 ( a ) loans through our core relationship banking strategy . we intend to sell the guaranteed portion of the 7 ( a ) loans in the secondary market from time to time . on august 28 , 2015 , we entered into an exchange agreement ( the “ exchange agreement ” ) with sbav , lp , an affiliate of clinton group , inc. ( “ sbav ” ) , and carpenter community bancfund , l.p. and carpenter community bancfund-a , l.p. ( together , the “ carpenter funds ” ) pursuant to which sbav and the carpenter funds exchanged an aggregate of 112,000 shares of the company 's series b convertible 8.4 % noncumulative preferred stock ( the “ series b shares ” ) , 35,225 shares of the series c 8.4 % noncumulative preferred stock ( the “ series c shares ” ) and warrants to purchase 761,278 shares of the company 's common stock ( the “ warrants ” ) for an aggregate of 3,009,148 shares of the company 's common stock ( the “ exchange transaction ” ) . the series b shares , series c shares and warrants exchanged by sbav and the carpenter funds in the exchange transaction comprised all of the company 's outstanding shares of preferred stock and warrants to purchase shares of the company 's common stock . the exchange transaction closed on september 30 , 2015. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 233 thousand for the years ended december 31 , 2014 and 2013 , respectively , yielding 0.25 % in each year on average balances of $ 134.6 million and $ 93.1 million , respectively . the increase in interest income from our short-term investments was primarily attributable to an increase in the average investment balances during the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 . as a result , total interest income on investments increased for the year ended december 31 , 2014 . interest expense 2015 vs. 2014 . total interest expense decreased 9.6 % to $ 5.3 million for the year ended december 31 , 2015 from $ 5.8 million for the year ended december 31 , 2014 . the decrease was primarily due to a decrease in the cost of funds of our interest-bearing liabilities to 0.76 % at december 31 , 2015 from 0.82 % at december 31 , 2014 , which consisted of deposits , borrowings and junior subordinated debentures . the decrease in interest expense was primarily the result of a decrease in the volume of certificates of deposit . interest expense on our certificates of deposit for the years ended december 31 , 2015 and 2014 was $ 2.8 million and $ 4.1 million , respectively , with a cost of funds of 0.90 % and 0.96 % on average balances of $ 308.5 million and $ 431.8 million , respectively . the decrease in our interest expense was partially offset by an increase in the volume of and rates of interest paid on our savings and money market accounts . 2014 vs. 2013 . total interest expense increased 9.6 % to $ 5.8 million for the year ended december 31 , 2014 from $ 5.3 million for the year ended december 31 , 2013 . story_separator_special_tag this would have the effect of reducing reportable income or , in the most extreme circumstance , creating a reportable loss . in addition , the federal reserve bank and the california department of business oversight ( “ cdbo ” ) , as an integral part of their regulatory oversight , periodically review the adequacy of our alll . these agencies may require us to make additional provisions for perceived potential loan losses , over and above the provisions that we have already made , the effect of which would be to reduce our income or increase any losses we might incur . the provision for loan and lease losses decreased $ 1.5 million for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 , primarily as a result of improving asset quality evidenced by lower levels of classified loans and generally positive asset quality trends which more than offset the portfolio growth . nonperforming assets remained stable as compared to the prior year . see `` —financial condition—nonperforming loans and the allowance for loan and lease losses '' below in this item 7 for additional information regarding the alll . 33 noninterest income the following table identifies the components of and the percentage changes in noninterest income in the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_12_th 2015 vs. 2014 . during the year ended december 31 , 2015 , noninterest income decreased by $ 1.7 million , or 38.5 % , to $ 2.7 million from $ 4.4 million for the year ended december 31 , 2014 , primarily as a result of : a decrease of $ 2.1 million in net gain on sale of sba loans for the year ended december 31 , 2015 as compared to the same period in 2014 ; partially offset by a $ 200 thousand recovery during the year ended december 31 , 2015 on a charged off loan in excess of the amount previously charged off against the alll ; and an increase in loan servicing and referral fees during the year ended december 31 , 2015 as compared to the same period in 2014 . 2014 vs. 2013 . during the year ended december 31 , 2014 , noninterest income increased by $ 3.2 million , or 266.3 % , to $ 4.4 million from $ 1.2 million for the year ended december 31 , 2013 , primarily as a result of : an increase of $ 2.1 million in net gain on sale of sba loans for the year ended december 31 , 2014 as compared to the same period in 2013 ; and no sales of non-sba loans during the year ended december 31 , 2014 as compared to a net loss on sale of non-sba loans of $ 448 thousand included in other noninterest income during the year ended december 31 , 2013 . noninterest expense the following table sets forth the principal components and the amounts of , and the percentage changes in , noninterest expense in the years ended december 31 , 2015 , 2014 and 2013 . replace_table_token_13_th ( 1 ) other operating expenses primarily consist of telephone , investor relations , promotional , regulatory expenses , and correspondent bank fees . 34 2015 vs. 2014 . during the year ended december 31 , 2015 , noninterest expense decreased by $ 1.5 million , or 4.0 % , to $ 35.3 million from $ 36.8 million for the year ended december 31 , 2014 , primarily as a result of : a decrease of $ 1.6 million in the carrying costs and other costs associated with real properties acquired by or in lieu of loan foreclosures ( commonly referred to as other real estate owned or “ oreo ” ) and other expenses related to oreo during the year ended december 31 , 2015 as compared to the same period in 2014 ; a decrease of $ 569 thousand in salaries and employee benefits primarily related to decreases in our workmen 's compensation premium , employment agency fees , and consulting fees and forfeitures in our 401 ( k ) plan ; partially offset by an increase in various expense accounts related to the normal course of operating , including expenses related to an increase in the square footage of our leased premises , the implementation of our mobile banking platform and the roll out of our new credit card platform . 2014 vs. 2013 . during the year ended december 31 , 2014 , noninterest expense increased by $ 462 thousand , or 1.3 % , to $ 36.8 million from $ 36.3 million for the year ended december 31 , 2013 , primarily as a result of : an increase of $ 3.0 million in salaries and employee benefits primarily related to the hiring of key employees during 2013 and 2014 and an increase in the year-end incentive compensation accrual for the year ended december 31 , 2014 ; partially offset by a decrease of $ 1.3 million in oreo expenses attributable to the reduction in oreo properties during the year ended december 31 , 2014 ; an increase of $ 502 thousand in professional fees related to recoveries on legal disputes during the year ended december 31 , 2013 , partially offset by decreased legal expenses due to the resolution of certain lawsuits and other disputes and a decline in legal costs related to nonperforming loans ; a decrease of $ 433 thousand in our fdic expense as a result of lower insurance required based upon improvement in the bank 's financial condition ; and provision for ( benefit from ) income tax for the year ended december 31 , 2015 , we recorded an $ 11.6 million income tax benefit , as compared to an income tax benefit of $ 608 thousand for the year ended december 31 , 2014 and income tax expense of $ 5.6 million for the year ended december 31 , 2013 .
| results of operations discontinued operations in connection with our exit from the mortgage banking business in 2013 , the revenues and expenses of our mortgage banking division have been classified as discontinued operations for all periods presented . as a result , all comparisons below reflect results from continuing operations . income from discontinued operations was zero for the year ended december 31 , 2015 , while our income from discontinued operations was $ 1.2 million for the year ended december 31 , 2014 . we had no income from discontinued operations during the year ended december 31 , 2015 as a result of the final wind down of the mortgage banking division during 2014. during the year ended december 31 , 2014 , we recorded a gain in the amount of $ 558 thousand on the sale of the mortgage servicing rights that we sold in april 2014 , which is included in income from discontinued operations in the 29 consolidated statements of operations . this compares to a loss of $ 7.3 million for the year ended december 31 , 2013 from the mortgage banking operations as a result of the decision to discontinue the mortgage banking business . operating results for the years ended december 31 , 2015 , 2014 , and 2013 our operating results for the year ended december 31 , 2015 , compared to december 31 , 2014 , and for the year ended december 31 , 2014 , compared to december 31 , 2013 , were as follows : replace_table_token_9_th interest income 2015 vs. 2014 . total interest income increased 1.3 % to $ 38.8 million for the year ended december 31 , 2015 from $ 38.3 million for the year ended december 31 , 2014 .
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notwithstanding the foregoing , the board of directors may act prior to the first day of any calendar year , to provide that there shall be no increase in the share reserve for such calendar year or that the annual increase in the share reserve for such calendar year shall be a lesser number of shares of common stock than would otherwise occur pursuant to the preceding sentence . the number of shares of common stock which may be issued in respect of incentive stock options is equal to the current limit , and will be increased on each january 1 , by the annual increase for such calendar year . to the extent that any award under the 2013 plan payable in shares of common stock is forfeited , cancelled , returned to the company for failure to satisfy vesting requirements or upon the occurrence of other forfeiture events , or otherwise terminates without payment being made thereunder , the shares of common stock covered thereby will be available for future grants under the 2013 plan . shares of common stock that otherwise would have been issued upon the exercise of a stock option or in payment with respect to any other form of award , that are surrendered in payment or partial payment of taxes required to be withheld with respect to the exercise of such stock option or the making of such payment , will also be available for future grants under the 2013 plan . terms and conditions of options . options granted under the 2013 plan may be either “ incentive stock options ” that are intended to meet the requirements of section 422 of the internal revenue code of 1986 , as amended ( the “ code ” ) or “ nonqualified stock options ” that do not meet the requirements of section 422 of the code . the compensation committee will determine the exercise price of options granted under the 2013 plan . the exercise price of stock options may not be less than the fair market value , on the date of grant , per share of our common stock issuable upon exercise of the option ( or 110 % of fair market value in the case of incentive options granted to a ten-percent stockholder ) . 90 if on the date of grant the common stock is listed on a stock exchange or national market system , the fair market value shall generally be the closing sale price as of such date , or if there were no trades recorded on such date , then the most recent date preceding such date on which trades were recorded . if on the date of grant the common stock is traded in an over-the-counter market , the fair market will generally be the average of the closing bid and asked prices for the shares of common stock as of such date , or , if there are no closing bid and asked prices for the shares of common stock on such date , then the average of the bid and asked prices for the shares of common stock on the most recent date preceding such date on which such closing bid and asked prices are available . if the common stock is not listed on a national securities exchange or national market system or traded in an over-the-counter market , the fair market value shall be determined by the compensation committee in a manner consistent with section 409a of the internal revenue code of 1986 , as amended . notwithstanding the foregoing , if on the date of grant the common stock is listed on a stock exchange or is quoted on a national market system , or is traded in an over-the-counter market , then solely for purposes of determining the exercise price of any grant of a stock option or the base price of any grant of a stock appreciation right , the compensation committee may , in its discretion , base fair market value on the last sale before or the first sale after the grant , the closing price on the trading day before or the trading day of the grant , the arithmetic mean of the high and low prices on the trading day before or the trading day of the grant , or any other reasonable method using actual transactions of the common stock as reported by the exchange or market on which the common stock is traded . in addition , the determination of fair market value also may be made using any other method permitted under treasury regulation section 1.409a-1 ( b ) ( 5 ) ( iv ) . no option may be exercisable for more than ten years from the date of grant ( five years in the case of an incentive stock option granted to a ten-percent stockholder ) . options granted under the 2013 plan will be exercisable at such time or times as the compensation committee prescribes at 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 appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and financing needs , includes forward-looking statements that involve risks and uncertainties and should be read together with the “ risk factors ” section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . story_separator_special_tag we have also initiated a process to identify a suitable partner to continue the development of lypdiso following the announcement of topline date from the enhance-it study in february 2021. general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive and finance functions . other general and administrative expenses include facility costs , insurance , investor relations expenses , professional fees for legal , patent review , consulting and accounting/audit services . we anticipate that our general and administrative expenses will increase during 2021 due to the increased expenses related to employee compensation and insurance costs . sale of net operating losses ( nols ) income obtained from selling unused net operating losses ( nols ) and unused research tax credits under the new jersey technology business tax certificate program was approximately $ 1.1 million and $ 1.0 million for the years ended december 31 , 2020 and 2019 , respectively . other income , net other income , net is largely comprised of interest income ( expense ) and franchise taxes . 76 application of critical accounting policies and accounting estimates a critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . for a description of our significant accounting policies , refer to “ note 3 – summary of significant accounting policies . ” of these policies , the following are considered critical to an understanding of our consolidated financial statements as they require the application of the most difficult , subjective and complex judgments ; ( i ) stock-based compensation , ( ii ) fair value measurements , ( iii ) research and development costs , ( iv ) goodwill and other intangible assets , and ( v ) basic and diluted net loss per common share . current operating trends our current r & d efforts are focused on advancing our lead lnc product candidates , mat2203 , through clinical development toward an initial indication for the treatment of cm , accelerating preclinical development of mat2501 with the assistance of the cff , and expanding application of our lnc platform delivery technology through collaborations with third parties . our r & d expenses consist of manufacturing work and the cost of active pharmaceutical ingredients and excipients used in such work , fees paid to consultants for work related to clinical trial design and regulatory activities , fees paid to providers for conducting various clinical studies as well as for the analysis of the results of such studies , and for other medical research addressing the potential efficacy and safety of our drugs . we believe that significant investment in product development is a competitive necessity , and we plan to continue these investments in order to be in a position to realize the potential of our product candidates and proprietary technologies . we expect that most of our r & d expenses in the near-term future will be incurred in support of our current and future preclinical and clinical development programs rather than technology development . these expenditures are subject to numerous uncertainties relating to timing and cost to completion . we test compounds in numerous preclinical studies for safety , toxicology and efficacy . at the appropriate time , subject to the approval of regulatory authorities , we expect to conduct early-stage clinical trials for each drug candidate . we anticipate funding these trials ourselves , and possibly with the assistance of federal grants , contracts or other agreements . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products . completion of clinical trials may take several years , and the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product candidate . the commencement and completion of clinical trials for our products may be delayed by many factors , including lack of efficacy during clinical trials , unforeseen safety issues , slower than expected participant recruitment , lack of funding or government delays . in addition , we may encounter regulatory delays or rejections as a result of many factors , including results that do not support the intended safety or efficacy of our product candidates , perceived defects in the design of clinical trials and changes in regulatory policy during the period of product development . as a result of these risks and uncertainties , we are unable to accurately estimate the specific timing and costs of our clinical development programs or the timing of material cash inflows , if any , from our product candidates . our business , financial condition and results of operations may be materially adversely affected by any delays in , or termination of , our clinical trials or a determination by the fda that the results of our trials are inadequate to justify regulatory approval , insofar as cash in-flows from the relevant drug or program would be delayed or would not occur . story_separator_special_tag generated net proceeds of approximately $ 46.7 million . the company granted the underwriters a 30-day option ( the “ option ” ) to purchase up to approximately 4.8 million additional shares of common stock subject to the same terms and conditions . no additional shares of the company 's common stock were sold pursuant to this option . 2019 common stock offering on march 19 , 2019 , the company closed an underwritten public offering of its common stock .
| results of operations years ended december 31 , 2020 and 2019 the following table summarizes our operating expenses for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_3_th 77 revenues . we generated approximately $ 158.3 thousand and approximately $ 89.8 thousand for the years ended december 31 , 2020 and 2019 , respectively . amounts earned in 2020 consists of contract research revenue resulting from a grant with the cystic fibrosis foundation and the feasibility study agreement with genentech inc. the amount earned in 2019 consists of contract research revenue resulting from a grant with the cystic fibrosis foundation . research and development expenses . r & d expense for the year ended december 31 , 2020 was approximately $ 14.4 million , an increase of approximately $ 3.2 million over the prior year . r & d expenses increased mainly due to higher preclinical and clinical development expenses of approximately $ 1.8 million , employee compensation of approximately $ 1.3 million and manufacturing development and other expenses of approximately $ 0.1 million . we expect r & d expenses to increase during 2021 as we move our clinical development programs forward and continue to invest in our lnc platform delivery technology and our laboratory & manufacturing facility . general and administrative expenses . general and administrative expense for the year ended december 31 , 2020 was approximately $ 10.0 million , an increase of approximately $ 2.2 million over prior year . the increase in general and administrative expense was primarily due to an increase in employee related expenses of approximately $ 1.7 million and professional fees of approximately $ 0.4 million . sale of net operating losses ( nols ) .
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10.70 form of 4.250 % senior notes due 2031 ( incorporated by reference to exhibit 4.3 to the current report on form 8-k filed by charter communications , inc. on story_separator_special_tag reference is made to “ part i. item 1a . risk factors ” and “ cautionary statement regarding forward-looking statements , ” which describe important factors that could cause actual results to differ from expectations and non-historical information contained herein . in addition , the following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto of cco holdings included in “ part ii . item 8. financial statements and supplementary data. ” overview we are a leading broadband connectivity company and cable operator serving more than 31 million customers in 41 states through our spectrum brand . over an advanced high-capacity , two-way telecommunications network , we offer a full range of state-of-the-art residential and business services including spectrum internet , tv , mobile and voice . for small and medium-sized companies , spectrum business delivers the same suite of broadband products and services coupled with special features and applications to enhance productivity , while for larger businesses and government entities , spectrum enterprise provides highly customized , fiber-based solutions . spectrum reach delivers tailored advertising and production for the modern media landscape . we also distribute award-winning news coverage , sports and high-quality original programming to our customers through spectrum networks and spectrum originals . see “ part i. item 1. business — products and services ” for further description of these services , including customer statistics for different services . the covid-19 pandemic and measures taken to prevent its spread impacted our business and presented significant challenges throughout 2020. to reduce the transmission of covid-19 , federal , state and local governments implemented a wide range of restrictions on business and individual activities , including closures or limitations on the operations of businesses along with restrictions on large gatherings , travel and other actions to promote or enforce physical distancing . despite these restrictions , we have continued to deliver our services uninterrupted across our footprint . the pandemic has significantly impacted how our customers use our products and services , how they interact with us , and how our employees work and provide services to our customers . the impacts of covid-19 have significantly impacted our results of operations during the year ended december 31 , 2020 and we expect that there will continue to be impacts through 2021 . 28 beginning in march 2020 , we offered our customers a set of programs , including our remote education offer ( “ reo ” ) pursuant to which new customers with students or educators in the household were eligible to receive our internet service for free for 60 days ; and the keep americans connected ( “ kac ” ) pledge which paused collection efforts and related disconnects for residential and small and medium business ( “ smb ” ) customers with covid-19 related payment challenges through june 30 , 2020. these programs resulted in higher customer net additions in 2020 than prior year with retention rates for these customers similar to our average customer base . in an effort to assist covid-19 impacted customers with overdue balances at the end of the kac and certain state-mandated programs , we waived approximately $ 102 million of receivables which was recorded as a reduction of revenue . the interruption of professional sports seasons resulted in $ 163 million lower programming expenses as a result of estimated sports rebates from sports programming networks as a result of canceled sporting events and a $ 217 million reduction in regulatory , connectivity and produced content costs as a result of a shortened 2020 baseball season and a delay to the start of the 2020-2021 basketball season which will push some expense that otherwise would have been recognized in 2020 to 2021 and beyond . in the third quarter of 2020 , we recognized $ 218 million of estimated credits that we intend to provide on our customers ' invoices related to the rebates to be received from sports programming networks . the difference between the estimated credits and the estimated rebates is due to an expected reduction in sports rights content costs which is being amortized over the life of the contract . economic conditions and temporary closures or reductions in operations of businesses resulted in reduced advertising spend and lower revenues from seasonal plans offered to smb and enterprise hospitality customers that have requested a reduced level of service due to temporary business closure or because these customers have reduced their service offering to their own customers ( `` seasonal plan '' ) . despite the economic conditions , we saw improved collections of residential customer receivables which we believe were enhanced by government stimulus benefits . we expect bad debt expense and churn in 2021 to return to pre-pandemic levels . we increased wages for all hourly field operations and customer service call center employees and gave our employees additional paid sick time for covid-19-related illnesses and a flex time program to address other covid-19 issues . we also committed to raise our minimum starting wage for hourly employees to $ 20 an hour over the next 2 years . through accelerated network capacity increases we have been able to respond to the significant increase in data demands on our network to enable social distancing through telecommuting and e-learning with usage by our internet-only customers averaging over 600 gigabytes per month , up nearly 20 % from the end of 2019. wifi access points were opened across our footprint for public use . requests from government , healthcare and educational institutions for new fiber connections , bandwidth upgrades and new services were prioritized . we have invested significantly in our self-service infrastructure , and customers have accelerated the adoption of our digital self-service capabilities and self-installation program with nearly 80 % of installations using the program . a significant portion of our workforce was temporarily moved to remote work arrangements . story_separator_special_tag generally , these customer subscriptions may be discontinued by the customer at any time subject to a fee for certain commercial customers . the remaining 9 % of revenue is derived primarily from advertising revenues , franchise and other regulatory fee revenues ( which are collected by us but then paid to local authorities ) , sales of mobile and video devices , processing fees or reconnection fees charged to customers to commence or reinstate service , installation , vod and pay-per-view programming , and commissions related to the sale of merchandise by home shopping services . critical accounting policies and estimates certain of our accounting policies require our management to make difficult , subjective and or complex judgments . management has discussed these policies with the audit committee of charter 's board of directors , and the audit committee has reviewed the following disclosure . we consider the following policies to be the most critical in understanding the 30 estimates , assumptions and judgments that are involved in preparing our financial statements , and the uncertainties that could affect our results of operations , financial condition and cash flows : capitalization of labor and overhead costs valuation and impairment of franchises and goodwill income taxes defined benefit pension plans capitalization of labor and overhead costs costs associated with network construction or upgrades , placement of the customer drop to the dwelling and the placement of outlets within a dwelling along with the costs associated with the deployment of new customer premise equipment necessary to provide internet , video or voice services , are capitalized . costs capitalized include materials , direct labor and certain indirect costs . these indirect costs are associated with the activities of personnel who assist in installation activities , and consist of compensation and overhead costs associated with these support functions . while our capitalization is based on specific activities , once capitalized , we track these costs on a composite basis by fixed asset category at the cable system level , and not on a specific asset basis . for assets that are sold or retired , we remove the estimated applicable cost and accumulated depreciation . the costs of disconnecting service and removing customer premise equipment from a dwelling and the costs to reconnect a customer drop or to redeploy previously installed customer premise equipment are charged to operating expense as incurred . costs for repairs and maintenance are charged to operating expense as incurred , while plant and equipment replacement , including replacement of certain components , betterments , and replacement of cable drops and outlets , are capitalized . we make judgments regarding the installation and construction activities to be capitalized . we capitalized direct labor and overhead of $ 1.6 billion for each of the years ended december 31 , 2020 and 2019. we capitalize direct labor and overhead using standards developed from actual costs and applicable operational data . we calculate standards annually ( or more frequently if circumstances dictate ) for items such as the labor rates , overhead rates , and the actual amount of time required to perform a capitalizable activity . for example , the standard amounts of time required to perform capitalizable activities are based on studies of the time required to perform such activities . overhead rates are established based on an analysis of the nature of costs incurred in support of capitalizable activities , and a determination of the portion of costs that is directly attributable to capitalizable activities . the impact of changes that resulted from these studies were not material in the periods presented . labor costs directly associated with capital projects are capitalized . capitalizable activities performed in connection with installations include such activities as : dispatching a “ truck roll ” to the customer 's dwelling or business for service connection or placement of new equipment ; costs to package and ship new equipment to a customer 's home for self-installation ; verification of serviceability to the customer 's dwelling or business ( i.e. , 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 internet , video 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 operating practices 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 . 31 valuation and impairment of franchises the net carrying value of franchises as of both december 31 , 2020 and 2019 was approximately $ 67.3 billion ( representing 47 % and 46 % of total assets , respectively ) . franchise assets are aggregated into essentially inseparable units of accounting to conduct valuations . the units of accounting generally represent geographical clustering of our cable systems into groups .
| results of operations a discussion of changes in our results of operations during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 has been omitted from this annual report on form 10-k , but may be found in “ item 7. 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 , filed with the sec on february 7 , 2020 , which is available free of charge on the secs website at www.sec.gov and on charter 's investor relations website at ir.charter.com . the following table sets forth the consolidated statements of operations for the periods presented ( dollars in millions ) : replace_table_token_3_th revenues . total revenues grew $ 2.3 billion or 5.1 % during the year ended december 31 , 2020 as compared to 2019 primarily due to increases in the number of residential internet and mobile customers , price adjustments and higher political advertising sales offset by lower local advertising revenues as a result of covid-19 , $ 218 million of estimated customer credits to be issued to our video customers due to canceled sporting events and $ 102 million of waived receivables related to the kac and certain state-mandated programs . 33 revenues by service offering were as follows ( dollars in millions ; all percentages are calculated using whole numbers .
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under the crfa , the company has agreed to fund the budgeted costs of an investigator-sponsored phase 1/2 clinical trial to be sponsored by uom in connection with the development activities under the mpsii license agreement , which are currently estimated to story_separator_special_tag our management 's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this annual report on form 10-k , which have been prepared by us in accordance with united states generally accepted accounting principles , or gaap , and with regulation s-x promulgated under the securities exchange act of 1934 , as amended . this discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in part i , item 1a . risk factors of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a leading clinical-stage gene therapy company with a mission to free people from a lifetime of genetic disease . our company is focused on developing potentially curative ex vivo lentiviral-based gene therapies to treat patients with rare diseases following a single dose treatment regimen . our gene therapies employ hematopoietic stem cells that are harvested from the patient and then modified with a lentiviral vector to insert the equivalent of a functional copy of the gene that is defective in the target disease . we believe that our approach , which is designed to transform stem cells from patients into therapeutic products , has the potential to provide curative benefit for a range of diseases . our initial focus is on a group of rare genetic diseases referred to as lysosomal disorders , some of which today are primarily managed with enzyme replacement therapies , or erts . these lysosomal disorders have well-understood biologies , identified patient populations , established standards of care yet with significant unmet needs , and represent large market opportunities with approximately $ 4.8 billion in worldwide net sales in 2020. our initial pipeline is comprised of six lentiviral-based gene therapy programs : avr-rd-01 for the treatment of fabry disease ; avr-rd-04 for the treatment of cystinosis ; avr-rd-02 for the treatment of gaucher disease type 1 ; avr-rd-05 for the treatment of hunter syndrome ; avr-rd-06 for the treatment of gaucher disease type 3 ; and avr-rd-03 for the treatment of pompe disease . avr-rd-01 is currently being evaluated for the treatment of fabry disease in an investigator-sponsored phase 1 clinical trial and a company-sponsored phase 2 clinical trial . five patients have been dosed in the investigator-sponsored phase 1 clinical trial of avr-rd-01 , and enrollment is complete . five patients have been dosed in our company-sponsored phase 2 clinical trial of avr-rd-01 , which we refer to as the fab-gt clinical trial , and we are actively recruiting additional potential patients for our currently active sites in australia , canada and the united states . avr-rd-04 is currently being studied for the treatment of cystinosis by our collaborators at the university of california , san diego , or ucsd , in a phase 1/2 investigator-sponsored clinical trial , and three patients have been dosed . one patient has been dosed in our company-sponsored phase 1/2 clinical trial of avr-rd-02 for the treatment of gaucher disease , which we refer to as the guard1 clinical trial , and we are actively recruiting in australia and canada , with additional sites planned in the united states , israel and europe . avr-rd-05 is being studied for the treatment of hunter syndrome by our collaborators at the university of manchester , and a phase 1/2 investigator-sponsored clinical trial is expected to commence in the first half of 2022. in november 2020 , we announced a new preclinical program , avr-rd-06 for the treatment of gaucher disease type 3 , and we expect to request a meeting with the food and drug administration , or fda , this year to discuss a potential path to the clinic . our avr-rd-03 program for pompe disease is currently in preclinical development , and in 2020 we completed ind-enabling proof-of-concept preclinical studies , with toxicology studies expected to be completed in 2021. since our inception in 2015 , we have devoted substantially all of our resources to organizing and staffing our company , business planning , raising capital , acquiring or discovering product candidates and securing related intellectual property rights , conducting discovery , research and development activities for our programs and planning for potential commercialization . to date , we have not generated any product revenue and have financed our operations primarily through the private placement of our securities and through public offerings of our common stock . through december 31 , 2020 , we had received gross cash proceeds of $ 87.5 million from sales of our preferred stock ; gross cash proceeds , before deducting underwriting discounts and commissions and expenses , of $ 428.1 million from sales of our common stock through our initial public offering and follow-on offerings ; and gross cash proceeds , before deducting commissions and expenses , of $ 8.5 million from sales of our common stock through our “ at-the-market ” ( atm ) facility . additionally , we have incurred significant operating losses . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates and programs . story_separator_special_tag product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . as a result , we expect that our research and development expenses will increase substantially over the next several years , particularly as we increase personnel costs , including stock-based compensation , contractor costs and facilities costs , as we continue to advance the development of our product candidates . we also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license agreements to acquire the rights to our product candidates . the successful development and commercialization of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when , if ever , material net cash inflows may commence from any of our product candidates . this uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization , including the uncertainty of : the scope , progress , outcome and costs of our preclinical development activities , clinical trials and other research and development activities ; establishing an appropriate safety profile with ind-enabling studies ; successful patient enrollment in , and the design , initiation and completion of , clinical trials ; the timing , receipt and terms of any marketing approvals from applicable regulatory authorities ; establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch ; obtaining , maintaining , defending and enforcing patent claims and other intellectual property rights ; significant and changing government regulation ; launching commercial sales of our product candidates , if and when approved , whether alone or in collaboration with others ; 93 maintaining a continued acceptable safety profile of the product candidates following approval ; and the risks disclosed in the section entitled “ risk factors ” of this annual report on form 10-k. we may never succeed in achieving regulatory approval for any of our product candidates . we may obtain unexpected results from our clinical trials . we may elect to discontinue , delay or modify clinical trials of some product candidates or focus on others . any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates . for example , if the fda , or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect , or if we experience significant delays in enrollment in any of our planned clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate . identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming , expensive and uncertain process that takes years to complete , and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales . in addition , our product candidates , if approved , may not achieve commercial success . general and administrative expenses general and administrative expenses consist primarily of salaries , related benefits , travel and stock-based compensation expense for personnel in executive , finance and administrative functions . general and administrative expenses also include professional fees for legal , consulting , accounting and audit services . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates . we also anticipate that we will continue to incur increased accounting , audit , legal , compliance , director and officer insurance costs as well as investor and public relations expenses associated with being a public company . we anticipate the additional costs for these services will substantially increase our general and administrative expenses . additionally , if and when we believe a regulatory approval of a product candidate appears likely , we anticipate an increase in payroll and other commercialization-related expenses as a result of our preparation for commercial operations , especially as it relates to the sales and marketing of our product candidate . other income ( expense ) , net other income ( expense ) , net primarily consists of interest income earned on our cash and cash equivalents and changes in foreign currency . story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > shares of common stock under the atm facility for net proceeds , after deducting commissions and other offering expenses payable by us , of $ 8 . 1 million . as of december 3 1 , 2020 , approximately $ 41 .5 million of common stock remained available for future issuance under the atm facility . in november 2020 , we closed an underwritten public offering , or the november 2020 follow-on offering , of 5,000,000 shares of our common stock at a public offering price of $ 15.00 per share , less underwriting discounts and commissions . the net proceeds to us from the november 2020 follow-on offering , after deducting underwriting discounts and commissions and other offering expenses payable by us , were $ 70.2 million . as of december 31 , 2020 , we had cash and cash equivalents of $ 259.7 million . cash in excess of immediate requirements is invested primarily with a view to liquidity and capital preservation .
| consolidated results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our consolidated results of operations ( in thousands ) : replace_table_token_2_th 94 research and development expenses research and development expenses increased by $ 32.3 million to $ 87.2 million for the year ended december 31 , 2020 , from approximately $ 55.0 million for the year ended december 31 , 2019. this increase was attributable to increased program development activities related to the advancement of our pipeline programs , including a $ 11.7 million increase in personnel-related costs , $ 9.1 million in one-time , upfront licensing fees , including payment to the university of manchester as consideration for the mpsii license agreement , a $ 4.6 million increase in noncash stock-based compensation , a $ 5.7 million increase in clinical costs , a $ 2.1 million increase in facility costs , a $ 1.9 million increase in consulting fees , a $ 0.8 million increase in lab supplies expense , and a $ 1.1 million increase in other expenses . these increases were partially off-set by a $ 2.0 million one-time licensing fee paid in 2019 , a $ 2.1 million decrease in preclinical costs , and a $ 0.6 million decrease in manufacturing costs . general and administrative expenses general and administrative expenses increased by $ 12.2 million to $ 33.0 million for the year ended december 31 , 2020 , from $ 20.8 million for the year ended december 31 , 2019. this increase was attributable to a $ 4.3 million increase in non-cash stock-based compensation , a $ 3.6 million increase in personnel-related costs , a $ 2.1 million increase in professional fees , a $ 1.0 million increase in facility costs , a $ 0.6 million increase in insurance costs , and $ 0.6 million in other expenses .
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consumer loans are primarily amortizing loans to individuals collateralized by automobiles , pleasure craft and recreation vehicles , typically with a maximum loan to value of 80 % -90 % of the purchase price of the collateral . consumer loans also include a small amount of unsecured short-term time notes to individuals . residential loans , consumer loans and home equity lines of credit are segregated into homogeneous pools with similar risk characteristics . trends and current conditions are analyzed and historical loss experience is adjusted accordingly . quantitative and qualitative adjustment factors for these segments are consistent with those for the commercial and municipal segments . certain loans in the residential , home equity lines of credit and consumer segments identified as having the potential for further deterioration are analyzed individually to confirm impairment status , and to determine the need for a specific reserve , however there is no formal rating system used for these segments . consumer loans greater than 120 days past due are generally charged off . residential loans 90 days or more past due are placed on non-accrual status unless the loans are both well secured and in story_separator_special_tag the first bancorp , inc. ( the “ company ” ) was incorporated in the state of maine on january 15 , 1985 , and is the parent holding company of the first , n.a . ( the “ bank ” ) . at the company 's annual meeting of shareholders on april 30 , 2008 , the company 's name was changed to the first bancorp , inc. from first national lincoln corporation . 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 fourteen offices along coastal 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 , income from the sale and servicing of mortgage loans , and income from investment management and private banking services through first advisors , a division of the bank . forward-looking statements this report contains statements that are “ forward-looking statements. ” we may also make written or oral 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 , 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 . story_separator_special_tag observable data considered relevant in determining whether other-than-temporary impairment has occurred , including the expectation of receipt of all principal and interest when due . the first bancorp 2011 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 35.0 % tax rate was used in 2011 , 2010 and 2009. replace_table_token_4_th the company presents its efficiency ratio using non-gaap information . the gaap-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income from the consolidated statements of income . the non-gaap efficiency ratio excludes securities losses and other-than-temporary impairment charges 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 of between the gaap and non-gaap efficiency ratio : replace_table_token_5_th 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 , and preferred stock . 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_6_th executive summary net income for the year ended december 31 , 2011 was $ 12.4 million , up $ 248,000 or 2.0 % from the $ 12.1 million posted for the year ended december 31 , 2010. earnings per common share on a fully diluted basis were $ 1.14 for the year ended december 31 , 2011 , up $ 0.04 or 3.6 % from the $ 1.10 posted for the year ended december 31 , 2010. net interest income on a tax-equivalent basis was up $ 833,000 or 1.9 % for the year ended december 31 , 2011 compared to the year ended december 31 , 2010. this increase was attributable to average earning assets in 2011 running $ 68.0 million or 5.4 % above the level seen in 2010 , adding $ 2.2 million to net interest income . this increase more than offset our net interest margin slipping from 3.38 % in 2010 to 3.27 % in 2011. during 2011 , total assets decreased $ 20.9 million or 1.5 % . the loan portfolio was down $ 22.6 million or 2.5 % . the investment portfolio was up $ 8.3 million or 2.0 % for the year . on the liability side of the balance sheet , low-cost deposits have increased $ 18.4 million or 6.2 % for the year , and local certificates of deposit decreased $ 8.2 million or 6.90 % . we continue to be in the longest and worst economic downturn since the great depression of the 1930 's .
| results of operations net interest income net interest income on a tax-equivalent basis increased 1.9 % or $ 0.8 million to $ 43.7 million for the year ended december 31 , 2011 from the $ 42.9 million reported for the year ended december 31 , 2010. a higher level of average earning assets in 2011 was responsible for $ 2.2 million of this change while several factors , including the decrease in the net interest margin from 3.38 % in 2010 to 3.27 % in 2011 , reduced the increase in net interest income by $ 1.4 million . total interest income in 2011 was $ 55.7 million , a decrease of $ 1.6 million or 2.7 % from the $ 57.3 million posted by the company in 2010. total interest expense in 2011 was $ 14.7 million , a decrease of $ 2.0 million or 11.8 % from the $ 16.7 million posted by the company in 2010. the decrease in both interest income and interest expense was attributable to lower interest rates . tax-exempt interest income amounted to $ 5.0 million for the year ended december 31 , 2011 , $ 4.2 million for the year ended december 31 , 2010 and $ 4.4 million for the year ended december 31 , 2009. the following tables present changes in interest income and expense attributable to changes in interest rates , volume , and rate/volume 1 for interest-earning assets and interest-bearing liabilities . tax-exempt income is calculated on a tax-equivalent basis , using a 35.0 % tax rate . replace_table_token_7_th replace_table_token_8_th 1 represents the change attributable to a combination of change in rate and change in volume .
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the fair value is corroborated with an independent third party on at least an annual basis . bok story_separator_special_tag replace_table_token_3_th 18 replace_table_token_4_th 1 includes nonaccruing loans , renegotiated loans and assets acquired in satisfaction of loans . excludes loans past due 90 days or more and still accruing . 2 risk-based capital ratios for 2017 , 2016 and 2015 calculated under revised regulatory capital rules issued july 2013 and effective for the company on january 1 , 2015. previous risk-based ratios presented are calculated in accordance with then current regulatory capital rules . 3 includes allowance for loan losses and accrual for off-balance sheet credit risk . 4 excludes residential mortgage loans guaranteed by agencies of the u.s. government . management 's assessment of operations and financial condition overview the following discussion is management 's analysis to assist in the understanding and evaluation of the financial condition and results of operations of bok financial corporation ( `` bok financial '' or `` the company '' ) . this discussion should be read in conjunction with the consolidated financial statements and footnotes and selected financial data presented elsewhere in this report . for 2017 , the u.s. economy continued to grow , supported by declining unemployment , continued payroll growth and modest inflation . the national unemployment rate fell to a 17-year low at 4.1 % in december of 2017. inflation also remained below 2 % for 2017. the minutes of the federal open market committee ( `` fomc '' ) of the federal reserve for december indicated continued strengthening of labor market conditions , real gross domestic product rising at a solid pace in the second half of 2017 and unchanged longer-run inflation expectations . investment returns remained strong for 2017 , with the s & p 500 index up 19 % for the year . this represents the 9th year in a row of positive returns for the s & p 500 index . the federal reserve increased the target range for the federal funds rate by 25 basis points three different times during 2017. the 10-year u.s. treasury note finished the year yielding 2.40 % . we expect rates to continue to rise during 2018. global quantitative easing and lack of inflation , combined with continued gradual federal funds rate increases by the federal reserve are contributing to a flattening of the yield curve . higher long-term interest rates are likely in 2018. on december 22 , 2017 , the tax reform act was signed into law , lowering tax rates on corporations , pass-through entities , individuals and estates . we believe that the passage of tax reform will be beneficial to economic growth across our footprint by providing certainty for our customers to base their investment and borrowing decisions . 19 story_separator_special_tag style= '' vertical-align : top '' > the company repurchased 80,000 shares at an average price of $ 92.54 per share during 2017 . the company repurchased 1,005,169 shares at an average price of $ 66.45 during 2016 . the company paid cash dividends of $ 1.77 per common share during 2017 and $ 1.73 per common share in 2016 . 20 net income for the fourth quarter of 2017 totaled $ 72.5 million or $ 1.11 per diluted share , up from $ 50.0 million or $ 0.76 per diluted share for the fourth quarter of 2016 . highlights of the fourth quarter of 2017 included : net interest revenue totaled $ 216.9 million for the fourth quarter of 2017 , up $ 22.7 million over the fourth quarter of 2016 . net interest margin was 2.97 % for the fourth quarter of 2017 , up from 2.69 % for the fourth quarter of 2016 . net interest revenue increased primarily due to three 25 basis point increases in the federal funds rate by the federal reserve during 2017 and growth in average loan balances . fees and commissions revenue totaled $ 168.2 million , up $ 6.1 million over the fourth quarter of 2016 . fiduciary and asset management revenue grew by $ 7.2 million , primarily due to growth in assets under management . brokerage and trading revenue increased $ 4.5 million , primarily due to a $ 5.0 million decrease in the fair value of trading securities in the fourth quarter of 2016. mortgage banking revenue decrease d $ 4.1 million compared to the fourth quarter of 2016 . production volumes decreased primarily due to higher mortgage interest rates . gain on sale margins were lower as higher- margin refinance activity also declined . the loss in the fair value of mortgage servicing rights , net of economic hedges , was $ 1.4 million in the fourth quarter of 2017 compared to $ 17.0 million in the fourth quarter of 2016 . the fourth quarter of 2016 included $ 17.0 million of the previously noted decrease in the fair value of mortgage servicing rights , net of economic hedges due to an unexpected increase in the 10-year u.s. treasury interest rate and related interest rates . operating expenses in the fourth quarter totaled $ 264.0 million , a $ 1.6 million decrease compared to the prior year . the fourth quarter of 2016 included $ 5.0 million of severance and other expenses related to workforce reductions and $ 4.7 million of integration costs related to the mobank acquisition . 21 critical accounting policies & estimates the consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the united states of america ( “ gaap ” ) . the company 's accounting policies are more fully described in note 1 of the consolidated financial statements . management makes significant assumptions and estimates in the preparation of the consolidated financial statements and accompanying notes in conformity with gaap that may be highly subjective , complex and subject to variability . actual results could differ significantly from these assumptions and estimates . story_separator_special_tag fair value may be recorded for certain assets and liabilities every reporting period on a recurring basis or under certain circumstances on a non-recurring basis . the following represents significant fair value measurements included in the consolidated financial statements based on estimates . see note 18 of the consolidated financial statements for additional discussion of fair value measurement and disclosure included in the consolidated financial statements . mortgage servicing rights we have a significant investment in mortgage servicing rights . our mortgage servicing rights are primarily retained from sales in the secondary market of residential mortgage loans we have originated or purchased from correspondent lenders . occasionally , mortgage servicing rights may be purchased from other lenders . both originated and purchased mortgage servicing rights are initially recognized at fair value . we carry all mortgage servicing rights at fair value . changes in fair value are recognized in earnings as they occur . mortgage servicing rights are not traded in active markets . the fair value of mortgage servicing rights is determined by discounting the projected cash flows . certain significant assumptions and estimates used in valuing mortgage servicing rights are based on current market sources including projected prepayment speeds , assumed servicing costs , earnings on escrow deposits , ancillary income and discount rates . assumptions used to value our mortgage servicing rights are considered significant unobservable inputs and represent our best estimate of assumptions that market participants would use to value this asset . a separate third party model is used to estimate prepayment speeds based on interest rates , housing turnover rates , estimated loan curtailment , anticipated defaults and other relevant factors . the prepayment model is updated periodically for changes in market conditions and adjusted to better correlate with actual performance of our servicing portfolio . the discount rate is based on benchmark rates for mortgage loans plus a market spread expected by investors in servicing rights . significant assumptions used to determine the fair value of our mortgage servicing rights are presented in note 7 to the consolidated financial statements . at least annually , we request estimates of fair value from outside sources to corroborate the results of the valuation model . the assumptions used in this model are primarily based on mortgage interest rates . evaluation of the effect of a change in one assumption without considering the effect of that change on other assumptions is not meaningful . considering all related assumptions , we expect a 50 basis point increase in primary mortgage interest rates to increase the fair value of our servicing rights by $ 26 million . we expect a $ 33 million decrease in the fair value of our mortgage servicing rights from a 50 basis point decrease in primary mortgage interest rates . valuation of derivative instruments we use interest rate derivative instruments to manage our interest rate risk . we also offer interest rate , commodity , foreign exchange and equity derivative contracts to our customers . all derivative instruments are carried on the balance sheet at fair value . fair values for exchange-traded contracts are based on quoted prices in an active market for identical instruments . fair values for over-the-counter interest rate contracts used to manage our interest rate risk are generated internally using third-party valuation models . inputs used in third-party valuation models to determine fair values are considered significant other observable inputs . fair values for interest rate , commodity , foreign exchange and equity contracts used in our customer hedging programs are based on valuations generated internally by third-party provided pricing models . these models use significant other observable market inputs to estimate fair values . changes in assumptions used in these pricing models could significantly affect the reported fair values of derivative assets and liabilities , though the net effect of these changes should not significantly affect earnings . 23 credit risk is considered in determining the fair value of derivative instruments . deterioration in the credit rating of customers or dealers reduces the fair value of asset contracts . the reduction in fair value is recognized in earnings during the current period . fair value adjustments are based on various risk factors including but not limited to counterparty credit rating or equivalent loan grading , derivative contract notional size , price volatility of the underlying commodity , duration of the derivative contracts and expected loss severity . expected loss severity is based on historical losses for similarly risk-graded commercial loan customers . deterioration in our credit rating below investment grade would affect the fair value of our derivative liabilities . in the event of a credit down-grade , the fair value of our derivative liabilities would decrease . the reduction in fair value would be recognized in earnings in the current period . the impact of credit valuation adjustments on the total valuation of derivative contracts was not significant . valuation of securities the fair value of our securities portfolio is generally based on a single price for each financial instrument provided to us by a third-party pricing service determined by one or more of the following : quoted prices for similar , but not identical , assets or liabilities in active markets ; quoted prices for identical or similar assets or liabilities in inactive markets ; inputs other than quoted prices that are observable , such as interest rate and yield curves , volatilities , prepayment speeds , loss severities , credit risks and default rates ; other inputs derived from or corroborated by observable market inputs . the underlying methods used by the third-party pricing services are considered in determining the primary inputs used to determine fair values . we evaluate the methodologies employed by the third-party pricing services by comparing the price provided by the pricing service with other sources , including brokers ' quotes , sales or purchases of similar instruments and discounted cash flows to establish a basis for reliance on the pricing service values .
| performance summary net income for the year ended december 31 , 2017 totaled $ 334.6 million or $ 5.11 per diluted share compared with net income of $ 232.7 million or $ 3.53 per diluted share for the year ended december 31 , 2016 . the tax reform act resulted in an $ 11.7 million or $ 0.18 per share reduction of net income in the fourth quarter of 2017. a decrease in the federal corporate tax rate from 35 % to 21 % required us to revalue our deferred tax assets and liabilities . provisions of the tax reform act also limit the deductibility of certain other expenses . highlights of 2017 included : net interest revenue totaled $ 841.7 million for 2017 , up from $ 747.2 million for 2016 . the increase in net interest revenue was driven by both widening spreads and growth in average assets . net interest margin was 2.92 % for 2017 compared to 2.66 % for 2016 . average earning assets were $ 29.6 billion for 2017 , up $ 646 million over 2016 . fees and commissions revenue was $ 683.4 million for 2017 , largely unchanged compared to 2016 . fiduciary and asset management revenue grew by $ 27.4 million driven by growth in assets under management , improved pricing discipline and decreased fee waivers . mortgage banking revenue decrease d $ 29.2 million . production volumes decreased primarily due to higher mortgage interest rates and the company 's strategic decision to exit the correspondent lending channel . this impact was partially offset by improved gain on sale margins . brokerage and trading revenue decrease d $ 6.8 million , primarily due to decreases in customer hedging revenue related to our mortgage banking customers and retail brokerage revenue .
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while we are a global leader , our flavors business is more regional in nature , with different formulas that reflect local tastes and ingredients . as a leading creator of flavors , we help our customers deliver on the promise of delicious and healthy foods and drinks that appeal to consumers . our flavors compounds are ultimately used by our customers in four end-use categories : ( 1 ) savory , ( 2 ) beverages , ( 3 ) sweet , pharmaceutical and oral care ( “ sweet ” ) , and ( 4 ) dairy . our fragrances are a key component in the world 's finest perfumes and best-known consumer brands , including beauty care , fabric care , personal wash and home care products . in 2014 , we announced that we realigned our creative and commercial teams within our fragrance compounds activities resulting in two newly-defined broad market categories , ( 1 ) fine fragrances and ( 2 ) consumer fragrances . consumer fragrances consists of five end-use categories : fabric care , home care , personal wash , hair care and toiletries . prior to the realignment , our fragrance compounds activities consisted of two broad categories ( 1 ) fine fragrance and beauty care and ( 2 ) functional fragrances . in addition , fragrance ingredients , which are used internally and sold to third parties , including customers and competitors , for use in preparation of compounds , are also included in the fragrances business unit . the flavors and fragrances market is part of a larger market which supplies a variety of ingredients and components that consumer products companies utilize in their products . the broader market includes large multinational companies or smaller regional and local participants which supply products such as seasonings , texturizers , spices , enzymes , certain food related commodities , fortified products and cosmetic ingredients . the flavors and fragrances market is estimated to be at least $ 18 billion ; however the exact size of the global market is not available due to fragmentation of data . we , together with the other top three companies are estimated to comprise approximately two-thirds of the total estimated sales in the global flavors and fragrances sub-segment of the broader market . development of new flavors and fragrance compounds is driven by a variety of sources , including requests from our customers , who are in need of a specific flavor or fragrance for use in a new or modified consumer product , or as a result of internal initiatives stemming from our consumer insights program . our product development team works in partnership with our scientists and researchers to optimize the consumer appeal of the flavor or fragrance . it then becomes a collaborative process between our researchers , our product development team and our customers to perfect the flavor or fragrance so that it is ready to be included in the final consumer product . our 25 largest customers accounted for 53 % of total sales in 2014 ; this percentage has remained fairly constant for several years . a key factor for commercial success is inclusion on our strategic customers ' core supplier lists , which provides opportunities to win new business . we are on the core supplier lists of a large majority of our global and strategic customers within fragrances and flavors . sales in 2014 grew 5 % both on a reported basis and in local currency ( lc ) terms , with the acquisition of aromor adding approximately 1 % to both reported and local currency basis amounts . flavors achieved lc growth of 4 % and fragrances 27 achieved lc growth of 7 % in 2014 . the lc growth reflects new win performance ( net of losses ) in both flavors and fragrance compounds partially offset by volume erosion on existing business . in addition , fragrance ingredients sales were up 18 % driven largely by the aromor acquisition . overall , our 2014 results continued to be driven by our strong emerging market presence that represented 50 % of total sales and experienced 6 % lc growth in 2014 . from a geographic perspective , all regions delivered lc growth on a consolidated basis in 2014 ; led by latin america ( la ) with 7 % lc sales growth . the year 2014 included an extra week of activity , due to the timing of our fiscal year-end ( as discussed in note 1 of the consolidated financial statements ) . the impact of this week was not material to our results of operations for the year ended december 31 , 2014 . 2014 sales by business unit replace_table_token_7_th replace_table_token_8_th financial performance overview reported sales for 2014 increased 5 % year-over-year ( including approximately 1 % growth from the acquisition of aromor ) . we continue to benefit from our diverse portfolio of end-use product categories and geographies and had growth in all four regions and in consumer fragrances , fragrance ingredients and flavor compounds . both flavors and fragrances benefited from new win performance ( net of losses ) that was partially offset by volume erosion on existing business . exchange rate variations were flat in year-over-year sales . the effect of exchange rates can vary by business and region depending upon the mix of sales by country as well as the relative percentage of local sales priced in u.s. dollars versus local currencies . lc sales growth of 5 % in 2014 was consistent with our long-term strategic target of 4 % -6 % lc growth . we saw good lc sales growth during each quarter of 2014 , despite the impact of volume erosion on existing business . regarding our 2015 outlook , 28 we believe that lc sales growth will be in line with our long-term targets , while operating profit growth is expected to be at the low end of the range , in light of a stronger u.s. dollar versus most currencies and higher incentive compensation expense . story_separator_special_tag included in cost of goods sold was $ 7.6 million of charges related to restructuring and operational improvement initiative costs in 2014 and $ 8.8 million of restructuring and operational improvement initiative costs in 2013. research and development ( r & d ) r & d expenses decreased approximately $ 6.2 million versus the prior year . overall , r & d expenses decreased 60 bps as a percentage of sales from 8.8 % in 2013 to 8.2 % in 2014 . this decrease is primarily driven by lower incentive compensation expense . selling and administrative ( s & a ) s & a , as a percentage of sales , decreased 40 bps to 16.7 % versus 17.1 % . excluding the $ 13.0 million spanish capital tax charge ( as discussed in note 17 to the consolidated financial statements ) in 2013 , adjusted s & a expenses , as a percentage of sales , were 16.7 % in 2013 , consistent with the current year . restructuring and other charges restructuring and other charges primarily consist of separation costs for employees , including severance , outplacement and other benefit costs . restructuring charges ( in thousands ) 2014 2013 flavors $ — $ — fragrances 1,298 2,151 global — — total $ 1,298 $ 2,151 fragrance ingredients rationalization in 2014 , the company closed its fragrance ingredients manufacturing facility in augusta , georgia and consolidated production into other company facilities . in connection with this closure in 2014 , the company incurred charges of $ 13.8 million , consisting primarily of $ 10.3 million in accelerated depreciation of fixed assets , $ 2.2 million in personnel-related costs and $ 1.3 million in plant shutdown and other related costs . the company recorded total charges of $ 7.4 million during 2013 , consisting of $ 2.2 million of pre-tax charges related to severance included in restructuring and other charges , net and $ 5.2 million of non-cash charges related to accelerated depreciation included in cost of goods sold . during 2014 , the company recorded $ 1.3 million of plant shutdown and other related costs included in restructuring and other charges , net as well as an additional $ 5.1 million of non-cash charges related to accelerated depreciation included in cost of goods sold . as a result of this closure , 43 positions have been eliminated . the company estimates that approximately $ 3 - $ 4 million of the costs will be or have been cash expenditures . other during 2013 , the company reversed $ 1.2 million of employee-related liabilities , offset by $ 0.6 million of additional costs incurred related to the european rationalization plan announced in 2009. additionally , during 2013 , the company recorded a charge of $ 1.7 million related to the strategic initiative , which began in 2011 . 32 operating results by business unit we evaluate the performance of business units based on segment profit which is defined as operating profit before restructuring and certain non-recurring items , interest expense , other expense , net and taxes on income . see note 12 to our consolidated financial statements for the reconciliation to income before taxes . replace_table_token_11_th flavors business unit flavors segment profit totaled $ 331.3 million in 2014 ( 22.7 % of sales ) consistent with $ 323.6 million ( 22.7 % of sales ) in the comparable 2013 period . the increase in segment profit was driven by lower incentive compensation expense . fragrances business unit fragrances segment profit totaled $ 335.4 million in 2014 ( 20.6 % of sales ) , compared to $ 283.7 million ( 18.5 % of sales ) reported in 2013 . the improvement in segment profit and profit margin was primarily due to strong sales growth combined with gross margin expansion , ongoing cost discipline , and lower incentive compensation expense . global expenses global expenses represent corporate and headquarter-related expenses which include legal , finance , human resources and r & d and other administrative expenses that are not allocated to an individual business unit . in 2014 , global expenses were $ 65.4 million compared to $ 66.9 million during 2013 . the decrease is principally driven by lower incentive compensation expense . interest expense in 2014 , interest expense decreased $ 0.7 million to $ 46.1 million , as a result of the refinancing of our debt in 2013. average cost of debt was 4.9 % for the 2014 period compared to 4.7 % in 2013 . other ( income ) expense , net other ( income ) expense , net decreased approximately $ 12.8 million to $ 2.8 million of income in 2014 versus $ 15.6 million of income in 2013 . the decrease was largely driven by a $ 14.2 million gain related to the sale of non-operating assets that occurred during 2013. income taxes the effective tax rate was 24.5 % in 2014 as compared to 27.1 % in 2013 . excluding the $ 2.6 million tax benefit associated with the pretax restructuring charges and operational improvement initiative costs as well as the $ 3.8 million tax benefit related to the reserve reversal for the 2001 spanish dividend withholding tax case ( as discussed in note 9 of the consolidated financial statements ) , the adjusted tax rate for 2014 is 25.3 % . excluding the tax charge of $ 6.2 million related to the 2002-2003 income tax cases ( as discussed in note 9 of the consolidated financial statements ) and net of the $ 3.9 million tax benefit associated with the pretax spanish capital tax charge ( as discussed in note 17 of the consolidated financial statements ) , the adjusted tax rate for 2013 was 25.7 % . the year-over-year reduction reflects a benefit from mix of earnings and lower loss provisions partially offset by a higher cost of repatriation . 33 2013 in comparison to 2012 sales sales for 2013 totaled $ 3.0 billion , an increase of 5 % from the prior year .
| results of operations replace_table_token_9_th ( 1 ) adjusted operating margin for the twelve months ended december 31 , 2014 excludes the operational improvement initiative costs of $ 2.5 million , restructuring and other charges , net of $ 1.3 million and $ 5.1 million of accelerated depreciation included in cost of goods sold related to the fragrance ingredients rationalization and several locations in asia . adjusted operating margin for the twelve months ended december 31 , 2013 excludes the operational improvement initiative costs of $ 2.3 million , restructuring and other charges , net of $ 2.2 million , $ 6.7 million of accelerated depreciation included in cost of goods sold related to the fragrance ingredients rationalization and several locations in asia , and the spanish capital tax charge of $ 13.0 million . adjusted operating margin for the twelve months ended december 31 , 2012 excludes restructuring and other charges , net of $ 1.7 million . cost of goods sold includes the cost of materials and manufacturing expenses ; raw materials generally constitute 70 % of the total . r & d expenses relate to the development of new and improved molecules and technologies , technical product support and compliance with governmental regulations . s & a expenses include expenses necessary to support our commercial activities and administrative expenses principally associated with staff groups that support our overall operating activities . 2014 in comparison to 2013 sales sales for 2014 totaled $ 3.1 billion , an increase of 5 % from the prior year on both a reported and lc basis , with the acquisition of aromor adding approximately 1 % to both reported and lc basis amounts . the lc growth reflects new win performance ( net of losses ) in both flavors and fragrance compounds partially offset by volume erosion on existing business . in addition , fragrance ingredients sales were up 18 % ( which includes the benefit of the aromor acquisition ) .
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costs for company-sponsored defined benefit and postemployment story_separator_special_tag overview the following management 's discussion and analysis of financial conditions and results of operations ( “ md & a ” ) is intended to help the reader understand the company 's operations and business environment . md & a is provided as a supplement to , and should be read in conjunction with , the consolidated financial statements and notes to consolidated financial statements contained in item 8 of this form 10-k. the following discussion includes forward-looking statements that involve certain risks and uncertainties . see “ forward-looking statements ” in the beginning of this form 10-k. the md & a includes the following sections : business - a general description of dentsply 's business and how performance is measured ; results of operations - an analysis of the company 's consolidated results of operations for the three years presented in the consolidated financial statements ; critical accounting estimates - a discussion of accounting policies that require critical judgments and estimates ; and liquidity and capital resources - an analysis of cash flows ; debt and other obligations ; and aggregate contractual obligations . 2015 operational highlights for the year ended december 31 , 2015 , total sales declined 8.5 % while sales , excluding precious metal content , decreased 7.6 % compared to prior year . the decline in sales primarily reflects the impact of foreign currency exchange rates which had a negative impact of approximately 9.5 % during the year . internal growth , excluding precious metal content , was 2.0 % as growth in the u.s. and rest of world regions was offset by slightly reduced sales in europe . the negative impact of discontinued products on internal growth , excluding precious metal content , was approximately 0.6 % on a global basis . for the year ended december 31 , 2015 , earnings per diluted share of $ 1.76 declined by 21 % from $ 2.24 in the prior year . on an adjusted basis ( a non-us gaap measure ) , full year 2015 earnings per diluted share grew 5 % to $ 2.62 from $ 2.50 in the prior year . the company 's results reflect a significant earnings headwind from currency rate changes compared to the prior year of approximately 7 % , or $ 0.16 per diluted share . operating margin as measured on sales , excluding precious metal content was 14.5 % for the year ended december 31 , 2015 compared to 16.0 % for the year ended december 31 , 2014. adjusted operating margin ( a non-us gaap measure ) for the year ended december 31 , 2015 was 20.2 % , an improvement of 180 basis points over the prior year reflecting operating improvements , net of reinvestment , associated with the company 's global efficiency initiative . on september 15 , 2015 , the company announced a merger with sirona dental systems , inc. sirona develops , manufactures and markets several lines of dental technology and equipment products including cad/cam restoration systems , digital intra-oral , panoramic and 3d imaging systems , dental treatment centers and instruments . shareholders for both dentsply and sirona approved the merger in january 2016. the transaction is expected to be finalized during the first quarter of 2016. please see note 4 , business combinations , in the notes to the consolidated financial statements , for additional information . business dentsply international inc. is a leading manufacturer and distributor of dental and other consumable medical device products . the company believes it is the world 's largest manufacturer of consumable dental products for the professional dental market . for over a century , dentsply 's commitment to innovation and professional collaboration has enhanced its portfolio of branded consumables and small equipment . headquartered in the united states , the company has global operations with sales in more than 120 countries . principal measurements the principal measurements used by the company in evaluating its business are : ( 1 ) internal sales growth by geographic region ; ( 2 ) constant currency sales growth by geographic region ; ( 3 ) adjusted operating margins of each reportable segment , which 28 excludes the impact of certain one time items to enhance the comparability of results period to period ; ( 4 ) the development , introduction and contribution of innovative new products ; and ( 5 ) sales growth through acquisition . the first three principal measurements are not calculated in accordance with accounting principles generally accepted in the united states ; therefore , these items represent non-us gaap ( “ non-us gaap ” ) measures . these non-us gaap measures may differ from other companies and should not be considered in isolation from , or as a substitute for , measures of financial performance prepared in accordance with us gaap . the company defines “ internal sales growth ” as the increase or decrease in net sales from period to period , excluding ( 1 ) precious metal content ; ( 2 ) the impact of changes in currency exchange rates ; and ( 3 ) net acquisition sales growth . the company also tracks internal sales growth of continuing product lines as this is more reflective of the ongoing strength of the company 's performance . the company defines “ net acquisition sales growth ” as the net sales , excluding precious metal content , for a period of twelve months following the transaction date of businesses that have been acquired , less the net sales , excluding precious metal content , for a period of twelve months prior to the transaction date of businesses that have been divested . the company defines “ constant currency sales growth ” as internal sales growth plus net acquisition sales growth . the primary drivers of internal growth includes macroeconomic factors , global dental market growth , innovation and new products launched by the company , and continued investments in sales and marketing resources , including clinical education . story_separator_special_tag management believes that the presentation of net sales , excluding precious metal content , provides useful information to investors because a significant portion of dentsply 's net sales is comprised of sales of precious metals generated through sales of the company 's precious metal dental alloy products , which are used by third parties to construct crown and bridge materials . due to the fluctuations of precious metal prices and because the cost of the precious metal content of the company 's sales is largely passed through to customers and has minimal effect on earnings , dentsply reports net sales both with and without precious metal content to show the company 's performance independent of precious metal price volatility and to enhance comparability of performance between periods . the company uses its cost of precious metal purchased as a proxy for the precious metal content of sales , as the precious metal content of sales is not separately tracked and invoiced to customers . the company believes that it is reasonable to use the cost of precious metal content purchased in this manner since precious metal dental alloy sale prices are typically adjusted when the prices of underlying precious metals change . the presentation of net sales , excluding precious metal content , is considered a non-us gaap measure . the company provides the following reconciliation of net sales to net sales , excluding precious metal content . the company 's definitions and calculations of net sales , excluding precious metal content , and other operating measures derived using net sales , excluding precious metal content , may not necessarily be the same as those used by other companies . replace_table_token_4_th for the year ended december 31 , 2015 , net sales , excluding precious metal content decreased $ 211.2 million or 7.6 % from the year end december 31 , 2014. the change in net sales excluding precious metals content reflects 9.5 % unfavorable foreign currency translation . excluding the impact of unfavorable foreign currency translation and excluding precious metal content , net sales grew 1.9 % . sales related to precious metal content declined 28.6 % from the prior year period which was primarily due to the continuing reduction in refinery volumes and the declining use of precious metal alloys in dentistry . 30 constant currency sales growth the following table includes growth rates for net sales , excluding precious metal content . replace_table_token_5_th united states during 2015 , net sales , excluding precious metal content , increased by 2.6 % on a constant currency basis compared to 2014. internal sales growth of 3.1 % was led by increased sales in the dental consumables and dental specialty product categories . internal growth for the year ended december 31 , 2015 was negatively impacted by approximately 0.8 % as a result of product line discontinuations associated with the company 's global efficiency initiative . europe during 2015 , net sales , excluding precious metal content , decreased by 0.3 % on a constant currency basis compared to 2014. internal sales growth was negative 0.3 % mostly as a result of a decrease in sales of dental laboratory products and continued contraction in the cis region , partially offset by positive sales growth in dental consumable and dental specialty products categories . internal growth for the year ended december 31 , 2015 was negatively impacted by approximately 0.5 % as a result of product line discontinuations associated with the company 's global efficiency initiative . rest of world during 2015 , net sales , excluding precious metal content , increased 5.3 % on a constant currency basis compared to 2014. the internal sales growth of 4.9 % was led by the dental specialty product category . internal growth for the year ended december 31 , 2015 was negatively impacted by approximately 0.3 % as a result of product line discontinuations associated with the company 's global efficiency initiative . gross profit replace_table_token_6_th gross profit as a percentage of net sales , excluding precious metal content , increased 150 basis points during 2015 compared to 2014. the increase in the gross profit rate was due to the favorable impact of foreign currency , benefits from the company 's global efficiency initiative , favorable pricing and product mix when compared to the year ended december 31 , 2014 . 31 expenses selling , general and administrative ( “ sg & a ” ) expenses replace_table_token_7_th sg & a expenses as a percentage of net sales , excluding precious metal content , increased 80 basis points as compared to 2014 primarily as a result of the increase in professional fees mostly related to the company 's global efficiency initiative , merger and acquisition related expenses and higher pension costs . restructuring and other costs year ended december 31 , ( in millions , except percentages ) 2015 2014 $ change % change restructuring and other costs $ 64.7 $ 11.1 $ 53.6 nm nm - not meaningful the company recorded net restructuring and other costs of $ 64.7 million in 2015 compared to $ 11.1 million in 2014. on may 22 , 2015 , the company announced that it reorganized portions of its laboratory business and associated manufacturing capabilities within the dental consumables , endodontics and dental laboratory businesses segment . during the year ended december 31 , 2015 , the company recorded $ 37.3 million of costs that consist primarily of employee severance benefits related to these actions . also during the year ended december 31 , 2015 , the company recorded restructuring costs of $ 16.3 million within the healthcare , orthodontic and implant businesses segment that consists primarily of employee severance benefits related to the global efficiency initiative . additional future costs expected to be incurred during 2016 associated with these enacted plans are estimated to range between $ 4 million to $ 6 million . the company estimates the future annual savings related to the 2015 restructuring plans will be in the range of $ 25 million and $ 32 million to be realized over the next three to five years .
| results of operations 2014 compared to 2013 net sales replace_table_token_16_th during 2014 , net sales , excluding precious metal content increased $ 21.0 million from 2013. the 0.8 % increase in net sales , excluding precious metal content , included constant currency sales growth of 1.8 % . the constant currency sales growth was comprised of internal sales growth of 1.2 % and acquisition sales growth of 0.6 % . the decline of precious metal content of sales from the year ago period was primarily due to the continuing reduction in the use of precious metal alloys in dentistry . constant currency sales growth the following table includes growth rates for net sales , excluding precious metal content . replace_table_token_17_th united states during 2014 , net sales , excluding precious metal content , increased by 1.0 % on a constant currency basis . internal sales growth was led by increased sales in the dental consumables product category , partially offset by lower sales in the dental laboratory product category , as well as lower sales of a consumable medical device product that was in-sourced by a customer and was discontinued late in the year as the product line was sold to this customer . 37 europe during 2014 , net sales , excluding precious metal content , increased by 0.2 % on a constant currency basis compared to 2013. internal sales growth in europe was muted as the result of a substantial and continuing decline in sales within the cis countries , due to economic and political instability in those markets . excluding sales in the cis region , constant currency sales growth would have been 1.8 % led by increased sales in the dental specialty , dental consumables and consumable medical device product categories partially offset by the dental laboratory product category . rest of world during 2014 , net sales , excluding precious metal content , increased 6.6 % on a constant currency basis .
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overview amerisafe is a holding company that markets and underwrites workers ' compensation insurance through its insurance subsidiaries . workers ' compensation insurance covers statutorily prescribed benefits that employers are obligated to provide to their employees who are injured in the course and scope of their employment . our business strategy is focused on providing this coverage to small to mid-sized employers engaged in hazardous industries , principally construction , trucking , logging and lumber , manufacturing , agriculture , maritime , and oil and gas . employers engaged in hazardous industries pay substantially higher than average rates for workers ' compensation insurance compared to employers in other industries , as measured per payroll dollar . the higher premium rates are due to the nature of the work performed and the inherent workplace danger of our target employers . hazardous industry employers also tend to have less frequent but more severe claims as compared to employers in other industries due to the nature of their businesses . we provide proactive safety reviews of employers ' workplaces . these safety reviews are a vital component of our underwriting process and also promote safer workplaces . we utilize intensive claims management practices that we believe permit us to reduce the overall cost of our claims . in addition , our audit services ensure that our policyholders pay the appropriate premiums required under the terms of their policies and enable us to monitor payroll patterns that cause underwriting , safety or fraud concerns . we believe that the higher premiums typically paid by our policyholders , together with our disciplined underwriting and safety , claims and audit services , provide us with the opportunity to earn attractive returns for our shareholders . we actively market our insurance in 27 states through independent agencies , as well as through our wholly owned insurance agency subsidiary . we are also licensed in an additional 20 states , the district of columbia and the u.s. virgin islands . two of the key financial measures that we use to evaluate our performance are return on average equity and growth in book value per share adjusted for dividends paid to shareholders . we calculate return on average equity by dividing annual net income by the average of annual shareholders ' equity . our return on average equity was 22.1 % in 2019 , 17.2 % in 2018 and 10.5 % in 2017. we calculate book value per share by dividing ending shareholders ' equity by the number of common shares outstanding . our book value per share was $ 22.29 at december 31 , 2019 , $ 21.26 at december 31 , 2018 and $ 22.10 at december 31 , 2017. we paid cash dividends of $ 4.50 per share in 2019 , $ 4.38 per share in 2018 and $ 4.30 per share in 2017. investment income is an important element of our net income . because the period of time between our receipt of premiums and the ultimate settlement of claims is often several years or longer , we are able to invest cash from premiums for significant periods of time . as a result , we are able to generate more investment income from our premiums as compared to insurance companies that operate in other lines of business that pay claims more quickly . at december 31 , 2019 , our investment portfolio , including cash and cash equivalents , was $ 1.2 billion and produced net investment income of $ 32.5 million in 2019 , $ 30.5 million in 2018 and $ 29.3 million in 2017. the use of reinsurance is an important component of our business strategy . we purchase reinsurance to reduce our net liability on individual risks and to protect against catastrophic losses . our reinsurance program for 2020 includes 16 reinsurers that provide coverage to us in excess of a certain specified loss amount , or retention level . our 2020 reinsurance program provides us with reinsurance coverage for each loss occurrence up to $ 70.0 million , subject to applicable limitations , deductibles , retentions and aggregate limits . however , for any loss occurrence involving only one claimant , our reinsurance coverage is limited to $ 10.0 million for any single claimant , subject to applicable deductibles , retentions and aggregate limits . losses in the layer between $ 2.0 million and $ 10.0 million are ceded to a multi-year reinsurance treaty with an aggregate annual deductible of approximately $ 9.5 million and an aggregate limit of coverage of approximately $ 28.6 million for 2020. as losses are incurred and recorded , we record amounts recoverable from reinsurers for the portion of the losses ceded to our reinsurers . our most significant balance sheet liability is our reserve for loss and loss adjustment expenses . we record reserves for estimated losses under insurance policies that we write and for loss adjustment expenses related to the investigation and settlement of claims . our reserves for loss and loss adjustment expenses represent the estimated cost of all reported and unreported loss and loss adjustment expenses incurred and unpaid at any given point in time based on known facts and circumstances . reserves are based on estimates of the most likely ultimate cost of individual claims . these estimates are inherently uncertain . in addition , there are no policy limits on the liability for workers ' compensation claims as there are for other forms of insurance . therefore , estimating reserves for workers ' compensation claims may be more uncertain than estimating reserves for other types of insurance claims with shorter or more definite periods between occurrence of the claim and final determination of the loss and with policy limits on liability for claim amounts . 37 our focus on providing workers ' compensation insurance to employers engaged in hazardous industries results in our receiving relatively fewer but more severe claims than many other workers ' compensation insurance companies . story_separator_special_tag gross premiums written includes the estimated annual premiums from each insurance policy we write in our voluntary and assigned risk businesses during a reporting period based on the policy effective date or the date the policy is bound , whichever is later . premiums are earned on a daily pro rata basis over the term of the policy . at the end of each reporting period , premiums written that are not earned are classified as unearned premiums and are earned in subsequent periods over the remaining term of the policy . our insurance policies typically have a term of one year . thus , for a one-year policy written on july 1 , 2019 for an employer with constant payroll during the term of the policy , we would earn half of the premiums in 2019 and the other half in 2020. on a monthly basis , we also recognize net premiums earned from mandatory pooling arrangements . we estimate the annual premiums to be paid by our policyholders when we issue the policies and record those amounts on our balance sheet as premiums receivable . we conduct premium audits on all of our voluntary business policyholders annually , upon the expiration of each policy , including when the policy is renewed . the purpose of these audits is to verify that policyholders have accurately reported their payroll expenses and employee job classifications , and therefore have paid us the premium required under the terms of the policies . the difference between the estimated premium and the ultimate premium is referred to as “ earned but unbilled ” premium , or ebub premium . ebub premium is subject to significant variability and can either increase or decrease earned premium based upon several factors , including changes in premium growth , industry mix and economic conditions . due to the timing of audits and other adjustments , the ultimate premium earned is generally not determined for several months after the expiration of the policy . we review the estimate of ebub premiums on a quarterly basis using historical data and applying various assumptions based on the current market and economic conditions , and we record an adjustment to premium , related losses , and expenses as warranted . net investment income and net realized gains and losses on investments . we invest our statutory surplus funds and the funds supporting our insurance liabilities in fixed maturity securities , equity securities and alternative investments . in addition , a portion of these funds are held in cash and cash equivalents to pay current claims . our net investment income includes interest and dividends earned on our invested assets and amortization of premiums and discounts on our fixed maturity securities . we assess the performance of our investment portfolio using a standard tax equivalent yield metric . investment income that is tax-exempt is increased by our marginal federal tax rate to express yield on tax-exempt securities on the same basis as taxable securities . net realized gains and losses on our investments are reported separately from our net investment income . net realized gains occur when our investment securities are sold for more than their cost or amortized cost , as applicable . net realized losses occur when our investment securities are sold for less than their cost or amortized cost , as applicable , or are written down as a result of other-than-temporary impairment . we classify the majority of our fixed maturity securities as held-to-maturity . the remainder of our fixed maturity securities are classified as available-for-sale . net unrealized gains or losses on our securities classified as available-for-sale are reported separately within accumulated other comprehensive income on our balance sheet . changes in net unrealized gains or losses on our equity securities are recognized in net income . fee and other income . we recognize commission income earned on policies issued by other carriers that are sold by our wholly owned insurance agency subsidiary as the related services are performed . we also recognize a small portion of interest income from mandatory pooling arrangements in which we participate . our expenses consist primarily of the following : loss and loss adjustment expenses incurred . loss and loss adjustment expenses incurred represents our largest expense item and , for any given reporting period , includes estimates of future claim payments , changes in those estimates from prior reporting periods and costs associated with investigating , defending , and administering claims . these expenses fluctuate based on the amount and types of risks we insure . we record loss and loss adjustment expenses related to estimates of future claim payments based on case-by-case valuations and statistical analyses . we seek to establish all reserves at the most likely ultimate exposure based on our historical claims experience . it is typical for our more serious claims to take several years to settle and we revise our estimates as we receive additional information about the condition of the injured employees . our ability to estimate loss and loss adjustment expenses accurately at the time of pricing our insurance policies is a critical factor in our profitability . additional information regarding our reserves for loss and loss adjustment expenses and the actuarial methods and other factors used in establishing these reserves can be found under the caption “ business—loss reserves ” in item 1 of this report . 39 underwriting and certain other operating costs . underwriting and certain other operating costs are those expenses that we incur to underwrite and maintain the insurance policies we issue . these expenses include state and local premium taxes and fees and other operating costs , offset by commissions we receive from reinsurers under our reinsurance treaty programs . we pay state and local taxes , licenses and fees , assessments , and contributions to state workers ' compensation security funds based on premiums . in addition , other operating costs include general and administrative expenses , excluding commissions and salaries and benefits , incurred at both the insurance company and corporate level . commissions .
| results of operations the table below summarizes certain operating results and key measures we use in monitoring and evaluating our operations . replace_table_token_14_th 42 replace_table_token_15_th ( 1 ) includes policy acquisition expenses , and other general and administrative expenses , excluding commissions and salaries and benefits , related to insurance operations and corporate operating expenses . ( 2 ) on december 22 , 2017 , the tax act was signed into law making significant changes to the internal revenue code . changes include , but are not limited to , a corporate tax rate decrease from 35 % to 21 % effective for tax years beginning after december 31 , 2017. as a result , we recorded $ 12.6 million as additional income tax expense related to our net deferred tax assets revalued at the new lower rate of 21 % in the fourth quarter of 2017 , the period in which the legislation was enacted . ( 3 ) the current accident year loss ratio is calculated by dividing loss and loss adjustment expenses incurred for the current accident year by the current year 's net premiums earned . ( 4 ) the prior accident year loss ratio is calculated by dividing the change in loss and loss adjustment expenses incurred for prior accident years by the current year 's net premiums earned . ( 5 ) the net underwriting expense ratio is calculated by dividing underwriting and certain other operating costs , commissions and salaries , and benefits by the current year 's net premiums earned . ( 6 ) the net dividend ratio is calculated by dividing policyholder dividends by the current year 's net premiums earned . ( 7 ) the net combined ratio is the sum of the net loss ratio , the net underwriting expense ratio and the net dividend ratio . ( 8 ) we adopted asu 2016-02 , leases ( topic 842 ) , in the first quarter of 2019. we elected the new transition method under the transition guidance within the new standard .
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the total consideration of $ 26.4 million was comprised of $ 17.7 million in cash at closing , a $ 3.0 million promissory note ( included in “ accounts payable and accrued expenses ” in the consolidated balance sheets ) and estimated contingent consideration of $ story_separator_special_tag recent regulatory developments consumer financial protection bureau on october 6 , 2017 , the cfpb issued its final rule on payday and certain high-cost installment loans , which would cover some of the loans we offer . the rule requires that lenders who make short-term loans and longer-term loans with balloon payments reasonably determine consumers ' ability to repay the loans according to their terms before issuing the loans . the rule also introduces new limitations on repayment processes for those lenders as well as lenders of other longer-term loans with an annual percentage rate greater than 36 percent that include an ach authorization or similar payment provision . if a consumer has two consecutive failed payment attempts , the lender must obtain the consumer 's new and specific authorization to make further withdrawals from the consumer 's bank account . for loans covered by the rule , lenders must provide certain notices to consumers before attempting a first payment withdrawal or an unusual withdrawal and after two consecutive failed payment attempts . the rule will apply to loan contracts entered into beginning in mid-2019 . however , under the congressional review act , congress has 60 legislative days after publication of the rule in the federal register ( which occurred on november 17 , 2017 ) to overturn it by a majority vote in both houses of congress . on january 16 , 2018 , the cfpb issued a statement that it intends to engage in a rulemaking process to reconsider the final rule . we do not currently know which portions of the final rule will be subject to reconsideration or the nature and extent of the final rule that the cfpb will adopt . it is also likely that there will be legal challenges to the final rule if it does not change before it goes into effect . tax cuts and jobs act on december 22 , 2017 , the tax cuts and jobs acts was enacted into law . the new tax legislation contains several key tax provisions including the reduction of the corporate income tax rate to 21 % effective january 1 , 2018 as well as a variety of other changes including the acceleration of expensing of certain business assets and reductions in the amount of executive pay that could qualify as a tax deduction . we have recorded an estimated net tax benefit of $ 7.5 million from the remeasurement of deferred tax assets and liabilities at lower enacted corporate tax rates . asc 740 , income taxes ( “ asc 740 ” ) requires us to recognize the effect of the tax law changes in the period of enactment . adjustments to deferred tax expense could arise when deferred taxes are trued-up to the amounts reported on the tax returns through the return-to-provision process . in addition , the legislation is unclear in many respects and could be subject to potential amendments and technical corrections , as well as interpretations and implementing regulations by the treasury department and internal revenue service ( “ irs ” ) , any of which could affect the estimates included in the provision . in addition , it is unclear how these u.s. federal income tax changes will affect state and local taxation , which often uses federal taxable income as a starting point for computing state and local tax liabilities . if any adjustment is required , it will be reflected as an additional expense or benefit in the 2018 financial statements , as allowed by sec staff accounting bulletin no . 118. basis of presentation and critical accounting policies enova international , inc. was formed on september 7 , 2011. prior to november 13 , 2014 , we were a wholly-owned subsidiary of cash america . since 2011 , we have owned all of the assets and incurred all of the liabilities related to cash america 's e-commerce business , with some limited exceptions , in which case such assets were transferred to us and such liabilities were assumed by us pursuant to a separation and distribution agreement upon completion of a tax-free spin-off ( the “ spin-off ” ) , which occurred on november 13 , 2014. following the spin-off , we became an independent , publicly traded company , and our shares of common stock are listed on the new york stock exchange under the symbol “ enva. ” on september 1 , 2016 , cash america merged with first cash financial services , inc. and is now known as firstcash , inc. ( “ first cash ” ) . as of december 31 , 2017 , enova offered , arranged or purchased consumer and small business loans and receivables purchase agreements ( collectively referred to as “ loans and finance receivables ” throughout this management 's discussion and analysis of financial condition and results of operations ) through a number of its subsidiaries to customers in all 50 states and washington d.c. in the united states , united kingdom and brazil . out-of-period adjustment in a review of our revenue recognition policy during 2015 , we determined that certain fees on our line of credit product should be deferred over the period the draw is outstanding rather than recognized as revenue when assessed . we recorded a $ 2.5 million reduction to revenue in the fourth quarter of 2015 as an out-of-period adjustment . this adjustment included a $ 2.8 million reduction of revenue associated with periods prior to 2015. we believe this adjustment was not material to any of the prior years ' consolidated financial statements . 45 revenue recognition we recognize revenue based on the financing products and services we offer and on loans we acquire . story_separator_special_tag for line of credit account , installment loan and rpa portfolios , we generally use either a migration analysis or roll-rate based methodology to estimate losses inherent in the portfolio . the allowance or liability calculation under the migration analysis and roll-rate methodology is based on historical charge-off experience and the loss emergence period , which represents the average 46 amount of time between the first occurrence of a loss event and the charge-off of a loan or rpa . the factors we consider to assess the adequacy of the allowance or liability include past due performance , historical behavior of monthly vintages , underwriting changes , delinquency status , payment history and recency factors . we fully reserve for loans and finance receivables once the receivable or a portion of the receivable has been classified as delinquent for 60 consecutive days and generally charge-off loans and finance receivables between 60 – 65 days delinquent . if a loan or finance receivable is deemed uncollectible before it is fully reserved , it is charged off at that point . loans and finance receivables classified as delinquent generally have an age of one to 64 days from the date any portion of the loan became delinquent , as defined above . recoveries on loans and finance receivables previously charged to the allowance are credited to the allowance when collected . goodwill goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination . in accordance with accounting standards codification ( “ asc ” ) 350 , goodwill , we test goodwill and intangible assets with an indefinite life for potential impairment annually as of june 30 and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value below its carrying amount . we first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test . in assessing the qualitative factors , we consider relevant events and circumstances including but not limited to macroeconomic conditions , industry and market environment , our overall financial performance , cash flow from operating activities , market capitalization and stock price . if we determine that the two-step quantitative impairment test is required , we use the income approach to complete our annual goodwill assessment . the income approach uses future cash flows and estimated terminal values that are discounted using a market participant perspective to determine the fair value , which is then compared to the carrying value to determine if there is impairment . the income approach includes assumptions about revenue growth rates , operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar but not identical from an operational and economic standpoint . we completed our annual assessment of goodwill as of june 30 , 2017 based on qualitative factors and determined that the fair value of our goodwill exceeded carrying value , and , as a result , no impairment existed at that date . a 10 % decrease in the estimated fair value for the june 2017 assessment would not have resulted in a goodwill impairment . although no goodwill impairment was noted , there can be no assurances that future goodwill impairments will not occur . long-lived assets other than goodwill an evaluation of the recoverability of property and equipment and intangible assets subject to amortization is performed whenever the facts and circumstances indicate that the carrying value may be impaired . an impairment loss is recognized if the future undiscounted cash flows associated with the asset and the estimated fair value of the asset are less than the asset 's corresponding carrying value . the amount of the impairment loss , if any , is the excess of the asset 's carrying value over its estimated fair value . we amortize finite-lived intangible assets subject to amortization on the basis of their expected periods of benefit , generally three to 20 years . the costs of start-up activities and organization costs are charged to expense as incurred . marketing expenses marketing expenses consist of digital costs , lead purchase costs and offline marketing costs such as television and direct mail advertising . marketing costs directly related to loan and rpa originations are deferred and amortized against revenue . marketing costs not directly resulting in loan and rpa originations are expensed as incurred . the production costs associated with offline marketing are expensed as incurred . in 2015 and 2016 , we also had an agreement with an independent third party pursuant to which we paid a portion of the net revenue received from the customers referred to us by such third party . these referral fees were included in “ marketing ” in the consolidated statements of income . operations and technology expenses operations and technology expenses include all expenses related to the direct operations and technology infrastructure related to loan underwriting and processing . this includes call center and operations personnel costs , software maintenance expense , underwriting data from third-party vendors , and telephony costs . general and administrative expenses general and administrative expenses primarily include corporate personnel costs , as well as legal , occupancy , and other related costs . 47 income taxes we account for income taxes under asc 740. as part of the process of preparing our consolidated financial statements , we are required to estimate income taxes in each of the jurisdictions in which we operate . this process involves estimating the actual current tax expense together with assessing temporary differences in recognition of income for tax and accounting purposes . these differences result in deferred tax assets and liabilities and are included within the consolidated balance sheets . we must then assess the likelihood that the deferred tax assets will be recovered from future taxable income and , to the extent we believe that recovery is not likely , we must establish a valuation allowance .
| results of operations highlights our financial results for the year ended december 31 , 2017 ( “ 2017 ” ) are summarized below . consolidated total revenue increased $ 98.1 million , or 13.2 % , to $ 843.7 million in 2017 compared to $ 745.6 million in the year ended december 31 , 2016 ( “ 2016 ” ) . an $ 86.5 million , or 13.9 % , increase in domestic revenue to $ 709.5 million in 2017 from $ 623.0 million for 2016 and an $ 11.6 million , or 9.5 % , increase in international revenue to $ 134.2 million in 2017 from $ 122.6 million in 2016 both contributed to the total increase . consolidated gross profit increased $ 29.5 million , or 7.1 % , to $ 447.1 million in 2017 compared to $ 417.6 million in 2016. consolidated income from operations increased $ 12.9 million , or 10.6 % , to $ 134.4 million in 2017 , compared to $ 121.5 million in 2016. consolidated net income was $ 29.2 million in 2017 , compared to $ 34.6 million in 2016. consolidated diluted earnings per share were $ 0.86 in 2017 compared to $ 1.03 in 2016 . 48 overview the following tables reflect our results of operations for the periods indicated , both in dollars and as a percentage of total revenue ( dollars in thousands , except per share data ) : replace_table_token_5_th non-gaap disclosure in addition to the financial information prepared in conformity with generally accepted accounting principles ( “ gaap ” ) , we provide historical non-gaap financial information . we believe that presentation of non-gaap financial information is meaningful and useful in understanding the activities and business metrics of our operations . we believe that these non-gaap financial measures reflect an additional way of viewing aspects of our business that , when viewed with its gaap results , provide a more complete understanding of factors and trends affecting our business .
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forward-looking statements may be identified by reference to a future period or periods or by use of forward-looking terminology such as `` will , '' `` should , '' `` could , '' anticipates , '' `` believes , '' `` expects , '' `` intends , '' `` may , '' `` plans , '' `` pursue , '' `` views '' and similar terms or expressions . various statements contained in item 7 - `` management 's discussion and analysis of financial condition and results of operations '' and item 7a - `` quantitative and qualitative disclosures about market risk '' of this form 10-k including , but not limited to , statements related to management 's views on the banking environment and the economy , competition and market expansion opportunities , the interest rate environment , credit risk and the level of future non-performing assets and charge-offs , potential asset and deposit growth , future non-interest expenditures and non-interest income growth , and borrowing capacity are forward-looking statements . the company cautions readers that such forward-looking statements reflect numerous assumptions and involve a number of risks and uncertainties that could cause the company 's actual results to differ materially from those expressed in , or implied by , the forward-looking statement . any forward-looking statements in this form 10-k are based on information available to the company as of the date of this form 10-k , and the company undertakes no obligation to publicly update or otherwise revise any forward-looking statement , whether as a result of new information , future events or otherwise , except as required by applicable law . the following important factors , among others , could cause the company 's results for subsequent periods to differ materially from those expressed in any forward-looking statement made herein : ( i ) changes in interest rates could negatively impact net interest income ; ( ii ) changes in the business cycle and downturns in the local , regional or national economies , including deterioration in the local real estate market , could negatively impact credit and or asset quality and result in credit losses and increases in the company 's allowance for loan losses ; ( iii ) changes in consumer spending could negatively impact the company 's credit quality and financial results ; ( iv ) increasing competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services could adversely affect the company 's competitive position within its market area and reduce demand for the company 's products and services ; ( v ) deterioration of securities markets could adversely affect the value or credit quality of the company 's assets and the availability of funding sources necessary to meet the company 's liquidity needs ; ( vi ) technology-related risk , including technological changes and technology service interruptions or failure could adversely impact the company 's operations and increase technology-related expenditures ; ( vii ) cyber-security risk including security breaches and identity theft could impact the company 's reputation , increase regulatory oversight and impact the financial results of the company ; ( viii ) increases in employee compensation and benefit expenses could adversely affect the company 's financial results ; ( ix ) changes in laws and regulations that apply to the company 's business and operations , including without limitation , the dodd-frank wall street reform and consumer protection act ( the `` dodd-frank act '' ) , and the tax cuts and jobs act enacted on december 22 , 2017 and the additional regulations or repeals that may be forthcoming as a result thereof , could cause the company to incur additional costs and adversely affect the company 's business environment , operations and financial results ; ( x ) changes in accounting and or auditing standards , policies and practices , as may be adopted or established by the regulatory agencies , fasb , or the public company accounting oversight board could negatively impact the company 's financial results ; ( xi ) our ability to enter new markets successfully and capitalize on growth opportunities , including the receipt of required regulatory approvals ; ( xii ) future regulatory compliance costs , including any increase caused by new regulations imposed by the government 's current administration ; and ( xiii ) the risks and uncertainties described in the documents that the company files or furnishes to the sec , including those discussed above in item 1a , `` risk factors '' which could have a material adverse effect on the company 's business , financial condition and results of operations . therefore , the company cautions readers not to place undue reliance on any such forward-looking information and statements . 40 overview executive summary net income for the year ended december 31 , 2017 , amounted to $ 19.4 million , an increase of $ 642 thousand compared to the year ended december 31 , 2016 . diluted earnings per share were $ 1.66 for the year ended december 31 , 2017 , as compared to $ 1.70 for the year ended december 31 , 2016 . diluted earnings per share for the year ended december 31 , 2017 includes the full year dilutive impact of the company 's equity offering issued on june 23 , 2016. like most banks , the company 's 2017 results were impacted by a tax expense adjustment to the bank 's net deferred tax assets because of the recently enacted tax cuts and jobs act ( `` the new federal tax bill '' ) . this noncash expense for the company was approximately $ 4.8 million . the new federal tax bill will reduce the bank 's federal tax rate in future periods , beginning in 2018 , to 21 % from its 2017 level of approximately 35 % . story_separator_special_tag sources and uses of funds the company 's primary sources of funds are customer and brokered deposits , federal home loan bank ( `` fhlb '' ) borrowings , current earnings and proceeds from the sales , maturities and pay-downs on loans and investment securities . the company may also , from time to time , utilize overnight borrowings from correspondent banks . additionally , funding for the company may be generated through equity transactions , including the dividend reinvestment and direct stock purchase plan or exercise of stock options , and occasionally the issuance of debt securities or the sale of new stock . the company 's sources of funds are intended to be used to originate loans , purchase investment securities , conduct operations , expand the branch network , and pay dividends to stockholders . the investment portfolio is primarily used to provide liquidity , manage the company 's asset-liability position and to invest excess funds , providing additional sources of revenue . total investments , one of the key components of interest-earning assets , amounted to $ 405.2 million at december 31 , 2017 , an increase of $ 30.4 million , or 8 % , since december 31 , 2016 and comprised 14 % of total assets at december 31 , 2017 and 15 % of total assets at december 31 , 2016 . enterprise 's main asset strategy is to grow loans , the largest component of interest earning assets , with a focus on high quality commercial lending relationships . total loans amounted to $ 2.27 billion at december 31 , 2017 , compared to $ 2.02 billion at december 31 , 2016 , an increase of $ 247.2 million , or 12 % , comprising 81 % of total assets at december 31 , 2017 and 80 % at december 31 , 2016 . total commercial loans amounted to $ 1.98 billion , or 87 % of gross loans , at december 31 , 2017 , which was relatively consistent with the composition at december 31 , 2016 . management 's preferred strategy for funding asset growth is to grow relationship-based deposit balances , preferably transactional deposits ( comprised of demand deposit accounts , checking accounts and traditional savings accounts ) . asset growth in excess of transactional deposits is typically funded through non-transactional deposits ( comprised of money market accounts , commercial tiered rate or `` investment savings '' accounts and term certificates of deposit ) and wholesale funding ( brokered deposits and borrowed funds ) . 42 customer deposits ( total deposits excluding brokered deposits ) were $ 2.29 billion at december 31 , 2017 , and equated to 81 % of total assets , compared to $ 2.21 billion at december 31 , 2016 , or 87 % of total assets , an increase of $ 84.3 million , or 4 % . during the year , the increase was primarily due to increases in checking account balances ( mainly non-interest bearing accounts ) , partially offset by decreases in money market account balances . wholesale funding amounted to $ 236.5 million at december 31 , 2017 , and equated to 8 % of total assets , compared to $ 70.0 million at december 31 , 2016 , or 3 % of total assets , an increase of $ 166.5 million . wholesale funding included fhlb advances of $ 89.0 million and $ 10.7 million at december 31 , 2017 and december 31 , 2016 , respectively , and brokered deposits of $ 147.5 million at december 31 , 2017 compared to $ 59.4 million at december 31 , 2016 . the company 's level of wholesale funding has increased in 2017 as loan growth exceeded customer deposit growth . opportunities and risks the company 's business model is to provide a full range of diversified financial products and services through a highly-trained staff of knowledgeable banking professionals , with in-depth understanding of our markets , and a commitment to open and honest communication with clients . management believes the company has differentiated itself from the competition by building a solid reputation within the local market as a dependable commercial-focused community bank , delivering consistent and exceptional customer service , offering competitive products and taking an active role in support of the communities we serve . the company 's banking professionals are committed to upholding the company 's core values , including significant and active involvement in many charitable and civic organizations , and community development programs throughout our service area . this long-held commitment to community not only contributes to the welfare of the communities we serve , it also helps to fuel the local economy and has led to a strong referral network with local businesses , non-profit organizations and community leaders . management believes the company 's community service culture and reputation makes the enterprise team stand out among the competition and positions the company to be a leading banking provider of loans , deposits and cash management services , investment advisory and wealth management , trust and insurance services in its growing market area . the company actively seeks to increase market share and strengthen its competitive position through continuous reviews of deposit product offerings , cash management and ancillary services and state-of-the-art secure delivery channels , targeted to businesses , non-profits , professional practice groups , municipalities and consumers ' needs . in addition , enterprise carefully plans market expansion through new branch development , identifying markets strategically located to complement existing branch locations while expanding the company 's geographic market footprint . in early july 2016 , a second branch location was opened in nashua , nh , and in july 2017 , the company opened its 24 th branch office , in windham , nh , its seventh location in southern new hampshire .
| results of operations comparison of years ended december 31 , 2016 and 2015 unless otherwise indicated , the reported results are for the year ended december 31 , 2016 with the “ comparable year ” or “ prior year ” being the year ended december 31 , 2015. average yields are presented on a tax equivalent basis . net income the company earned net income in 2016 of $ 18.8 million compared to $ 16.1 million for 2015 , an increase of 16 % . diluted earnings per share for 2016 was $ 1.70 compared to $ 1.55 for the prior year , which represented an increase of 10 % . in 2016 , earnings per share includes the dilutive effect from june 23 rd to december 31 st of the outstanding shares issued in the company 's 2016 equity offering . net interest income the company 's net interest income for the year ended december 31 , 2016 was $ 86.8 million compared to $ 78.3 million for the year ended december 31 , 2015 , an increase of $ 8.5 million , or 11 % . the increase in net interest income over the comparable year was due primarily to revenue generated from loan growth . net interest margin the company 's margin was 3.94 % for the year ended december 31 , 2016 compared to 3.97 % for the prior year . margin was 3.86 % for the quarter ended december 31 , 2016 , which is consistent with the quarterly margin at september 30 , 2016. interest and dividend income total interest and dividend income for the year ended december 31 , 2016 was $ 92.3 million , an increase of $ 8.8 million , or 11 % , from the prior year . the increase resulted primarily from growth of $ 253.0 million , or 12 % , in the average balance of interest earning-assets for the year ended december 31 , 2016 , partially offset by a 5 basis point decline in the average tax equivalent yield on interest-earning assets .
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arrangements may contain story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those under the heading “ risk factors ” in part i , item 1a of this annual report on form 10-k. certain amounts in this section may not foot due to rounding . executive overview recognizing the convergence of software and payments , i3 verticals was founded in 2012 with the purpose of delivering seamlessly integrated payment and software solutions to smbs and organizations in strategic vertical markets . since commencing operations , we have built a broad suite of payment and software solutions that address the specific needs of smbs and other organizations in our strategic vertical markets , and we believe our suite of solutions differentiates us from our competition . our primary strategic vertical markets include education , non-profit , public sector and healthcare . covid-19 on march 11 , 2020 , the world health organization declared the outbreak of covid-19 as a pandemic , which continues to spread throughout the united states and other parts of the world . the spread of covid-19 caused several states and cities to declare states of emergency or disaster proclamations . state and local governments , together with public health officials , recommended and mandated precautions to mitigate the spread of the virus , including the closure of local government facilities and parks , schools , restaurants , many businesses and other locations of public assembly . although many of the restrictions have eased across the country , the pandemic has yet to show substantial signs of decline in the u.s. some areas are re-imposing closures and other restrictions due to increased rates of covid-19 cases . as a result , the covid-19 pandemic is significantly affecting overall economic conditions in the united states . the economic impact of these conditions is materially impacting our business and is expected to continue to adversely impact our strategic verticals and our business in general . for example , beginning in the second half of march 2020 and continuing through the remainder of fiscal 2020 , we and our clients have experienced a decline and subsequent partial recovery in payment volume and the number of transactions processed , and therefore , a decline and subsequent partial recovery in revenue in our strategic verticals . our payment volume was $ 0.8 billion , $ 1.0 billion , $ 1.2 billion , $ 1.2 billion , $ 1.5 billion and $ 1.3 billion for the months of april , may , june , july , 48 august and september 2020 , respectively . further , for the second half of the year ended september 30 , 2020 , a significant portion of our revenue and payment volume within our merchant services segment and our proprietary software and payments segment was derived from our education and public sector strategic verticals . due to the temporary closure of schools and many local government facilities throughout the nation , we expect the combined revenue and payment volume from multiple of these and other strategic verticals will be adversely impacted for the duration of the closure . there are no reliable estimates of how long the pandemic will last , how many people are likely to be affected by it or the duration or types of restrictions that will be imposed . for that reason , we are unable to predict the long-term impact of the pandemic on our business at this time . on april 3 , 2020 , we announced certain proactive actions in response to the significant uncertainty around the severity and duration of the covid-19 pandemic , which included temporarily furloughing a portion of our employees and a workforce reduction program that included the elimination of certain positions as well as a general reduction in headcount . the total number of employees impacted by the furlough and workforce reduction represented approximately 12 % of our workforce . a portion of those furloughed have since returned to work . the impact of the covid-19 pandemic is fluid and continues to evolve , and therefore , we can not currently predict with certainty the extent to which our business , results of operations , financial condition or liquidity will ultimately be impacted . our top priority is to protect our employees and their families , as well as our vendors and clients . we continue to take precautionary measures as directed by health authorities and local and national governments . given the dynamic nature of these circumstances , the duration of business disruption and reduced revenues and payment volume , the related financial effect can not be reasonably estimated at this time but is expected to materially adversely impact our business for the 2021 fiscal year . there could be material changes to estimates as a result of ongoing covid-19 developments in future periods . actual results could differ from those estimates . see “ item 1a . risk factors—the covid-19 pandemic is significantly affecting our operations , business and financial condition , and our liquidity could also be negatively impacted , particularly if the u.s. economy remains unstable for a significant amount of time ” . at september 30 , 2020 , we had $ 15.6 million of cash and cash equivalents and $ 275.0 million of available capacity under our senior secured credit facility ( as defined in the “ senior secured credit facility ” subsection within the “ liquidity and capital resources ” section below ) , subject to our financial covenants . story_separator_special_tag amortization expense for internally developed software is recognized over the estimated useful life of the asset . the useful lives of contract-based intangible assets are equal to the terms of the agreement . 50 interest expense , net . our interest expense consists of interest on our outstanding indebtedness under our senior secured credit facility and exchangeable notes , and amortization of debt discount and issuance costs . how we assess our business merchant services our merchant services segment provides comprehensive payment solutions to businesses and organizations . our merchant services segment includes third-party integrated payment solutions as well as merchant of record payment services across our strategic vertical markets . proprietary software and payments our proprietary software and payments segment delivers solutions , including embedded payments , to our clients through company-owned software . payments are delivered through both the payment facilitator model and the merchant of record processing model . we have proprietary software and payments clients across all of our strategic vertical markets . other our other category includes corporate overhead expenses , when presenting reportable segment information . effective july 1 , 2020 , we realigned one component from the proprietary software and payments segment to the merchant services segment . prior periods have been retroactively adjusted to reflect the company 's current segment presentation . for additional information on our segments , see note 16 to our consolidated financial statements . key operating metrics we evaluate our performance through key operating metrics , including : the dollar volume of payments our clients process through us ( “ payment volume ” ) ; the portion of our payment volume that is produced by integrated transactions ; and period-to-period payment volume attrition . our payment volume for the years ended september 30 , 2020 and 2019 was $ 14.4 billion and $ 13.1 billion , respectively , representing a period-to-period growth rate of 9 % . our payment volume for the second half of the year ended september 30 , 2020 was adversely impacted by deteriorating economic conditions as a result of the impacts of the covid-19 pandemic . our payment volume was $ 0.8 billion , $ 1.0 billion , $ 1.2 billion , $ 1.2 billion , $ 1.5 billion and $ 1.3 billion for the months of april , may , june , july , august and september 2020 , respectively . we focus on volume , because it is a reflection of the scale and economic activity of our client base and because a significant part of our revenue is derived as a percentage of our clients ' dollar volume receipts . payment volume reflects the addition of new clients and same store payment volume growth of existing clients , partially offset by client attrition during the period . integrated payments represents payment transactions that are generated in situations where payment technology is embedded within our own proprietary software , a client 's software or critical business process . we evaluate the portion of our payment volume that is produced by integrated transactions because we believe the convergence of software and payments is a significant trend impacting our industry . we believe integrated payments create stronger client relationships with higher payment volume retention and growth . integrated payments grew to 55 % of our payment volume for the year ended september 30 , 2020 from 50 % for the year ended september 30 , 2019. we measure period-to-period payment volume attrition as the change in card-based payment volume for all clients that were processing with us for the same period in the prior year . we exclude from our calculations payment volume from new clients added during the period . we experience attrition in payment volume as a result of several factors , including business closures , transfers of clients ' accounts to our competitors and account closures that we initiate due to heightened credit risks . during the year ended september 30 , 2020 , our average net volume attrition per month remained below 2 % . 51 story_separator_special_tag without the effect of the adoption of asc 606 , interchange and network fees within merchant services increased $ 0.9 million , or 0.4 % , to $ 237.1 million for the year ended september 30 , 2020 from $ 236.2 million for the year ended september 30 , 2019. without the effect of the adoption of asc 606 , interchange and network fees within proprietary software and payments increased $ 0.3 million or 5.2 % , to $ 7.0 million for the year ended september 30 , 2020 from $ 6.7 million for the year ended september 30 , 2019. other costs of services other costs of services increased $ 3.0 million , or 6.8 % , to $ 47.2 million for the year ended september 30 , 2020 from $ 44.2 million for the year ended september 30 , 2019. acquisitions completed during the 2020 and 2019 fiscal years contributed an incremental $ 6.3 million , net of inter-segment eliminations , to our other costs of services for the year ended september 30 , 2020. other costs of services within merchant services increased $ 2.5 million , or 5.9 % , to $ 43.9 million for the year ended september 30 , 2020 from $ 41.5 million for the year ended september 30 , 2019. other costs of services within proprietary software and payments increased $ 2.3 million , or 83.9 % , to $ 5.1 million for the year ended september 30 , 2020 from $ 2.8 million for the year ended september 30 , 2019. this increase was primarily driven by acquisitions completed during the 2020 and 2019 fiscal years , which contributed an incremental $ 2.0 million , net of inter-segment eliminations , to our other costs of services within proprietary software and payments for the year ended september 30 , 2020. selling , general and administrative expenses selling , general and administrative expenses increased $ 15.5 million , or 24.6 % , to $ 78.3 million for the year ended september 30 , 2020 from $ 62.9 million for
| results of operations year ended september 30 , 2020 compared to year ended september 30 , 2019 the following table presents our historical results of operations for the periods indicated : replace_table_token_4_th n/m = not meaningful 1. effective october 1 , 2019 , our revenues are presented net of interchange and network fees in accordance with accounting standards codification topic 606 , revenue from contracts with customers . see note 2 to our consolidated financial statements for a description of the recently adopted accounting pronouncement . revenue revenue decreased $ 226.2 million , or 60.1 % , to $ 150.1 million for the year ended september 30 , 2020 from $ 376.3 million for the year ended september 30 , 2019. this decrease was driven by the adoption of asc 606 effective october 1 , 2019 , which resulted in our revenues being presented net of interchange and network fees prospectively . this change in presentation affected our reported revenues and operating expenses for the year ended september 30 , 2020 by the same amount and had no effect on our income from operations . our revenue in the month of march 2020 and in the second half of the year ended september 30 , 2020 was also negatively impacted an overall reduction in consumer spending as a result of the covid-19 pandemic . 52 revenue without the effect of the adoption of asc 606 increased $ 17.9 million , or 4.8 % , to $ 394.2 million for the year ended september 30 , 2020 from $ 376.3 million for the year ended september 30 , 2019. this increase was principally driven by acquisitions completed during the 2020 and 2019 fiscal years .
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the original complaint alleged that a breach of contract with respect to mr. schmidt 's previously converted convertible note , and requested relief of specific performance requiring diffusion llc to issue him additional units , representing the additional number of units he would have received had he converted at the renegotiated conversion price . on september 27 , 2016 , the company , diffusion llc , mr. schmidt and the other parties thereto entered into a settlement agreement ( the “ settlement agreement ” ) pursuant to which , among other things , ( i ) mr. schmidt and diffusion each agreed to submit a consent order to the court dismissing all claims set forth in the amended complaint with prejudice and without an admission of liability by any party , ( ii ) mr. schmidt and diffusion each released , on behalf of such party and its heirs , assigns , representatives , affiliates and agents , all claims and causes of action of any nature against the other party existing as of the date of the settlement agreement and ( iii ) as consideration therefor , the company agreed to issue and sell , to mr. schmidt and the other parties to the settlement agreement , the 2016 convertible notes in an aggregate principal amount of $ 1.9 million and are convertible into shares of common stock at an initial conversion price of $ 3.50 per share . the company recognized a litigation settlement charge of $ 2.5 million which represents the difference between the fair value of the 2016 convertible notes issued and the cash received from mr. schmidt and other parties . the settlement charge was recorded as a component of general and administrative expenses within the company 's consolidated statement of operations for the year ended december 31 , 2016 . 11. stockholder 's equity common stock in connection with the merger ( see note 4 ) the company ascribed non-cash consideration of $ 0.4 million to 478,200 warrants outstanding prior to the merger . during the year ended december 31 , 2016 , the company issued 2,226,698 shares of its common stock of which 1,861,503 are shares held by the pre-merger stockholders of the company , 45,643 shares were issued for advisory services provided in connection with the merger , 102,430 shares were issued for general financial advisory services provided to the company and 217,122 shares were issued pursuant to conversions of convertible debt as discussed in note 9. the company did not purchase or retire any shares of its common stock . warrants during the year ended december 31 , 2016 , the company did not grant any warrants to purchase shares of its common stock and no warrants were exercised . during the year ended december 31 , 2016 , warrants to purchase an aggregate of 17,479 shares of common stock expired unexercised . warrants to purchase an aggregate of 460,721 shares of the company 's common stock were outstanding and exercisable as of december 31 , 2016 , with per share exercise prices ranging from $ 20.00 to $ 750.00 and a weighted average exercise price of $ 54.27 per share . 12. stock-based compensation upon consummation of the merger , all outstanding options to purchase diffusion units were converted into stock options to purchase the company 's common stock on terms substantially identical to those in effect prior to the reverse merger , except for adjustments to the underlying number of shares and the exercise price based on the exchange ratio . at the time of the merger , there were 301,156 stock options that were exercisable for shares of the company 's common stock at a weighted average exercise price of $ 40.13 per share . 83 diffusion pharmaceuticals inc. notes to consolidated financial statements continued 2015 equity plan the 2015 equity plan , as amended in july 2016 , currently allows for the issuance of up to a maximum of 500,000 shares of common stock in connection with the grant of stock-based awards , including stock options , restricted stock , restricted stock units , stock appreciation rights and other types of awards as deemed appropriate , not including shares subject to awards assumed in connection with certain transactions , including the merger . as of december 31 , 2016 , there were 40,507 shares of common stock available for future issuance under the 2015 equity plan . in addition , beginning on january 1 , 2017 , on each january 1 st through the term of the plan , up to 4.0 % of the total shares of the company 's common stock outstanding as of december 31 st will be added to the plan reserve , unless a lesser amount is stipulated by the compensation story_separator_special_tag introduction this management 's discussion and analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations . statements that are not historical are forward-looking and involve risks and uncertainties discussed under the headings “ part i. item 1. business—cautionary note regarding forward-looking statements ” and “ part i. item 1a . risk factors ” of this report . the following discussion of our results of operations and financial condition should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this report . these risks could cause our actual results to differ materially from any future performance suggested below . business overview we are a clinical stage biotechnology company focused on extending the life expectancy of cancer patients by improving the effectiveness of current standard-of-care treatments , including radiation therapy and chemotherapy . story_separator_special_tag we apply accounting standards codification ( asc ) 350 “ goodwill and other intangible assets , ” which requires testing goodwill for impairment on an annual basis . we assess goodwill for impairment as part of our annual reporting process on october 1 of each year . in between valuations , we conduct additional tests if circumstances indicate a need for testing . we evaluate goodwill on a consolidated basis as we are organized as a single reporting unit . we consider certain triggering events when evaluating whether an interim goodwill impairment analysis is warranted . among these would be a significant long-term decrease in our market capitalization based on events specific to our operations . there was no impairment to our goodwill during the year ended december 31 , 2016 . 59 intangible assets our sole intangible asset as of december 31 , 2016 consists of an in-process research and development ( “ ipr & d ” ) intangible asset acquired as part of the merger . the fair value of the ipr & d assets was determined as of the acquisition date using the cost approach , which establishes a value based on the cost of reproducing or replacing the asset , often referred to as current replacement costs . the cost approach was chosen as we were not able to estimate an income stream attributable to the ipr & d assets given the fact that the related products have only completed limited preclinical and clinical trials and the timeline to commercial viability , if the fda approval process is successful , is somewhat uncertain and would take a number of years , and the costs would be significant . in august 2016 , we abandoned future development efforts for the ipr & d asset associated with our res-440 product candidate and recorded an impairment charge equal to the acquired value of res-440 . a s the development efforts for our remaining res-529 ipr & d asset continue , based on the facts and circumstances at the time of a future valuation for the purposes of assessing impairment , it is possible that the value for res-529 could be substantially reduced or eliminated , which could result in a maximum pretax charge to operations equal to the current carrying value of our intangible asset of $ 8.6 million as of december 31 , 2016. we tested the ipr & d intangible asset for impairment on october 1 , which is our annual impairment testing date . we consider certain triggering events when evaluating whether an interim ipr & d impairment analysis is warranted . there was no impairment to res-529 during the year ended december 31 , 2016. research and development research and development costs are expensed as incurred and consist primarily of funds paid to third parties for the provision of services for product candidate development , clinical and preclinical development and related supply and manufacturing costs , and regulatory compliance costs . at the end of the reporting period , the company compares payments made to third-party service providers to the estimated progress toward completion of the research or development objectives . such estimates are subject to change as additional information becomes available . depending on the timing of payments to the service providers and the progress that the company estimates has been made as a result of the service provided , the company may record net prepaid or accrued expense relating to these costs . upfront payments made to third parties who perform research and development services on the company 's behalf are expensed as services are rendered . stock-based compensation we account for stock-based compensation based on the grant date fair value of the award . we recognize this cost as an expense over the requisite service period , which is generally the vesting period of the respective award . forfeitures rates are used in stock-based compensation to adjust the recognized stock-based compensation expense to reflect the expected attrition of employees prior to their full vesting in stock-based compensation awards . we use the black-scholes option-pricing model to determine the estimated fair value of stock options . inputs into the black-scholes option-pricing model include : the grant date fair value of our common stock ; the option exercise price ; the expected term of the option in years ; the annualized volatility of the stock ; and the risk-free interest rate . if any of the assumptions used in the black-scholes model changes significantly , stock-based compensation for future awards may differ materially compared with the awards granted previously . the inputs that create the most sensitivity in our option valuation are the volatility and expected term . given our limited history as a publicly traded company following the merger in january 2016 , we did not have sufficient trading data to calculate volatility based on our own common stock , and the expected volatility was calculated as of each grant date based on a peer group of publicly traded companies . the expected term of the stock options was determined based upon the simplified approach for employees , allowed under sec staff accounting bulletin no . 110 , which assumes that the stock options will be exercised evenly from vesting to expiration . as data associated with future exercises is obtained , the expected term of future grants will be adjusted accordingly . for non-employee awards , we use the remaining contractual term . 60 story_separator_special_tag style= '' margin-bottom : 0pt ; margin-top : 0pt '' > during the year ended december 31 , 2016 , we recognized a tax benefit of $ 0.4 million in connection with the impairment charge associated with the write down of our res-440 ipr & d intangible asset .
| financial summary at december 31 , 2016 , we had cash and cash equivalents balances of $ 1.6 million . we have incurred operating losses since inception , have not generated any product sales revenue and have not achieved profitable operations . we incurred a net loss of $ 18.0 million and $ 6.7 million for the years ended december 31 , 2016 and 2015 , respectively . our accumulated deficit as of december 31 , 2016 , was $ 60.2 million , and we expect to continue to incur substantial losses in future periods . we anticipate that our operating expenses will increase substantially as we continue to advance our lead , clinical-stage product candidate , tsc . we anticipate that our expenses will substantially increase as we : ● complete regulatory and manufacturing activities and commence our planned phase ii and iii clinical trials for tsc ; ● continue the research , development and scale-up manufacturing capabilities to optimize products and dose forms for which we may obtain regulatory approval ; ● conduct other preclinical and clinical studies to support the filing of a nda for tsc with the fda ; ● maintain , expand and protect our global intellectual property portfolio ; ● hire additional clinical , manufacturing , and scientific personnel ; and ● add operational , financial and management information systems and personnel , including personnel to support our drug development and potential future commercialization efforts . we intend to use our existing cash and cash equivalents for working capital and to fund the research and development of tsc . we expect that our existing cash as of december 31 , 2016 , together with the proceeds from the initial closing of the private placement of our series a convertible preferred stock in march 2017 , will enable us to fund our operating expenses and capital expenditure requirements into december of 2017. financial operations overview revenues we have not yet generated any revenue from product sales .
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during 2015 , the company recognized expense of $ 1.1 million to increase the reserve for doubtful accounts and wrote off $ 1.4 million of uncollectible accounts , which decreased the reserve . during 2014 , the company recognized expense of $ 0.5 million to increase the reserve for doubtful accounts and wrote off $ 1.0 million of uncollectible accounts , which decreased the reserve . during 2013 , the company recognized expense of $ 1.1 million to increase the reserve for doubtful accounts and wrote off $ 0.8 million of uncollectible accounts , which decreased the reserve . 60 additionally , the reserve for doubtful accounts in 2013 decreased $ 0.5 million as a result of the story_separator_special_tag certain statements contained in this management 's discussion and analysis of financial condition and results of operations are forward-looking statements . actual results or performance could differ materially from those encompassed within such forward-looking statements as a result of various factors , including those described below . net income and net income per share amounts referenced below are attributable to allegheny technologies incorporated and subsidiaries . ati overview we are one of the largest and most diversified specialty materials and components producers in the world . we use innovative technologies to offer global markets a wide range of specialty materials solutions . our high-value products include titanium and titanium alloys , nickel-based alloys and specialty steels , zirconium and related alloys , advanced powder alloys , precision and engineered stainless steel strip , and precision forgings , castings , components and machining capabilities . our standard products include specialty stainless sheet , stainless steel sheet , and stainless steel plate . our specialty materials are produced in a wide range of alloys and product forms and are selected for use in applications that demand materials having exceptional hardness , toughness , strength , resistance to heat , corrosion or abrasion , or a combination of these characteristics . we are a fully integrated supplier , from alloy development , to raw materials ( for titanium sponge ) to melting and hot-working ( for other specialty alloy systems ) , through highly engineered finished components . our strategic vision is to be an aligned and integrated specialty materials and components company . we operate in two business segments : high performance materials & components , and flat rolled products . our high performance materials & components segment produces , converts and distributes a wide range of high performance materials , including titanium and titanium-based alloys , nickel- and cobalt-based alloys and superalloys , zirconium and related alloys including hafnium and niobium , advanced powder alloys and other specialty materials , in long product forms such as ingot , billet , bar , rod , wire , shapes and rectangles , and seamless tubes , plus precision forgings , castings , components and machined parts . these products are designed for the high performance requirements of major end markets such as aerospace and defense , oil and gas , chemical and hydrocarbon processing industry , electrical energy , and medical . our flat rolled products segment produces , converts and distributes stainless steel , nickel-based alloys , specialty alloys , and titanium and titanium-based alloys , in a variety of product forms including plate , sheet , engineered strip , and precision rolled strip products , as well as grain-oriented electrical steel . the major end markets for our flat-rolled products are oil and gas , chemical and hydrocarbon processing industry , electrical energy , automotive , food processing equipment and appliances , construction and mining , electronics , communication equipment and computers , and aerospace and defense . effective with the third quarter 2015 , we changed our method of determining business unit performance as internally reported to our senior management , ceo , and board of directors . segment operating results are now reported excluding all effects of lifo inventory accounting and any related changes in net realizable value inventory ( nrv ) reserves which offset the aggregate net debit lifo valuation balance . additionally , segment operating results are now measured including all retirement benefit expense attributable to the business unit , for both current and former employees . previously , we excluded defined benefit pension expense and all defined benefit and defined contribution postretirement medical and life insurance expense from segment operating profit . this change better aligns comparative operating performance following the 2014 u.s. defined benefit pension freeze for all non-represented employees and the change in 2015 to a company-wide defined contribution retirement plan structure . under our previous reporting methodology , defined contribution retirement plan expense remained in segment operating results whereas defined benefit plan costs were excluded . operating results for business segments , corporate and closed company and other expenses now include all applicable retirement benefit plan costs for pension and other postretirement benefits . we consider these changes to be a more useful method of measuring business unit financial performance based on changes to retirement benefit plans and the impact of the aggregate net debit lifo position . the segment results below reflect these changes for all periods presented . overview of 2015 financial performance sales in 2015 decreased 12 % to $ 3.7 billion , while cost of sales decreased only 5 % , compared to 2014. this compression in our gross profit margin was impacted by lower operating rates due to an extended drop in demand from the oil & gas/chemical & hydrocarbon processing markets , which is our second largest end market , continued weakness in the global construction and mining market and the effects of low-priced commodity stainless sheet imports on flat-rolled products ' markets . results in 2015 were also adversely impacted by falling raw materials prices , as pricing mechanisms that are designed to recover changes in raw material costs through indexes and surcharges fell faster than the length of the manufacturing cycle , and by inventory valuation reserves . story_separator_special_tag our high performance materials & components segment is positioned to begin a multi-year period of sustained profitable growth , supported by long-term agreements that provide significant growth for ati on legacy and next-generation airplanes and the jet engines that power them . volume from these agreements is expected to provide improved capacity utilization and product mix in our mill products , forgings , and titanium investment casting facilities , beginning in the first quarter 2016. we expect to increase the pace throughout our high performance materials & components operations as we progress through 2016 , driven primarily by the commercial aerospace market , with segment operating profit as a percentage of sales returning to double-digit levels by the second half of the year . this represents significant and continuing improvement toward our goals of long-term profitable growth and consistently earning a premium to our cost of capital . in our flat rolled products segment , our first half 2016 results will reflect the ongoing rightsizing and restructuring activities , including idling the midland facility and our goes operations , during a period of continuing low raw material prices and uncertain end market demand . as we continue to reposition this business to a higher value product mix , we expect shipments of our specialty coil and plate products to improve throughout 2016 and benefit from the hrpf capabilities , particularly for our 48 ” -wide nickel-based alloy sheet . as a result of these initiatives we expect the flat rolled products segment to be modestly profitable by the second half of 2016. cash generation from operations will be a key focus throughout 2016. we do not expect to pay any u.s. federal taxes in 2016 due to net operating loss carryforwards , and we intend to carefully balance our working capital and other cash needs with the pace of our capital expenditure requirements . we currently expect 2016 capital expenditures to be approximately $ 240 million , including our nickel alloy powder expansion ( $ 45 million ) , final payments on the hrpf ( $ 70 million ) , completion of the expansion of our titanium investment castings capacity ( $ 10 million ) , and the expansion of manufacturing capabilities at our stal joint venture in china ( $ 35 million ) , which is consolidated within ati 's financial results . the stal capital expansion will be fully funded by stal 's operations . depreciation and amortization expense in 2016 is forecast to be approximately $ 180 million . story_separator_special_tag include a titanium products supply agreement for aircraft airframes and structural components with the boeing company , which extends into the next decade . this long-term agreement covers value-added titanium mill products and provides opportunity for greater use of ati 's next generation and advanced titanium alloys in both long product and flat-rolled product forms , including highly engineered titanium cast and forged products . the agreement includes both long-product forms that are manufactured within the high performance materials & components segment , and a significant amount of plate products that are manufactured utilizing assets of both the high performance materials & components and flat rolled products segments . revenues and profits associated with these titanium products covered by the boeing long-term agreement are included primarily in the results for the high performance materials & components segment . we also have ltas with rolls-royce plc for the supply of nickel-based superalloy disc-quality products and precision forgings and castings for commercial jet engine applications . in addition , we have ltas with ge aviation for the supply of premium titanium alloys , nickel-based alloys , and vacuum-melted specialty alloys products for commercial and military jet engine applications and with snecma ( safran ) for the supply of premium titanium alloys , nickel-based alloys , vacuum melted specialty alloys , and titanium investment castings for commercial and military jet engine applications . the commercial aerospace market 's use of titanium alloys is expected to increase significantly as new aircraft airframe designs use a larger percentage of titanium alloys . given the significant current backlogs of boeing and airbus , as well as the backlogs of the engine manufacturers , this increasing demand for titanium alloys mill products is expected to last for at least the next several years . additionally , new entrants to the commercial jet aircraft market for single aisle and regional jets are expected to increase demand for these alloys over the next few years . both boeing and airbus have implemented production increases , and announced production increases over the next several years for legacy and next generation aircraft , which is expected to positively impact the demand for titanium alloys and nickel-based superalloys for both jet engine and airframe applications . due to manufacturing cycle times , demand for our specialty materials leads the deliveries of new aircraft by between 6 to 12 months . in addition , as our specialty materials are used in rotating components of jet engines , demand for our products for 26 spare parts is impacted by aircraft flight activity and engine refurbishment requirements of u.s. and foreign aviation regulatory authorities . as the number of aircrafts in service increases , the need for our materials associated with engine refurbishment is expected to increase . projections of aircraft deliveries generally show a decline near the end of the decade due to the phase out of current generation single aisle airframe production , but with overall production still at historically high levels , supported by a large order backlog . new commercial aircraft engine builds are also forecasted to follow the same pattern . the projected growth increase of large twin aisle and next generation single aisle aircraft builds is significant , as the next generation of both types of aircrafts utilize significantly more of the high-value types of materials we produce in both the airframe and in the jet engines .
| results of operations sales from continuing operations were $ 3.72 billion in 2015 , $ 4.22 billion in 2014 , and $ 4.04 billion in 2013. the 12 % sales decrease in 2015 is primarily the result of lower shipment volumes of most flat-rolled products , and weak selling prices for standard stainless flat-rolled products due to global competition , particularly imports from china , and declining raw material costs which affect transaction prices . results of discontinued operations , which include the former tungsten materials business which was sold in november 2013 , and now-closed iron castings and fabricated components businesses , are excluded from business segment results discussed below . 23 segment operating results were a loss of $ 84.8 million , or ( 2.3 ) % of sales , in 2015 , compared to segment operating profit of $ 187.8 million , or 4.4 % of sales , in 2014 , and $ 11.8 million , or 0.3 % of sales , in 2013. our measure of segment operating profit , which we use to analyze the performance and results of our business segments , excludes income taxes , corporate expenses , net interest expense , closed company expenses , the effects of lifo inventory accounting and any related changes in net realizable value ( nrv ) inventory reserves , goodwill impairment charges and restructuring costs , if any . total revenues and segment operating profit ( loss ) of our two business segments were as follows ( in millions ) : replace_table_token_10_th business segment results in 2015 exclude $ 347.8 million in pre-tax charges , which included a $ 126.6 million charge for goodwill impairment , $ 54.5 million of long-lived asset impairment charges , $ 131.5 million of nrv inventory reserve charges , a $ 25.4 million charge to revalue non-pq titanium sponge inventory based on current market prices , and $ 9.8 million of charges for severance actions and idling costs .
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our relationship with these partnerships is different than real estate ownership and is better described as an asset management business , or asset management . in accordance with accounting principles generally accepted in the united states of america , or gaap , we are required to consolidate partnerships owning an aggregate of 39 apartment communities with 6,211 apartment homes . note 2 — basis of presentation and summary of significant accounting policies principles of consolidation aimco 's accompanying consolidated financial statements include the accounts of story_separator_special_tag executive overview we are focused on the ownership , management , redevelopment and limited development of quality apartment communities located in some of the largest markets in the united states . our principal financial objective is to provide predictable and attractive returns to our equity holders . we measure our current return using adjusted funds from operations , or affo , and our long-term total return using economic income . in 2017 , affo grew by 7.6 % to $ 2.12 per share . over the last five years , our economic income grew at a compound annual return of 13.7 % , comprised of 10.6 % compounded annual growth in net asset value , or nav , per share and $ 5.78 in cash dividends per share paid over the period . we also use pro forma funds from operations , or pro forma ffo , as a measure of operational performance . economic income , nav , affo , and pro forma ffo are non-gaap measures and are defined under the non-gaap measures heading below . our business and five areas of strategic focus are described in more detail within the business overview in item 1. the results from execution of our business plan in 2017 are further described in the sections that follow . net income attributable to common stockholders per common share decreased by $ 0.71 for the year ended december 31 , 2017 , as compared to 2016 , primarily due to lower gains on the sale of apartment communities and higher depreciation expense , partially offset by increased contribution from property net operating income more fully described below . pro forma ffo per share increased $ 0.13 , or 5.6 % , for the year ended december 31 , 2017 , as compared to 2016 . the primary driver of this increase was property net operating income growth of $ 0.11 per share , consisting of : $ 0.10 from same store property net operating income growth of 4.2 % , driven primarily by a 3.2 % increase in revenue and almost flat expense growth ; $ 0.12 from the lease-up over the last 12 months of more than 800 renovated homes at redevelopment communities and completion of the lease-up of one canal in boston , and indigo in redwood city , california ; and 20 $ 0.02 from our other real estate apartment communities , primarily due to rate increases ; partially offset by $ 0.13 lower property net operating income from apartment communities sold in 2016 to fund redevelopment and development activities and acquisitions . as compared to 2016 , lower interest rates , higher tax benefit , higher transactional income and other factors , partially offset by lower deferred tax credit income , contributed an additional $ 0.02 to pro forma ffo per share . the $ 0.13 increase in year-over-year pro forma ffo per share plus $ 0.02 in lower capital replacement spending due to fewer apartment homes increased affo by $ 0.15 , or 7.6 % per share . operational excellence we own and operate a portfolio of market rate apartment communities diversified by both geography and price point . at december 31 , 2017 , our real estate portfolio included 136 apartment communities with 36,904 apartment homes in which we held an average ownership of approximately 99 % . our property operations team delivered solid results for our real estate portfolio for the year ended december 31 , 2017 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 117.0 million , 226 apartment home community to be known as parc mosaic , located in boulder , colorado on the site of our eastpointe community . as part of this plan , as of december 31 , 2017 , we completed the de-leasing of eastpointe and commenced demolition and construction . the site is two miles from the new google campus and is across the street from ball aerospace 's technology campus and foothills hospital . building in boulder is highly regulated and new supply is limited , notwithstanding higher enrollment at the university of colorado and increased employment generally . inclusive of these two new projects , our total estimated net investment in redevelopment and development activities is $ 714.6 million , with a projected weighted average net operating income yield on these investments of 6.1 % , assuming untrended rents . as of december 31 , 2017 , $ 513.1 million of this total has been funded . during 2017 , we leased over 800 apartment homes at our redevelopment communities . as of december 31 , 2017 , our lease-up exposure at active redevelopment and development projects included approximately 611 apartment homes , of which 232 were in the fourth tower of park towne place , which we expect to be available for lease beginning in the summer of 2018 and 215 were in parc mosaic , which we expect to be available for lease beginning in the summer of 2019. see below under the liquidity and capital resources – redevelopment/development heading for additional information regarding our redevelopment and development investment during the year ended december 31 , 2017 . story_separator_special_tag proceeds from the 2017 and 2018 sales were used to repay outstanding borrowings on our revolving credit facility , effectively funding the equity portion of the palazzo reacquisition , as further discussed in note 3 to the consolidated financial statements in item 8 , as well as our 2017 redevelopment and development activities . balance sheet we target net leverage of $ 3.8 billion . at december 31 , 2017 , our leverage of $ 3.9 billion was above this target due to the timing of the three apartment community sales discussed above that closed in january 2018. our leverage includes our share of long-term , non-recourse property debt encumbering apartment communities in our real estate portfolio , our term loan , outstanding borrowings on the revolving credit facility and outstanding preferred equity . in our calculation of leverage , we exclude non-recourse property debt obligations of consolidated partnerships served by our asset management business , as these are not our obligations and they have limited effect on the amount of fees and other amounts we expect to receive in our role as asset manager for these partnerships . our leverage strategy seeks to increase financial returns while using leverage with appropriate caution . we limit risk through balance sheet structure , employing low leverage , primarily non-recourse and long-dated property debt ; build financial flexibility by maintaining ample unused and available credit as well as holding properties with substantial value unencumbered by property debt ; and use partners ' capital when it enhances financial returns or reduces investment risk . we target the ratio of proportionate debt and preferred equity to adjusted ebitda to be below 7.0x and we target the ratio of adjusted ebitda to adjusted interest expense and preferred dividends to be greater than 2.5x . proportionate debt , adjusted ebitda and adjusted interest expense , as used in these ratios , are non-gaap financial measures , which are further discussed and reconciled under the non-gaap measures – leverage ratios heading . preferred equity represents aimco 's preferred stock and the aimco operating partnership 's preferred op units . our leverage ratios for the three months ended december 31 , 2017 , are presented below : proportionate debt to adjusted ebitda 6.5x proportionate debt and preferred equity to adjusted ebitda 6.9x adjusted ebitda to adjusted interest expense 3.3x adjusted ebitda to adjusted interest expense and preferred dividends 3.1x 23 we calculate our leverage ratios based on the most recent three month amounts , annualized . our calculation of adjusted ebitda in our leverage ratios has been adjusted on a pro forma basis to reflect the disposition of five apartment communities during the period as if the sales had closed on october 1 , 2017. the effect of this pro forma adjustment may be found in the adjusted ebitda reconciliation under the non-gaap measures heading . during 2017 , we closed or rate-locked nine fixed-rate , non-recourse , amortizing , property loans totaling $ 550.8 million . on a weighted basis , the term of these loans averaged 9.1 years and their interest rates averaged 3.48 % , 123 basis points above the corresponding treasury rates at the time of pricing . also during 2017 , we restructured five fixed-rate , non-recourse , amortizing , property loans totaling $ 17.4 million , extending their maturity dates from 2018 to 2023 and reducing their weighted average interest rate from 4.13 % to 3.63 % . the net effect of 2017 property debt refinancing activities has been to lower our weighted average fixed interest rates by about 20 basis points to 4.64 % , generating prospective annual interest savings of approximately $ 6.6 million . our liquidity consists of cash balances and available capacity on our revolving line of credit . as of december 31 , 2017 , we had on hand $ 616.6 million of cash and restricted cash plus available capacity on our revolving line of credit . we also manage our financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt . at december 31 , 2017 , we held unencumbered apartment communities with an estimated fair market value of approximately $ 1.8 billion , up 12.5 % year-over-year . two credit rating agencies rate our creditworthiness , using different methodologies and ratios for assessing our credit , and both have rated our credit and outlook as bbb- ( stable ) , an investment grade rating . although some of the ratios they use are similar to those we use to measure our leverage , there are differences in our methods of calculation and therefore our leverage ratios disclosed above are not indicative of the ratios that may be calculated by these agencies . for additional information regarding our leverage , please see the discussion under the liquidity and capital resources heading . team and culture our team and culture are keys to our success . our intentional focus on a collaborative and productive culture based on respect for others and personal responsibility is reinforced by a preference for promotion from within based on succession planning and talent development to produce a strong , stable team that is the enduring foundation of our success . in 2017 , aimco was recognized by the denver post as a top work place . we are one of only a dozen colorado companies of all sizes that have earned this designation for five consecutive years . key financial indicators the key financial indicators that we use in managing our business and in evaluating our operating performance are economic income , our measure of total return , and adjusted funds from operations , our measure of current return . in addition to these indicators , we evaluate our operating performance and financial condition using : pro forma funds from operations ; fcf ; same store property operating results ; proportionate property net operating income ; average revenue per effective apartment home ; leverage ratios ; and net leverage .
| . highlights include : same store net operating income growth greater than 4 % for the seventh year in a row ; same store rent increases on renewals and new leases averaged 4.6 % and 0.6 % , respectively , for a weighted average increase of 2.5 % ; and completion of the lease-up of one canal in boston , and indigo in redwood city , california . our focus on efficient operations through productivity initiatives such as centralization of administrative tasks , optimization of economies of scale at the corporate level , and investment in more durable , longer-lived materials has helped us control operating expenses . as a result of these efforts , our same store controllable operating expenses , which we define as property operating expenses before real estate taxes , insurance and utilities , decreased by 1.3 % for the year ended december 31 , 2017 compared to 2016 . the compounded annual growth rate for same store controllable operating expenses for the past decade is negative 0.4 % . for the year ended december 31 , 2017 , our real estate portfolio provided 69 % net operating income margins and 64 % free cash flow margins . free cash flow is defined under the non-gaap measures heading below . in addition to those communities in our real estate portfolio , as of december 31 , 2017 , we held nominal ownership positions ( generally less than 1 % ) in partnerships that own 46 low-income housing tax credit communities with 6,898 apartment homes . we provide asset management and other services to these partnerships and receive fees and other payments in return . our relationship with these partnerships is different than real estate ownership and is better described as an asset management business . we have limited upside or downside exposure .
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the following discussion should be read together with our consolidated financial statements and the related notes included elsewhere in this report . overview we are a fabless semiconductor company that designs , develops and markets static random access memories , or srams , that operate at speeds of less than 10 nanoseconds , which we refer to as very fast srams , and low latency dynamic random access memories , or lldrams , primarily for the networking and telecommunications markets . we are subject to the highly cyclical nature of the semiconductor industry , which has experienced significant fluctuations , often in connection with fluctuations in demand for the products in which semiconductor devices are used . our revenues have been substantially impacted by significant fluctuations in sales to cisco systems , historically our largest customer , and more recently to nokia ( alcatel-lucent ) . we expect that future direct and indirect sales to these two customers will continue to fluctuate significantly on a quarterly basis . the worldwide financial crisis and the resulting economic impact on the end markets we serve have adversely impacted our financial results since the second half of fiscal 2009 , and we expect that the unsettled global economic environment will continue to affect our operating results in future periods . however , with no debt , substantial liquidity and a history of positive cash flows from operations , we believe we are in a better financial position than many other companies of our size . revenues . our revenues are derived primarily from sales of our very fast sram products . sales to networking and telecommunications oems accounted for 63 % to 66 % of our net revenues during our last three fiscal years . we also sell our products to oems that manufacture products for military and aerospace applications such as radar and guidance systems and satellites , for professional audio applications such as sound mixing systems , for test and measurement applications such as high-speed testers , for automotive applications such as smart cruise control and voice recognition systems , and for medical applications such as ultrasound and cat scan equipment . as is typical in the semiconductor industry , the selling prices of our products generally decline over the life of the product . our ability to increase net revenues , therefore , is dependent upon our ability to increase unit sales volumes of existing products and to introduce and sell new products with higher average selling prices in quantities sufficient to compensate for the anticipated declines in selling prices of our more mature products . although we expect the average selling prices of individual products to decline over time , we believe that , over the next several quarters , our overall average selling prices will increase due to a continuing shift in product mix to a higher percentage of higher price , higher density products . our ability to increase unit sales volumes is dependent primarily upon increases in customer demand but , particularly in periods of increasing demand , can also be affected by our ability to increase production through the availability of increased wafer fabrication capacity from tsmc and powerchip , our wafer suppliers , and our ability to increase the number of good integrated circuit die produced from each wafer through die size reductions and yield enhancement activities . we may experience fluctuations in quarterly net revenues for a number of reasons . historically , orders on hand at the beginning of each quarter are insufficient to meet our revenue objectives for that quarter and are generally cancelable up to 30 days prior to scheduled delivery . accordingly , we depend on obtaining and shipping orders in the same quarter to achieve our revenue objectives . in addition , the timing of product releases , purchase orders and product availability could result in significant product shipments at the end of a quarter . failure to ship 35 these products by the end of the quarter may adversely affect our operating results . furthermore , our customers may delay scheduled delivery dates and or cancel orders within specified timeframes without significant penalty . we sell our products through our direct sales force , international and domestic sales representatives and distributors . revenues from product sales , except for sales to distributors , are generally recognized upon shipment , net of sales returns and allowances . sales to consignment warehouses , who purchase products from us for use by contract manufacturers , are recorded upon delivery to the contract manufacturer . sales to distributors are recorded as deferred revenues for financial reporting purposes and recognized as revenues when the products are resold by the distributors to the oem . sales to distributors are made under agreements allowing for returns or credits under certain circumstances . we therefore defer recognition of revenue on sales to distributors until products are resold by the distributor . historically , a small number of oem customers have accounted for a substantial portion of our net revenues , and we expect that significant customer concentration will continue for the foreseeable future . many of our oems use contract manufacturers to manufacture their equipment . accordingly , a significant percentage of our net revenues is derived from sales to these contract manufacturers and to consignment warehouses . in addition , a significant portion of our sales are made to foreign and domestic distributors who resell our products to oems , as well as their contract manufacturers . direct sales to contract manufacturers and consignment warehouses accounted for 39.0 % , 37.6 % and 33.1 % of our net revenues for fiscal 2017 , 2016 and 2015 , respectively . sales to foreign and domestic distributors accounted for 59.1 % , 50.4 % and 58.7 % of our net revenues for fiscal 2017 , 2016 and 2015 , respectively . story_separator_special_tag although we ceased to incur significant legal expenses related to our litigation with cypress after the quarter ended june 30 , 2015 , legal expenses associated with unrelated commercial and trade secret litigation in which we were the plaintiff continued to be substantial through the quarter ended december 31 , 2015 , reflecting preparation for and conduct of the trial of that case which concluded in november 2015. acquisition on november 23 , 2015 , we acquired all of the outstanding capital stock of privately held mikamonu group ltd. ( “ mikamonu ” ) , a development-stage , israel-based company that specializes in in-place associative computing 37 for markets including big data , computer vision and cyber security . mikamonu , located in tel aviv , held 12 united states patents and a number of pending patent applications . the acquisition was undertaken by the company in order to gain access to the mikamonu patents and the potential markets , and new customer base in those markets , that can be served by new products that we plan to develop using the patents obtained in the mikamonu acquisition . the acquisition has been accounted for as a purchase under authoritative guidance for business combinations . the purchase price of the acquisition was allocated to the intangible assets acquired , with the excess of the purchase price over the fair value of assets acquired recorded as goodwill . we will perform a goodwill impairment test in february of each fiscal year . the results of operations of mikamonu and the estimated fair value of the assets acquired were included in our consolidated financial statements beginning november 23 , 2015. under the terms of the acquisition agreement , we paid the former mikamonu shareholders initial cash consideration of approximately $ 4.4 million at the closing on november 23 , 2015. in addition , $ 484,000 was deposited in escrow to provide a fund for potential future indemnification claims by us . this amount is included in prepaid expenses and other current assets on the consolidated balance sheet at march 31 , 2017. we are also required to pay the former mikamonu shareholders future contingent consideration consisting of retention payments and “ earnout ” payments , as described below . we will make cash retention payments of up to an additional $ 2.5 million to the three former mikamonu shareholders in installments over a four-year period , conditioned on the continued employment of dr. avidan akerib , mikamonu 's co-founder and chief technologist . the retention amount of $ 2.5 million has been deposited in escrow . of this amount , $ 750,000 is included in prepaid expenses and other current assets and the remaining $ 1,750,000 is included in other assets on the consolidated balance sheet at march 31 , 2017. we will also make “ earnout ” payments to the former mikamonu shareholders in cash or shares of our common stock , at our discretion , during a period of up to ten years following the closing if certain product development milestones and revenue targets for products based on the mikamonu technology are achieved . earnout amounts of $ 750,000 will be payable if certain product development milestones are achieved by december 31 , 2017. additional earnout amounts of $ 2,750,000 and $ 4,000,000 will be payable if certain revenue milestones are achieved by january 1 , 2021 and january 1 , 2022 , respectively ; and additional payments , up to a maximum of $ 30 million , equal to 5 % of net revenues from the sale of qualifying products in excess of certain thresholds , will be made quarterly through december 31 , 2025. the portion of the retention payment contingently payable to dr. akerib ( approximately $ 1.2 million ) will be recorded as compensation expense over the period that his services are provided to us . the portion of the retention payment contingently payable to the other former mikamonu shareholders ( approximately $ 1.3 million ) plus the maximum amount of the potential earnout payments totals approximately $ 38.8 million . we determined that the fair value of this contingent consideration liability was $ 5.8 million at the acquisition date . this contingent consideration liability is included in other accrued expenses on the consolidated balance sheet at march 31 , 2016 in the amount of $ 5.9 million . the contingent consideration liability is included in other accrued expenses on the consolidated balance sheet at march 31 , 2017 in the amount of $ 5.1 million and $ 1.1 million is included in accrued expenses and other liabilities . the fair value of the contingent consideration liability was determined as of the acquisition date using unobservable inputs . these inputs include the estimated amount and timing of future revenues , the probability of 38 success ( achievement of the various contingent events ) and a risk-adjusted discount rate of approximately 14.8 % used to adjust the probability-weighted cash flows to their present value . subsequent to the acquisition date , at each reporting period , the contingent consideration liability will be re-measured at then current fair value with changes recorded in the consolidated statement of operations . changes in any of the inputs may result in significant adjustments to the recorded fair value . the contingent consideration liability is included in other accrued expenses on the consolidated balance sheet at march 31 , 2017 in the amount of $ 5.1 million and $ 1.1 million is included in accrued expenses and other liabilities . acquisition-related costs of approximately $ 426,000 are included in selling , general and administrative expenses in the consolidated statements of operations for the fiscal year ended march 31 , 2016. the allocation of the purchase price to acquired identifiable intangible assets and goodwill was based on their estimated fair values at the date of acquisition . the fair value allocated to patents was $ 3.5 million and the fair value allocated to goodwill was $ 8.0 million .
| results of operations the following table sets forth statement of operations data as a percentage of net revenues for the periods indicated : replace_table_token_5_th fiscal year ended march 31 , 2017 compared to fiscal year ended march 31 , 2016 net revenues . net revenues decreased by 8.6 % from $ 52.74 million in fiscal 2016 to $ 48.2 million in fiscal 2017. the reduction reflected the continuing weakness in the global networking and telecommunications markets and , in particular , continued weakness in asia . direct and indirect sales to nokia ( alcatel-lucent ) , currently our largest customer , increased by $ 2.7 million from $ 17.1 million in fiscal 2016 to $ 19.8 million fiscal 2017 , reflecting increased demand for its systems that incorporate our products . however , direct and indirect sales to cisco systems , historically our largest customer , decreased by $ 200,000 from $ 4.5 million in fiscal 2016 to $ 4.3 million in fiscal 2017 due to softness in the market for its switches and routers that incorporate our products . we believe that our net revenues were also negatively impacted during fiscal 2016 by uncertainty regarding the outcome of our patent litigation with cypress semiconductor that was settled in may 2015. we believe that this market uncertainty was resolved with the settlement of the litigation . however , some design-in losses that we suffered during the pendency of the lawsuit and a related itc proceeding will continue to adversely affect our revenues throughout the life of the related products . shipments of our sigmaquad product line accounted for 55.2 % of total shipments in fiscal 2017 compared to 53.5 % of total shipments in fiscal 2016 . 39 cost of revenues .
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principal government applications of biometrics systems include border control , law enforcement , national defense , secure credentialing , access control , and background checks . principal commercial applications include : i ) user authentication for login and access to mobile devices , computers , networks , and software programs ; ii ) user authentication for financial transactions and purchases ( online and in-person ) ; iii ) physical access control to buildings , and iv ) screening and background checks of prospective employees and customers . we sell our software and services globally through systems integrators and oems , and directly to end user customers . we also derive a minor portion of our revenue from the sale of imaging software to oems that incorporate that software into medical imaging products . discontinued operations . we shut down our dsl service assurance hardware product line in 2012 and our dsl service assurance software product line in 2013. both of these product lines were previously components of our dsl service assurance segment . the results of the dsl service assurance segment have been reported as discontinued operations as we no longer have any significant continuing involvement with , or cash flows from , this segment . 24 story_separator_special_tag years . hardware hardware revenue consists of sales of biometrics equipment to a single u.s. government customer for whom we developed biometrics software . hardware products sold to this customer integrate hardware purchased from third parties with software from other third parties as well as software from aware . we evaluated the classification of gross versus net revenue recognition and determined gross recognition was appropriate . hardware revenue increased 55 % from $ 3.2 in 2013 to $ 4.9 million in 2014. as a percentage of total revenue , hardware revenue increased from 16 % in 2013 to 21 % in 2014. the dollar increase in hardware revenue was due to an increase in units ordered by our u.s. government hardware customer during 2014. we are unable to predict future hardware revenue with any degree of certainty because : i ) our contract with the government provides pricing , but does not obligate it to purchase any products until it provides us with purchase orders ; and ii ) forecasting our customer 's demand is difficult . moreover , future orders from this customer may be minimal as we believe that the bulk of its purchases may have already occurred . we have no order backlog for hardware products as of december 31 , 2014. hardware revenue increased from $ 0 in 2012 to $ 3.2 million in 2013. as a percentage of total revenue , hardware revenue increased from 0 % in 2012 to 16 % in 2013. the dollar increase in hardware revenue was due to the commencement of shipments in 2013. royalties royalties consist primarily of royalty payments we receive under dsl silicon contracts with two customers that incorporate our silicon intellectual property ( “ ip ” ) in their dsl chipsets . we sold the assets of our dsl ip business in 2009 , but we continue to receive royalty payments from these customers . royalties are reported in continuing operations in accordance with asc 205-20 , reporting discontinued operations , because we have continuing ongoing cash flows from this business . royalties decreased 21 % from $ 0.9 million in 2013 to $ 0.7 million in 2014. as a percentage of total revenue , royalties decreased from 5 % in 2013 to 3 % in 2014. the dollar decrease in royalties was primarily due to lower dsl royalties from both of our licensees . royalties decreased 58 % from $ 2.2 million in 2012 to $ 0.9 million in 2013. as a percentage of total revenue , royalties decreased from 12 % in 2012 to 5 % in 2013. the dollar decrease in royalties was primarily due to lower dsl royalties from both of our licensees . one of our licensees achieved chipset sales that exceeded certain sales thresholds in our contractual arrangement in late 2012. the achievement of those sales thresholds triggered reductions in the royalty rate it is required to pay on certain products and eliminated them altogether on other products . our other licensee also reported lower royalties to us in 2013 . 26 we believe it is likely that royalties will continue to decline in future quarters . cost of hardware cost of hardware consists primarily of the cost of third party equipment and software included in hardware shipments . cost of hardware increased by 47 % from $ 2.4 million in 2013 to $ 3.5 million in 2014. cost of hardware as a percentage of hardware revenue decreased from 74 % in 2013 to 71 % in 2014 , which means that product gross margins increased from 26 % in 2013 to 29 % in 2014. the dollar increase in cost of hardware was due to higher unit shipments of hardware products in the current year periods compared to the prior year period . cost of hardware increased from $ 0 in 2012 to $ 2.4 million in 2013. cost of hardware as a percentage of hardware revenue were 74 % in 2013 , which means that gross margins on hardware revenue were 26 % . the dollar increase in cost of hardware was due to the commencement of hardware shipments in 2013. cost of services cost of services consists of engineering costs to perform customer services projects . such costs primarily include : i ) engineering salaries , stock-based compensation , fringe benefits , and facilities ; and ii ) engineering consultants and contractors . cost of services increased 57 % from $ 1.5 million in 2013 to $ 2.4 million in 2014. cost of services as a percentage of services decreased from 48 % in 2013 to 46 % in 2014 , which means that gross margins on services increased from 52 % to 54 % . the dollar increase in cost of services was attributable to an increase in services revenue . story_separator_special_tag general and administrative expense increased 4 % from $ 3.5 million in 2013 to $ 3.7 million in 2014. as a percentage of total revenue , general and administrative expense decreased from 18 % in 2013 to 15 % in 2014. the increase in general and administrative expense in 2014 was primarily due to an increase in stock-based compensation which was partially offset by lower patent filing expenses . 28 general and administrative expense decreased 9 % from $ 3.9 million in 2012 to $ 3.5 million in 2013. as a percentage of total revenue , general and administrative expense decreased from 22 % in 2012 to 18 % in 2013. the dollar decrease in general and administrative expense was primarily due to two sets of offsetting factors . expenses decreased due to lower : i ) patent prosecution legal fees ; ii ) audit fees ; and iii ) general corporate legal fees . such expense reductions were partially offset by stock-based compensation costs associated with a stock grant to directors and officers in april 2013. patent related income patent related income in the years ended december 31 , 2014 , 2013 and 2012 was derived from either gains on the sale of patent assets or income from a patent arrangement , or both . income from these sources was included in income from continuing operations pursuant to asc 360-10 , impairment or disposal of long-lived assets , and rule 5-03 of regulation s-x . the composition of patent related income in 2014 , 2013 , and 2012 was as follows : year ended december 31 , 2014. we had a $ 2.1 million gain on the sale of patent assets and no income from our patent arrangement in 2014. the gain on the sale of patent assets is described below : we sold a portion of our patent portfolio pertaining to dsl diagnostic technology to an unrelated third party for $ 2.6 million . the proceeds from the sale were reduced by $ 0.5 million of transaction costs , which consisted primarily of fees from the law firm that assisted us in the sale . we recorded a gain of $ 2.1 million on the sale . the dsl diagnostic technology in the patents we sold in 2014 was related to our dsl service assurance business that we shut down in 2012 and 2013 and reported in discontinued operations in those periods . we do not consider our patent related activities to be a component of the operating business from which the underlying technology was derived , but rather as a component of corporate general and administrative expenses . accordingly the gain on the sale of these patents was reported in income from continuing operations . year ended december 31 , 2013. we had $ 0.8 million of income from a patent arrangement and no gains on the sale of patent assets in 2013. income from the patent arrangement is described below : we entered into an arrangement with an unaffiliated third party in 2010 under which we assigned certain patents in return for royalties on proceeds from patent monetization efforts by the third party . such third party has engaged in various patent monetization activities , including enforcement , litigation and licensing . the party reported and we recorded $ 0.8 million of income from this arrangement in the year ended december 31 , 2013. we continue to have a contractual relationship with this third party . however , we are unable to predict how much more income we might receive from this arrangement , if any , because : ● the claims in one of the patents we assigned were rejected by the united states patent office ( “ uspto ” ) in may 2013. the uspto 's patent trial & appeal board ( “ ptab ” ) affirmed the uspto decision in june 2014. the ptab decision was appealed to the federal circuit . in december 2014 , the federal circuit remanded the appeal back to the ptab for further consideration . ● notwithstanding the outcome at the ptab , we do not know whether any patent monetization efforts by the third party will be successful . year ended december 31 , 2012. we had total patent related income of $ 87.5 million in 2012 , which consisted of $ 86.4 million of gains on the sale of patent assets and $ 1.1 million of income from our patent arrangement . patent related income in 2012 is described below : gains on the sale of patent assets . total gains on the sale of patent assets in 2012 were $ 86.4 million , which consisted of gains from two separate sales . gains from both sales were recorded in income from continuing operations as none of these patents were related to any discontinued operations , including our discontinued dsl service assurance business . the two sales are described below : ● we sold a portion of our patent portfolio pertaining to wireless technology to an unaffiliated third party for $ 75.0 million . the proceeds from the sale were reduced by $ 3.8 million of transaction costs , which consisted primarily of fees from the law firm that assisted us in the sale . we recorded a gain of $ 71.2 million on the sale . 29 ● we sold a portion of our patent portfolio pertaining to dsl semiconductor intellectual property technology for $ 16.0 million . the proceeds from the sale were reduced by $ 0.8 million of transaction costs , which also consisted primarily of fees from the law firm that assisted us in the sale . we recorded a gain of $ 15.2 million on the sale . income from patent arrangement .
| summary of financial results income from continuing operations for the year ended december 31 , 2014 was $ 4.6 million , or $ 0.20 per diluted share , which compares to income from continuing operations of $ 3.8 million , or $ 0.16 per diluted share , for the year ended december 31 , 2013. higher income from continuing operations in 2014 was primarily due to an increase in patent related income . income from continuing operations for the year ended december 31 , 2013 was $ 3.8 million , or $ 0.16 per diluted share , which compares to income from continuing operations of $ 72.4 million , or $ 3.28 per diluted share , for the year ended december 31 , 2012. lower income from continuing operations in 2013 was primarily due to a decrease in patent related income . software licenses software licenses consist of revenue from the sale of biometrics and imaging software products . sales of software products depend on our ability to win proposals to supply software for biometrics systems projects either directly to end user customers or indirectly through channel partners . software license revenue increased 4 % from $ 8.2 million in 2013 to $ 8.5 million in 2014. as a percentage of total revenue , software license revenue decreased from 43 % in 2013 to 36 % in 2014. the dollar increase in software license revenue was primarily due to a $ 0.4 million increase in sales of imaging software . sales of biometrics software licenses were essentially unchanged from 2013 , which reflects approximately the same number of project wins in both years .
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such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected . those risks and uncertainties include changes in interest rates , the ability to control costs and expenses , and general economic conditions . the company undertakes no obligation to publicly release the results of any revisions to those forward looking statements that may be made to reflect events or circumstances after this date or to reflect the occurrence of unanticipated events . critical accounting policies the company 's financial statements are prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of financial statements in conformity with gaap requires management to establish critical accounting policies and make accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements , as well as the reported amounts of revenues and expenses during those reporting periods . for a discussion of the recent accounting standards updates ( “ asu ” ) issued by the financial accounting standards board ( “ fasb ” ) refer to the note 1 entitled “ summary of significant accounting policies — new accounting standards , ” in the notes to consolidated financial statements to this annual report . an accounting estimate requires assumptions about uncertain matters that could have a material effect on the financial statements if a different amount within a range of estimates were used or if estimates changed from period to period . readers of this report should understand that estimates are made considering facts and circumstances at a point in time , and changes in those facts and circumstances could produce results that differ from when those estimates were made . significant estimates that are particularly susceptible to material change in the next year relate to the allowance for loan losses , other-than-temporary impairment , fair value of financial instruments , the valuations of real estate acquired through foreclosure and deferred tax assets and liabilities . actual amounts could differ from those estimates . the company maintains the allowance for loan losses at a level management believes adequate to absorb probable credit losses related to specifically identified loans , as well as probable incurred losses inherent in the remainder of the loan portfolio as of the balance sheet date . the balance in the allowance for loan losses account is based on past events and current economic conditions . the allowance for loan losses account consists of an allocated element and an unallocated element . the allocated element consists of a specific portion for the impairment of loans individually evaluated and a formula portion for loss contingencies on those loans collectively evaluated . the unallocated element , if any , is used to cover inherent losses that exist as of the evaluation date , but which have not been identified as part of the allocated allowance using the company 's impairment evaluation methodology due to limitations in the process . management monitors the adequacy of the allocated portion of the allowance quarterly and adjusts the allowance for any deficiencies through normal operations . this ongoing evaluation reduces potential differences between estimates and actual observed losses . the determination of the level of the allowance for loan losses is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available . accordingly , management can not ensure that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required , resulting in an adverse impact on operating results . 20 in determining the requirement to record an other-than-temporary impairment on securities owned by the company , four main characteristics are considered including : ( i ) the length of time and the extent to which the fair value has been less than amortized cost ; ( ii ) the financial condition and near-term prospects of the issuer ; ( iii ) whether the market decline was affected by macroeconomic conditions and ( iv ) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery . the company believes that the unrealized losses , at december 31 , 2010 and 2009 represent temporary impairment of the securities . fair values of financial instruments , in cases where quoted market prices are not available , are based on estimates using present value or other valuation techniques which are subject to change . real estate acquired in connection with foreclosures or in satisfaction of loans is adjusted to fair value based upon current estimates derived through independent appraisals less cost to sell . however , proceeds realized from sales may ultimately be higher or lower than those estimates . deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences by applying enacted statutory tax rates to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities . the amount of deferred tax assets is reduced , if necessary , to the amount that , based on available evidence , will more likely than not be realized . as changes in tax laws or rates are enacted , deferred tax assets and liabilities are adjusted through the provision for income taxes . for a further discussion of the company 's critical accounting policies , refer to the note entitled , “ summary of significant accounting policies , ” in the notes to consolidated financial statements to this annual report . this note lists the significant accounting policies used by management in the development and presentation of the financial statements . story_separator_special_tag average earning assets grew $ 77.7 million to $ 517.1 million in 2010 from $ 439.4 million in 2009 and accounted for a $ 3.3 million increase in tax equivalent interest income . average loans , net of unearned income , rose $ 42.2 million or 13.1 % , which caused interest income to increase by $ 2.4 million . in addition , average investments grew $ 26.7 million or 25.2 % comparing 2010 and 2009 , which resulted in additional interest income of $ 900 thousand . 24 average interest bearing liabilities rose $ 60.2 million or 16.5 % to $ 424.8 million in 2010 from $ 364.6 million in 2009. the growth resulted in a net increase in interest expense of $ 541 thousand . having the greatest impact was a $ 49.4 million increase in savings deposits , which caused interest expense to increase $ 607 thousand . in addition , other borrowings grew $ 8.3 million , which in aggregate caused a $ 222 thousand increase in interest expense . an unfavorable rate variance resulted in a decrease of $ 702 thousand in tax equivalent net interest income . reductions in loan and investment yields , more than offset decreases in funding costs . the tax equivalent yield on earning assets decreased 63 basis points to 5.26 % in 2010 from 5.89 % in 2009 , resulting in a reduction in interest income of $ 2.0 million . specifically , the tax equivalent yield on the loan portfolio decreased 40 basis points to 5.79 % in 2010 from 6.19 % in 2009. the decrease in loan yields resulted in a decline in interest income of $ 1.3 million in 2010. in addition , the yield on the investment portfolio decreased 98 basis points accounting for a $ 726 thousand decrease in tax equivalent interest income . the reduction in interest income was partially mitigated by a decrease of $ 1.3 million in interest expense , which resulted from a 46 basis point decrease in the cost of funds to 1.53 % in 2010 from 1.99 % in 2009. we experienced significant reductions in the rates paid for both interest bearing transaction accounts as well as time deposits and other borrowings . specifically , the cost of money market , now and savings accounts decreased 30 basis points , 21 basis points and 22 basis points comparing 2010 and 2009. these decreases resulted in reductions in interest expense of $ 96 thousand , $ 73 thousand and $ 286 thousand . with regard to time deposits , the average rate paid for time deposits decreased 47 basis points , which resulted in a $ 496 thousand decrease in interest expense . the average rate paid on short-term borrowings declined 59 basis points , resulting in a $ 350 thousand reduction in interest expense . comparing 2009 to 2008 , tax equivalent net interest income increased $ 867 thousand to $ 18.6 million from $ 17.7 million in 2008. a favorable volume variance , partially offset by an unfavorable rate variance led to the improvement . changes in the volumes of earning assets and interest bearing liabilities contributed to an increase of $ 1.5 million in net interest income . average earning assets grew $ 21.9 million to $ 439.4 million in 2009 from $ 417.5 million in 2008 and accounted for a $ 1.4 million increase in tax equivalent interest income . average loans , net of unearned income , grew $ 23.3 million or 7.8 % , which caused interest income to increase by $ 1.5 million . average investments decreased $ 4.5 million comparing 2009 and 2008 , which resulted in a reduction in interest income of $ 110 thousand . average interest bearing liabilities rose $ 17.2 million or 5.0 % to $ 364.6 million in 2009 from $ 347.4 million in 2008. having the greatest impact was a $ 36.7 million increase in savings deposits , which caused interest expense to increase $ 476 thousand . an unfavorable rate variance resulted in a decrease of $ 661 thousand in tax equivalent net interest income . reductions in loan and investment yields , more than offset decreases in funding costs . the tax equivalent yield on earning assets decreased 55 basis points to 5.89 % in 2009 from 6.44 % in 2008 , resulting in a reduction in interest income of $ 2.4 million . specifically , the tax equivalent yield on the loan portfolio decreased 64 basis points to 6.19 % in 2009 from 6.83 % in 2008. the decrease in loan yields resulted in a decline in interest income of $ 1.9 million in 2009. in addition , the yield on the investment portfolio decreased 23 basis points accounting for a $ 400 thousand decrease in tax equivalent interest income . the reduction in interest income was partially mitigated by a decrease of $ 1.7 million in interest expense , which resulted from a 64 basis point decrease in the cost of funds to 1.99 % in 2009 from 2.63 % in 2008. we experienced significant reductions in the rates paid for money market and time deposits . money markets rates decreased 72 basis points and accounted for a decrease in interest expense of $ 246 thousand , while time deposits rates decreased 93 basis points causing a decline in interest expense of $ 1.2 million . provision for loan losses the provision and allowance for loan losses are based on management 's ongoing assessment of the company 's credit exposure and consideration of other relevant factors . the allowance for loan losses is a valuation reserve that is available to absorb future loan charge-offs . the provision for loan losses is the amount charged to earnings on an annual basis .
| review of financial position total assets increased $ 42.1 million or 8.15 % to $ 558.6 million at december 31 , 2010 , from $ 516.5 million at december 31 , 2009. for the year ended december 31 , 2010 , total assets averaged $ 548.5 million , an increase of $ 77.6 million or 16.48 % , from $ 470.9 million for the same period of 2009. total assets amounted to $ 472.4 million at december 31 , 2008 and averaged $ 447.7 million during 2008. the balance sheet growth was driven by increases in total deposits of $ 28.7 million in 2010 and $ 38.7 million in 2009. total interest bearing deposits increased $ 26.9 million , while noninterest bearing deposits rose $ 1.8 million comparing year-end 2010 to 2009. interest bearing deposits and non-interest bearing deposits grew $ 22.3 million and $ 16.5 million , respectively , from december 31 , 2008 to december 31 , 2009. at december 31 , loans , net amounted to $ 390.8 million in 2010 , $ 335.5 million in 2009 and $ 316.6 million in 2008. total stockholders ' equity increased 12.33 % , or $ 5.5 million , from year-end 2009 to $ 50.5 million at december 31 , 2010. comparing year-end 2009 to 2008 , stockholders ' equity increased 13.22 % or $ 5.3 million . loan portfolio in 2010 , loans to commercial borrowers helped fuel the growth in the loan portfolio . retail loans , including residential mortgages and consumer loans , increased marginally during 2010. with lower interest rates for 30 years fixed rate loans , most of the residential mortgages originated were sold in the secondary market , causing growth in this part of our loan portfolio to slow . table 5 loan portfolio distribution ( in thousands ) replace_table_token_8_th loans , net continued to increase in 2010 , ending the year at $ 390.8 million compared to $ 335.5 million at year-end 2009 , an increase of 16.48 % .
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1 to form s-1 filed on february 10 , 2016 10.2 shareholder 's voting rights entrustment agreement , dated october 27 , 2015 , by and among tianjin information sea information technology co. , ltd. and shuhai information technology co. ltd. , fu liu and zhixin liu , incorporated herein by reference to exhibit 10.3 of the post-effective amendment no . 1 to form s-1 filed on february 10 , 2016 - 65 - 10.3 option agreement , dated october 27 , 2015 , by and between tianjin information sea information technology co. , ltd. and fu liu and zhixin liu , incorporated herein by reference to exhibit 10.4 of the post-effective amendment no . 1 to form s-1 filed on february 10 , 2016 10.4 equity pledge agreement , dated october 27 , 2015 by and between tianjin information sea information technology co. , ltd. and fu liu and zhixin liu , incorporated herein by reference to exhibit 10.5 of the post-effective amendment no . 1 to form s-1 filed on february 10 , 2016 10.5 employment agreement , dated february 11 , 2015 by and between shuhai information technology co. , ltd. and ms. zhixin liu , incorporated herein by reference to exhibit 10.6 of the post-effective amendment no . 1 to form s-1 filed on february 10 , 2016 10.6 translation of the amendment to the employment agreement by and between shuhai information technology co. , ltd. and ms. zhixin liu dated january 1 , 2017 , incorporated herein by reference to exhibit 10.6 of the s-1/a filed on january 31 , 2018 . 10.7 wireless internet access in public places security management and control systems feature collection equipment purchase contract , dated january 8 , 2016 , by and between shuhai information technology co. , ltd. and daqing city public security bureau , incorporated herein by reference to exhibit 10.7 of the post-effective amendment no . 1 to form s-1 filed on february 10 , 2016 . 10.8 the 2018 equity incentive plan of datasea inc. , incorporated herein by reference to exhibit 10.14 of the form 10-k for the year ended june 30 , 2018 filed on september 13 , 2018 . 10.9 form of indemnification escrow agreement , incorporated herein by reference to exhibit 10.9 of the s-1/a filed on october 16 , 2018 . 10.10 translation of the lease agreement by and between shuhai information technology co. , ltd. and beijing chang ning machinery electric science and technology co. , ltd. dated december 29 , 2017 , incorporated herein by reference to exhibit 10.10 of the s-1/a filed on january 31 , 2018 . 10.11 translation of the building property management contract by and between shuhai information technology co. , ltd. and zhuozhou city changning property service co. , ltd. dated december 29 , 2017 , incorporated herein by reference to exhibit 10.11 of the s-1/a filed on january 31 , 2018 . 10.12 translation of the lease agreement by and between shuhai information technology co. , ltd. and beijing chang ning machinery electric science and technology co. , ltd. dated december 8 , 2016 , incorporated herein by reference to exhibit 10.12 of the s-1/a filed on january 31 , 2018 . 10.13 translation of the building property management contract by and between shuhai information technology co. , ltd. and beijing changning property service co. , ltd. dated december 8 , 2016 , incorporated herein by reference to exhibit 10.13 of the s-1/a filed on january 31 , 2018 . 10.14 employment agreement , dated february 11 , 2018 , by and between shuhai information technology co. , ltd. and ms. zhixin liu . , incorporated herein by reference to exhibit 10.14 of the s-1/a filed on april 5 , 2018 . - 66 - 10.15 translation of the banking service direct sales cooperation agreement between china minsheng bank co. and shuhai information technology co. , ltd. dated march 15 , 2018 , incorporated herein by reference to exhibit 10.15 of the s-1/a filed on april 5 , 2018 . 10.16 form of director offer letter , incorporated herein by reference to exhibit 10.18 of the s-1/a filed on october 16 , 2018 . 10.17 translation of the lease agreement , dated july 30 , 2019 , by and between shuhai information technology co. , ltd. and beijing kaipeng technology co. , ltd. 14.1 code of ethics , incorporated herein by reference to exhibit 14.1 of the s-1/a filed on october 16 , 2018 . 21.1 * subsidiaries of the company . 23.1 * wei wei & co. llp s-8 consent . 23.2 * wei wei & co. llp s-3 consent . 23.3 * morison cogen llp consent . 31.1 * certification by chief executive officer pursuant to sarbanes oxley section 302 31.2 * certification by chief financial officer pursuant to sarbanes story_separator_special_tag this current report on form 10-k contains forward-looking statements within the meaning of the federal securities laws . these include statements about our expectations , beliefs , intentions or strategies for the future , which we indicate by words or phrases such as “ anticipate , ” “ expect , ” “ intend , ” “ plan , ” “ will , ” “ we believe , ” “ management believes ” and similar language . except for the historical information contained herein , the matters discussed in this “ management 's discussion and analysis of financial condition and results of operations , ” and elsewhere in this current report are forward-looking statements that involve risks and uncertainties . the cautionary language in this current report , provide examples of risks , uncertainties and events that may cause our actual results to differ materially from those projected . story_separator_special_tag total costs of these two systems are $ 2.4 million , out of which $ 1.9 million was paid as of june 30 , 2020. we intend to invest approximately $ 10 million in technological product development over the next three years . - 46 - general and administration ( “ g & a ” ) expenses increased $ 488,771 , or 43 % from $ 1,131,575 during the year ended june 30 , 2019 to $ 1,620,346 during the same period in 2020. the increases were attributed to increases in rent expenses by $ 126,873 , increased property management fee by $ 38,400 , increased office improvement depreciation by $ 22,120 , increased salary expense of the company 's president and chairman by $ 94,019 , increased conference expense by $ 30,282 , fees to nasdaq of $ 150,000 incurred in the year ended june 30 , 2020 , and increased professional fee by $ 41,552. non-operating income , net non-operating income were $ 46,958 and $ 74,127 for the years ended june 30 , 2020 and 2019. for the year ended june 30 , 2020 , we had interest income $ 49,455 and other expense $ 2,497. for the years ended june 30 , 2019 , we had interest income $ 75,859 and other expense $ 1,732. net loss we generated net losses of $ 1,863,253 and $ 1,425,181 for the years ended june 30 , 2020 and 2019 , respectively , mainly due to increased research and development expenses , selling expenses and g & a expenses as describe above , despite we had increased revenue for the year ended june 30 , 2020. liquidity and capital resources we have funded our operations to date primarily through the sale of our common stock , shareholder loans and cash income . our management recognizes that we must generate sales and additional cash resources in order for our company to continue our operations . based on increased demand for security services in china , our management believes in the potential for growth in our business . in addition , following our december 2018 ipo , we received net proceeds $ 5.7 million . we expect to generate revenue through expanding our current safe campus business , promoting epidemic prevention and control systems , scenic area and public community security products , and other artificial intelligence application and products such as face recognition products , and through continuous product innovation and development as well as various types of value-added services . if revenues are not generated or do not reach the level anticipated in our plan , in order to maintain working capital sufficient to support our operations and finance the future growth of its business , we expect to fund any cash flow shortfall through financial support from our majority stockholders ( who are also our board members or officers ) and public or private issuance of securities . however , such additional cash resources may not be available to us on desirable terms , or at all , if and when needed by us . we will also generate cash flow through cash income and governmental subsidies to support future operations as of june 30 , 2020 , we had a working capital of $ 2,609,032 excluding the restricted cash of $ 600,000 ( or a current liquidity ratio of 4.78:1 ) . our current assets on june 30 , 2020 were $ 3,298,523 excluding the restricted cash of $ 600,000. as of june 30 , 2019 , we had a working capital of $ 4,568,461 excluding the restricted cash of $ 600,000 ( or current liquidity ratio of 3.71:1 ) . our current assets on june 30 , 2019 were $ 6,251,863 excluding the restricted cash of $ 600,000 , which will be released to the company following the termination of the indemnification escrow agreement originally executed in connection with our 2018 ipo . it is expected that the company will continue to support its operations and investment plans through its financing activities . - 47 - the following is a summary of cash provided by or used in each of the indicated types of activities during the years ended june 30 , 2020 and 2019 , respectively . replace_table_token_7_th cash flow from operating activities net cash used in operating activities was $ 4,573,352 during the year ended june 30 , 2020 , comparing with net cash used in operating activities of $ 424,048 during the year ended june 30 , 2019 , an increase of cash outflow by $ 4,149,304. the increase in cash outflow was mainly due to increased net loss by $ 438,072 , increased cash outflow on prepaid expenses including prepayment for developing the tour site security system and the facial recognition and eye protection system by $ 978,256 , and decreased cash inflow from advance from customers by $ 2,592,802. cash flow from investing activities net cash used in investing activities totaled $ 306,813 for the year ended june 30 , 2020 , which primarily related to cash paid for the acquisition of office furniture and equipment and leasehold improvements of $ 295,467 , and for intangible assets of $ 11,346. net cash used in investing activities totaled $ 66,385 for the year ended june 30 , 2019 , which primarily related to $ 18,918 cash paid for the acquisition of office furniture , equipment and patents , and $ 47,467 for intangible asset . cash flow from financing activities net cash used in financing activities was $ 84,842 during the year ended june 30 , 2020 , which primarily consisted of repayment of a shareholder loan of $ 84,842. net cash provided by financing activities was $ 5,609,222 during the year ended june 30 , 2019 , which primarily consisted of proceeds of a shareholder loan , net of $ 60,867 , the net proceeds from sale of the company 's common stock of $ 307,466 , the net proceeds of
| results of operations comparison of the years ended june 30 , 2020 and 2019 the following table sets forth the results of our operations for the years ended june 30 , 2020 and 2019 , respectively , indicated as a percentage of net sales . certain columns may not add up due to rounding . replace_table_token_6_th revenue we had revenues of $ 1.41 million and $ 0 in the years ended june 30 , 2020 and 2019 , respectively . on march 5 , 2018 and june 28 , 2018 , we entered into separate agreements with two sales agents for our safe campus security system , respectively . pursuant to the agreements , we authorized the agents to market the company 's safe campus management system . the term of the agreements is for five years and will expire on march 6 , 2023 and july 1 , 2023 , respectively . as of june 30 , 2019 , we recorded the $ 1.29 million payments received from the two sales agents as advances from customers ; in the fourth quarter of 2020 , we recognized revenue of $ 1.29 million from these contracts as the sales agents sold the products and services to third parties in the same period and the company has provided the required services and fulfilled all its obligations under these contracts . - 45 - in addition , during the year ended june 30 , 2020 , guozhong times executed 62 cri purchase orders from development and construction companies from anhui and fujian province in china for an aggregate contract value ( excluding value-add tax ) of approximately $ 124,000 for customized hardware and software solutions to detect and control the novel coronavirus outbreak in public areas . our systems sold in these orders are utilized in public places including campuses , shopping malls , scenic areas , residential areas and factory areas .
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except for historical information contained in these written or oral communications , such communications contain forward-looking statements . these include , for example , all references to 2021 or future years . new risk factors emerge from time to time and it is not possible for the company to predict all such risk factors , nor can it assess the impact of all such risk factors on the company 's business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . accordingly , forward-looking statements can not be relied upon as a guarantee of future results and involve a number of risks and uncertainties that could cause actual results to differ materially from those projected in the statements , including but not limited to the factors that are described in part i , item 1a under the caption of “ risk factors ” of this form 10-k , which section is incorporated herein by reference . the company is not required , and undertakes no obligation , to revise or update forward-looking statements or any factors that may affect actual results , whether as a result of new information , future events , or circumstances occurring after the date of this report . overview management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is designed to provide a discussion of the company 's financial condition , results of operations , liquidity and certain other factors that may affect its future results from the perspective of management . the discussion that follows is intended to provide information that will assist in understanding the changes in the company 's consolidated financial statements from year to year , the primary factors that accounted for those changes , and how certain accounting principles , policies and estimates affect the company 's consolidated financial statements . md & a is provided as a supplement to , and should be read in conjunction with the consolidated financial statements and the accompanying notes to the consolidated financial statements in item 8 of part ii below . discussion and analysis of the financial condition and results of operations of matson for the years ended december 31 , 2019 and 2018 can be found in part ii , item 7 of the company 's annual report on form 10-k for the year ended december 31 , 2019 , filed with the sec on february 28 , 2020 . md & a is presented in the following sections : ◾ fourth quarter 2020 discussion and update on business conditions ◾ story_separator_special_tag style= '' background-color : # 000000 ; clear : both ; height:2pt ; page-break-after : always ; width:79.3 % ; border:0 ; margin:30pt 10.35 % 30pt 10.35 % ; '' > ocean transportation revenue increased $ 187.3 million , or 11.2 percent , during the year ended december 31 , 2020 , compared with the year ended december 31 , 2019. the increase was primarily due to higher freight revenue in the china service , including revenue associated with the clx+ service , partially offset by lower fuel-related surcharge revenue and lower revenue in hawaii . on a year-over-year feu basis , hawaii container volume decreased 0.6 percent primarily due to lower volume as a result of the pandemic and its effects on tourism , partially offset by volume associated with the dry-docking of one of pasha 's vessels in the second quarter and higher demand for sustenance and home improvement goods ; alaska volume increased by 4.6 percent primarily due to higher northbound volume , including volume associated with the dry-docking of a competitor 's vessel and one additional sailing , partially offset by modestly lower southbound volume ; china volume was 85.8 percent higher primarily due to volume from the clx+ service in addition to higher volume on the clx service as a result of our increased capacity in the tradelane ; guam volume was 2.6 percent lower primarily due to lower demand for retail-related goods resulting from the pandemic and its related effects ; and other container volume increased 3.6 percent . ocean transportation operating income increased $ 154.0 million , or 169.6 percent , during the year ended december 31 , 2020 , compared with the year ended december 31 , 2019. the increase was primarily due to a higher contribution from the china service , including the contribution from the clx+ service , and lower vessel operating costs , including the impact of one less vessel operating in the hawaii service , partially offset by a lower contribution from the hawaii service . the company 's ssat terminal joint venture investment contributed $ 26.3 million during the year ended december 31 , 2020 , compared to a contribution of $ 20.8 million during the year ended december 31 , 2019. the increase was largely attributable to lower operating costs . logistics : 2020 compared with 2019 : replace_table_token_5_th logistics revenue decreased $ 7.1 million , or 1.3 percent , during the year ended december 31 , 2020 , compared with the year ended december 31 , 2019. the decrease was primarily due to lower transportation brokerage and freight forwarding revenue . logistics operating income decreased $ 2.8 million , or 7.3 percent , for the year ended december 31 , 2020 , compared with year ended december 31 , 2019. the decrease was due primarily to a lower contribution from freight forwarding . story_separator_special_tag the increase in fixed interest debt was due to the new title xi financing agreements entered into during 2020 which were partially offset by scheduled debt payments made during the year ended december 31 , 2020 . as of december 31 , 2020 , the company had $ 570.1 million of unused capacity under the revolving credit facility , which matures on june 29 , 2022. the leverage ratio under the debt agreements as of december 31 , 2020 was approximately 1.7 times . the company 's debt is described in note 8 to the consolidated financial statements in item 8 of part ii . working capital : the company had a working capital deficiency of $ 205.6 million at december 31 , 2020 , compared to a working capital deficiency of $ 147.1 million at december 31 , 2019. working capital is impacted by the use of cash to reduce the company 's long-term revolving credit facility as of december 31 , 2020 , by the amount and timing of collections associated with accounts receivable and other assets , and by the amount and timing of payments associated with accounts payable , accruals and other liabilities . working capital deficiency increased as of december 31 , 2020 , primarily due to the reduction in prepaid expenses and other assets as a result of the collection of income tax and insurance receivables , and an increase in other liabilities due to employee incentives and other accruals . 31 capital expenditures : in 2021 , the company expects to make the following capital expenditures : ( i ) maintenance related capital expenditures of approximately $ 60 - $ 70 million ; ( ii ) acquisition of equipment to support growth in the clx+ and aax services of approximately $ 55 million ; ( iii ) construction of a new barge of approximately $ 25 million ; and ( iv ) dry-dock scrubber installation costs of approximately $ 20 million . such capital expenditures are expected to be financed through cash provided by operating activities and the company 's revolving credit facility . contractual obligations , commitments , contingencies and off-balance sheet arrangements contractual obligations : at december 31 , 2020 , the company had the following estimated contractual obligations : replace_table_token_12_th ( 1 ) total debt obligations include principal repayments of outstanding debt ( see note 8 to the consolidated financial statements in item 8 of part ii below , for additional information ) . ( 2 ) operating lease obligations primarily consist of real estate and terminal leases , vessel charter leases , operations equipment and other leases entered into under non-cancellable arrangements ( see note 9 to the consolidated financial statements in item 8 of part ii below , for additional information ) . ( 3 ) estimated interest on debt is determined based on : ( i ) the stated interest rate for fixed debt , and ( ii ) the estimated variable interest on revolving credit facility assuming the balance at december 31 , 2020 remains outstanding until maturity . ( 4 ) qualified defined benefit pension , non-qualified pension and post-retirement benefit obligations include estimated payments for the next ten years . the amounts noted in the column labeled “ thereafter ” represent estimated benefit payments for 2026 through 2030 ( see note 11 to the consolidated financial statements in item 8 of part ii below , for additional information ) . ( 5 ) multi-employer withdrawal obligations relate to the discounted liability associated with horizon 's mass withdrawal from puerto rico 's multi-employer ila-prssa and the partial withdrawal liability associated with the local 153 fund of the opeiu ( see note 12 to the consolidated financial statements in item 8 of part ii below , for additional information ) . ( 6 ) vendor and other obligations include : ( i ) non-cancellable contractual capital project obligations ; ( ii ) dry-docking related obligations ; and ( iii ) other contractual obligations . amounts are considered obligations if a contract has been agreed to specifying significant terms of the contract , and the amounts are not reflected in the consolidated balance sheets . estimated timing and amount of payments related to unrecognized tax benefits of $ 18.3 million as of december 31 , 2020 are excluded from the table due to the uncertainty of such timing and payments , if any . commitments , contingencies and off-balance sheet arrangements : commitments and contingencies : a description of other commitments and contingencies is set forth in note 9 , note 11 and note 17 to the consolidated financial statements in item 8 of part ii below , and is incorporated herein by reference . off-balance sheet arrangements : except as described below , the company is not party to any off-balance sheet arrangements that have , or are reasonably likely to have , a current or future material effect on the company 's financial condition , results of operations or cash flows . future minimum payments under operating leases are $ 302.3 million as of december 31 , 2020. in addition , the company provided a lessor with a maximum residual value guarantee related to the lease of a vessel . additional information related to leases and the vessel lease guarantee is set forth in note 9 to the consolidated financial statements in item 8 of part ii below , and is incorporated herein by reference . 32 critical accounting policies and estimates the company 's significant accounting policies are described in note 2 to the consolidated financial statements in item 8 of part ii below . the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states of america , upon which the company 's management discussion and analysis of financial condition and results of operations is based , requires that management exercise judgment when making accounting estimates about future events that may affect the amounts reported in the consolidated financial statements and accompanying notes .
| consolidated results of operations ◾ analysis of operating revenue and income by segment ◾ liquidity and capital resources ◾ contractual obligations , commitments , contingencies and off-balance sheet arrangements ◾ critical accounting estimates ◾ other matters 26 fourth quarter 2020 discussion and update on business conditions ocean transportation : the company 's container volume in the hawaii service in the fourth quarter 2020 was 0.8 percent higher year-over-year primarily due to an additional westbound sailing and higher demand for sustenance and home improvement goods , partially offset by lower tourism activity as a result of the pandemic . the state of hawaii eased visitor travel restrictions to the islands in october and saw an improvement in the daily passenger counts , but tourism activity remained significantly below the levels achieved in the prior year period . tourism levels are expected to remain low until the pandemic subsides and to have a meaningfully negative impact on hawaii 's economy . in china , the company 's container volume in the fourth quarter 2020 was 139.1 percent higher year-over-year due to volume from the clx+ service in addition to higher volume on the clx service as a result of our increased capacity in the tradelane . matson continued to realize a rate premium in the fourth quarter 2020 and achieved average freight rates that were higher than in the year ago period . the company expects elevated consumption of e-commerce and other commodities coupled with other supply and demand factors in the tradelane to largely remain favorable in the first half of 2021 as the pandemic persists . as the pandemic subsides with widespread vaccination , we expect some of the supply and demand factors that we are currently benefitting from to remain and continue to drive demand for our clx and clx+ services .
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the right , and story_separator_special_tag general this discussion and analysis should be read in conjunction with our consolidated financial statements and related notes in part iv , item 15 of this report , the risk factors included in part i , item 1a of this report and the cautionary statements included throughout this report . the inclusion of supplementary analytical and related information herein may require us to make estimates and assumptions to enable us to fairly present , in all material respects , our analysis of trends and expectations with respect to our results of operations and financial position . we utilize a 52/53-week fiscal year ending on the tuesday closest to december 31st for financial reporting purposes . fiscal year 2016 consisted of 53 weeks , and fiscal years 2015 and 2014 each consisted of 52 weeks . the estimated impact of the 53 rd week in fiscal 2016 was an increase in revenues and diluted net income per share of approximately $ 54.7 million and $ 0.07 , respectively . our business operates in the upscale casual dining segment of the restaurant industry . as of march 2 , 2017 , we operated 208 company-owned restaurants : 194 under the cheesecake factory ® mark , 13 under the grand lux cafe ® mark and one currently under the rock sugar pan asian kitchen ® mark ( transitioning to rocksugar southeast asian kitchen tm ) . internationally , 15 the cheesecake factory branded restaurants operated in the middle east , china and mexico under licensing agreements . we also operated two bakery production facilities that produce desserts for our restaurants , international licensees and third-party bakery customers . we are selectively pursuing other means to leverage our competitive strengths , including developing , investing in or acquiring new restaurant concepts and expanding the cheesecake factory ® brand to other retail opportunities . 31 overview our strategy is driven by our commitment to customer satisfaction and is focused primarily on menu innovation , service and operational execution to continue to differentiate ourselves from other restaurant concepts , as well as to drive competitively strong performance that is sustainable . financially , we are focused on prudently managing expenses at our restaurants , bakery facilities and corporate support center , and leveraging our size to make the best use of our purchasing power . investing in new company-owned restaurant development is our top capital allocation priority , with a focus on opening our concepts in premier locations within both new and existing markets in the united states . we target an average fully capitalized cash return on investment of approximately 20 % at the unit level . returns are affected by the cost to build restaurants , the level of revenues that each restaurant can deliver and our ability to maximize the profitability of restaurants . investing in new restaurant development that meets our return on investment criteria is expected to create value for our company and supports achieving mid-teens company-level return on invested capital . going forward , our domestic revenue growth ( comprised of our annual unit growth and comparable sales growth ) , combined with international growth , contribution from our incremental growth opportunities , a robust share repurchase program and our dividend provide a framework with high visibility and one that supports our financial objective of mid-teens growth in total return to shareholders . we define our total returns as earnings per share growth plus our dividend yield . the following are the key performance levers that we believe will contribute to achieving these goals : · growing overall revenues . our overall revenue growth is primarily driven by revenues from new restaurant openings , increases in comparable restaurant sales , and royalties and bakery sales from additional licensed international locations . changes in comparable restaurant sales come from variations in customer traffic , as well as in check average . our strategy is to grow customer traffic by ( 1 ) continuing to offer innovative , high quality menu items that offer customers a wide range of options in terms of flavor , price and value and ( 2 ) focusing on service and hospitality with the goal of delivering an exceptional customer experience . we are continuing our efforts on a number of initiatives intended to help us make incremental progress towards growing customer traffic , including a greater focus on increasing throughput in our restaurants , building on the success of our gift card program , partnering with a third party to provide delivery services for our restaurants , capitalizing on our redesigned training programs and offering a technology for mobile payment in our restaurants . check average is impacted by menu price increases and or changes in menu mix . our philosophy with regard to menu pricing is to use price increases to help offset key operating cost increases in a manner that balances protecting both our margins and customer traffic levels . in addition , we are pursuing a number of incremental growth opportunities , including measured growth of our grand lux cafe and rocksugar southeast asian kitchen concepts , our investment in north italia and flower child , internal development of a fast casual concept and additional consumer packaged goods opportunities , which we believe will contribute to revenue growth over time . · increasing our operating margins ( income from operations expressed as a percentage of revenues ) . operating margins are subject to fluctuations in commodity costs , labor , restaurant-level occupancy expenses , general and administrative expenses ( g & a ) and preopening expenses . our objective is to gradually increase our operating margins and return to peak levels by capturing fixed cost leverage primarily from growth in international royalties , as well as increases in comparable restaurant sales . maximizing our purchasing power as our business grows and operating our restaurants as productively as possible should help offset cost inflation , thereby supporting our margin expansion goal . story_separator_special_tag the cheesecake factory average sales per restaurant operating week increased 1.5 % to $ 204,877 in fiscal 2015 compared to fiscal 2014. comparable sales at our grand lux cafe restaurants decreased by 2.3 % from the prior fiscal year driven by a decrease in customer traffic , partially offset by average check growth . we implemented effective menu price increases of approximately 1.5 % and 1.1 % during the second and fourth quarters of fiscal 2015 , respectively . external bakery sales were $ 52.8 million for fiscal 2015 compared to $ 53.2 million in fiscal 2014. cost of sales as a percentage of revenues , cost of sales was 24.0 % for fiscal 2015 compared to 24.9 % for fiscal 2014. higher meat costs were more than offset by lower dairy and seafood costs . labor expenses as a percentage of revenues , labor expenses , which include restaurant-level labor costs and bakery direct production labor , including associated fringe benefits , were 32.6 % and 32.7 % in fiscal 2015 and fiscal 2014 , respectively . decreased group medical costs due to lower large claims activity and enrollment were partially offset by higher hourly labor rates . other operating costs and expenses as a percentage of revenues , other operating costs and expenses decreased to 23.8 % for fiscal 2015 from 24.2 % for fiscal 2014 primarily due to lower natural gas prices and some favorability across other categories . general and administrative expenses as a percentage of revenues , g & a expenses increased to 6.5 % for fiscal 2015 versus 6.0 % for fiscal 2014 primarily due to a higher fiscal 2015 accrual for corporate performance bonuses and an increase in stock-based compensation expense . depreciation and amortization expenses as a percentage of revenues , depreciation and amortization expenses were 4.1 % and 4.2 % in fiscal 2015 and fiscal 2014 , respectively . 35 impairment of assets and lease terminations during fiscal 2015 , we recorded a $ 6.0 million impairment charge against the carrying value of our rock sugar pan asian kitchen restaurant assets . during fiscal 2014 , we incurred $ 0.7 million of accelerated depreciation , future rent and other closing costs related to the relocation of one the cheesecake factory restaurant . preopening costs preopening costs were $ 16.9 million for fiscal 2015 compared to $ 14.4 million in fiscal 2014. we opened ten the cheesecake factory restaurants and one grand lux cafe in fiscal 2015 compared to ten the cheesecake factory restaurants in fiscal 2014. interest and other expense , net interest and other expense , net was $ 5.9 million in fiscal 2015 compared to $ 6.2 million in fiscal 2014. this decrease was primarily due to income from an insurance claim and lower interest expense on our deemed landlord financing liability , partially offset by higher expense on asset disposals . interest expense on our deemed landlord financing liability was $ 3.5 million in fiscal 2015 compared to $ 3.8 million in fiscal 2014. income tax provision our effective income tax rate was 26.9 % in both fiscal 2015 and fiscal 2014. a higher proportion of enterprise zone credits in relation to pre-tax income was offset by non-deductible losses in fiscal 2015 as compared to non-taxable gains in fiscal 2014 on our investments in variable life insurance contracts used to support our esp . see note 14 of notes to consolidated financial statements in part iv , item 15 of this report for further information on our income tax provision . non-gaap measures adjusted net income and adjusted diluted net income per share are supplemental measures of our performance that are not required by or presented in accordance with gaap . these non-gaap measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with gaap . we calculate these non-gaap measures by eliminating from net income and diluted net income per share the impact of items we do not consider indicative of our ongoing operations . we believe these adjusted measures provide additional information to facilitate the comparison of our past and present financial results . we utilize results that both include and exclude the identified items in evaluating business performance . our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items . in the future , we may incur expenses or generate income similar to the adjusted items . following is a reconciliation from net income and diluted net income per share to the corresponding adjusted measures ( in thousands , except per share data ) : replace_table_token_8_th ( 1 ) fiscal year 2016 includes $ 0.1 million of pre-tax accelerated depreciation expense related to the planned relocation of one the cheesecake factory restaurant and we expect to incur an additional $ 1.2 million of pre-tax accelerated depreciation and impairment expense related to this relocation in fiscal 2017. fiscal year 2015 includes $ 6.0 million of pre-tax impairment expense related to our rock sugar pan asian kitchen restaurant . fiscal year 2014 includes $ 0.7 million of pre-tax accelerated depreciation , future rent and other closing costs related to the relocation of one the cheesecake factory restaurant . these amounts were recorded in impairment of assets and lease terminations in the consolidated statements of income . ( see note 1 of notes to consolidated financial statements in part iv , item 15 of this report for further discussion of these charges . ) fiscal 2017 outlook this discussion contains forward-looking statements and should be read in conjunction with our consolidated financial statements and related notes in part iv , item 15 of this report , the risk factors included in part i , item 1a of this report and the cautionary statements included throughout this report .
| results of operations the following table sets forth , for the periods indicated , information from our consolidated statements of income expressed as percentages of revenues . replace_table_token_7_th fiscal 2016 compared to fiscal 2015 revenues revenues increased 8.3 % to $ 2,275.7 million for fiscal 2016 , including approximately $ 54.7 million contributed by the 53 rd week , compared to $ 2,100.6 million for fiscal 2015. comparable sales at the cheesecake factory restaurants increased by 1.2 % , or $ 22.8 million , from fiscal 2015 on a 53-week basis , outperforming the casual dining industry which experienced a comparable sales decline of 1.4 % , as measured by knapp track . our comparable sales increase was driven by average check growth of 2.8 % ( based on an increase of 2.7 % in menu pricing and a 0.1 % positive change in mix ) , partially offset by a decrease in customer traffic of 1.6 % . we implemented effective menu price increases of approximately 1.4 % and 1.1 % during the first and third quarters of fiscal 2016 , respectively . we plan to target menu price increases of approximately 2 % annually going forward . total operating weeks at the cheesecake factory restaurants increased 7.4 % to 10,031 in fiscal 2016 compared to the prior year . excluding the impact of the 53 rd week in fiscal 2016 , total operating weeks increased 5.3 % to 9,837. the cheesecake factory average sales per restaurant operating week increased 1.1 % to $ 207,166 in fiscal 2016 compared to fiscal 2015. comparable sales at our grand lux cafe restaurants increased by 2.2 % from fiscal 2015 on a 53-week basis driven by an increase in average check and customer traffic . we implemented effective menu price increases of approximately 1.0 % and 1.3 % during the second and fourth quarters of fiscal 2016 , respectively . we plan to target menu price increases of approximately 2 % annually going forward .
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you can identify our forward-looking statements by words such as “ anticipate , ” “ believe , ” “ design , ” “ estimate , ” “ objective , ” “ expect , ” “ forecast , ” “ outlook , ” “ goal , ” “ guidance , ” “ imply , ” “ intend , ” “ plan , ” “ predict , ” “ prospective , ” “ project , ” “ opportunity , ” “ potential , ” “ position , ” “ pursue , ” “ strategy , ” “ seek , ” “ target , ” “ could , ” “ may , ” “ should , ” “ would , ” “ will ” or other similar expressions that convey the uncertainty of future events or outcomes . in accordance with “ safe harbor ” provisions of the private securities litigation reform act of 1995 , these statements are accompanied by cautionary language identifying important factors , though not necessarily all such factors , which could cause future outcomes to differ materially from those set forth in forward-looking statements . corporate overview we are an independent petroleum refining and marketing , retail and midstream company . overall , we are one of the largest independent petroleum product refining , marketing , retail and transportation businesses in the united states and the largest east of the mississippi . we currently own and operate seven refineries , all located in the united states , with an aggregate crude oil refining capacity of approximately 1.8 mmbpcd . our refineries supply refined products to resellers and consumers within our market areas , including the midwest , northeast , east coast , southeast and gulf coast regions of the united states . we distribute refined products to our customers through one of the largest terminal operations in the united states and a combination of mpc-owned and third-party-owned trucking and rail assets . we are one of the largest wholesale suppliers of gasoline and distillates to resellers within our market area . we have two strong retail brands : speedway ® and marathon ® . we believe that speedway llc , a wholly-owned subsidiary , operates the second largest chain of company-owned and operated retail gasoline and convenience stores in the united states , with approximately 2,730 convenience stores in 21 states throughout the midwest , east coast and southeast . the marathon brand is an established motor fuel brand in the midwest and southeast regions of the united states , and is available through approximately 5,500 retail outlets operated by independent entrepreneurs in 19 states . through our ownership interests in mplx and its wholly-owned subsidiary , markwest , we are one of the largest processors of natural gas in the united states , the largest processor and fractionator in the marcellus and utica shale regions and we distribute refined products through one of the largest private domestic fleets of inland petroleum product barges . our integrated midstream energy asset network links producers of natural gas and ngls from some of the largest supply basins in the united states to domestic and international markets . our midstream gathering and processing operations include : natural gas gathering , processing and transportation ; and ngl gathering , transportation , fractionation , storage and marketing . our assets include approximately 7,500 mmcf/d of natural gas processing capacity and 500 mbpd of fractionation capacity as of december 31 , 2016 . we also own 5,600 miles of gas gathering and ngl pipelines and have ownership interests in more than 50 gas processing plants , more than 10 ngl fractionation facilities and two condensate stabilization facilities . as of december 31 , 2016 , we owned , leased or had ownership interests in approximately 8,400 miles of crude oil and refined product pipelines to deliver crude oil to our refineries and other locations and refined products to wholesale and retail market areas . we revised our operating segment presentation in the first quarter of 2016 in connection with the contribution of our inland marine business to mplx . in previous periods , our inland marine business and our investment in an ocean vessel joint venture , crowley ocean partners , were presented within our refining & marketing segment . they are now presented in our midstream segment . comparable prior period information has been recast to reflect our revised segment presentation . we plan additional dropdowns of mlp-qualifying assets to mplx in 2017 and would expect changes to our segment reporting in connection with these transactions . our operations consist of three reportable operating segments : refining & marketing ; speedway ; and midstream . each of these segments is organized and managed based upon the nature of the products and services they offer . see item 1. business for additional information on our segments . refining & marketing – refines crude oil and other feedstocks at our seven refineries in the gulf coast and midwest regions of the united states , purchases refined products and ethanol for resale and distributes refined products through various means , including terminals and trucks that we own or operate . we sell refined products to wholesale marketing customers domestically and internationally , buyers on the spot market , our speedway business segment and to independent entrepreneurs who operate marathon ® retail outlets . 50 speedway – sells transportation fuels and convenience products in the retail market in the midwest , east coast and southeast . midstream – includes the operations of mplx and certain other related operations . the midstream segment gathers , processes and transports natural gas ; gathers , transports , fractionates , stores and markets ngls and transports and stores crude oil and refined products . strategic actions to enhance shareholder value on january 3 , 2017 , we announced plans to significantly accelerate the dropdown of assets with an estimated $ 1.4 billion of mlp-eligible annual ebitda to mplx now expected to be completed in 2017 , subject to requisite approvals and regulatory clearances , including tax clearance , and market and other conditions . story_separator_special_tag percent interest in pipe line holdings to mplx for $ 12 million . as a result , mplx now owns 100 percent of pipe line holdings . the sales and contribution of our interests in pipe line holdings to mplx resulted in a change of our ownership in pipe line holdings , but not a change in control . we accounted for these sales as transactions between entities under common control and did not record a gain or loss . on march 31 , 2016 , we contributed our inland marine business to mplx in exchange for 23 million common units and 460 thousand general partner units . the number of units we received from mplx was determined by dividing $ 600 million by the volume weighted average nyse price of mplx common units for the 10 trading days preceding march 14 , 2016 , pursuant to the membership interests contribution agreement . we also agreed to waive first-quarter 2016 common unit distributions , idrs and general partner distributions with respect to the common units issued in this transaction . the contribution of our inland marine business was accounted for as a transaction between entities under common control and we did not record a gain or loss . on december 5 , 2016 , our board of directors authorized us to offer up to 100 percent of mplx terminals llc ( “ mplx terminals ” ) , hardin street transportation llc ( “ hardin street transportation ” ) and woodhaven cavern llc ( “ woodhaven cavern ” ) to mplx . mplx terminals owns and operates light products terminals . hardin street transportation owns and operates various private crude oil and refined product pipeline systems and associated storage tanks . woodhaven cavern owns and operates butane and propane storage caverns . the transaction is expected to close in the first quarter of 2017 , pending requisite approvals . 52 reorganization transactions on september 1 , 2016 , mpc , mplx and various affiliates initiated a series of reorganization transactions in order to simplify mplx 's ownership structure and its financial and tax reporting . in connection with these transactions , mpc contributed $ 225 million to mplx , and all of the issued and outstanding mplx class a units , all of which were held by markwest hydrocarbon , a wholly-owned subsidiary of mplx , were exchanged for newly issued common units representing limited partner interests in mplx . the simple average of the closing prices of mplx common units for the last 10 trading days prior to september 1 , 2016 was used for purposes of these transactions . as a result of these transactions , mpc increased its ownership interest in mplx by 7 million mplx common units , or approximately 1 percent . private placement of preferred units on may 13 , 2016 , mplx completed the private placement of approximately 30.8 million 6.5 percent series a convertible preferred units ( the “ mplx preferred units ” ) at a cash price of $ 32.50 per unit . the aggregate net proceeds of approximately $ 984 million from the sale of the mplx preferred units was used for capital expenditures , repayment of debt and general partnership purposes . the mplx preferred units rank senior to all mplx common units with respect to distributions and rights upon liquidation . the holders of the mplx preferred units are entitled to receive quarterly distributions equal to $ 0.528125 per unit commencing for the quarter ended june 30 , 2016 , with a prorated amount from the date of issuance . following the second anniversary of the issuance of the mplx preferred units , the holders of the mplx preferred units will receive as a distribution the greater of $ 0.528125 per unit or the amount of per unit distributions paid to common units . the mplx preferred units are convertible into mplx common units on a one for one basis after three years , at the purchasers ' option , and after four years at mplx 's option , subject to certain conditions . the mplx preferred units are considered redeemable securities due to the existence of redemption provisions upon a deemed liquidation event which is considered outside our control . therefore they are presented as temporary equity in the mezzanine section of the consolidated balance sheets . we have recorded the mplx preferred units at fair value as of their issuance date , net of issuance costs . since the mplx preferred units are not currently redeemable and not probable of becoming redeemable in the future , adjustment to the initial carrying amount is not necessary and would only be required if it becomes probable that the security would become redeemable . public offerings on december 8 , 2014 , mplx completed a public offering of 3.5 million common units at a price to the public of $ 66.68 per mplx common unit , with net proceeds of $ 221 million . mplx used the net proceeds from this offering to repay borrowings under its bank revolving credit facility and for general partnership purposes . on february 12 , 2015 , mplx completed an underwritten public offering of $ 500 million aggregate principal amount of four percent unsecured senior notes due february 15 , 2025 ( the “ senior notes ” ) . the senior notes were offered at a price to the public of 99.64 percent of par . the net proceeds of this offering were used to for general corporate purposes , including dropdowns . on february 10 , 2017 , mplx completed a public offering of $ 1.25 billion aggregate principal amount of 4.125 % unsecured senior notes due march 2027 ( the “ mplx 2027 senior notes ” ) and $ 1.0 billion aggregate principal amount of 5.200 % unsecured senior notes due march 2047 ( the “ mplx 2047 senior notes ” ) .
| consolidated results of operations replace_table_token_28_th net income attributable to mpc decreased $ 1.68 billion in 2016 compared to 2015 and increased $ 328 million in 2015 compared to 2014 , primarily due to our refining & marketing segment income from operations , which decreased $ 2.54 billion in 2016 compared to 2015 and increased $ 548 million in 2015 compared to 2014. the decrease in income from operations in 2016 for our refining & marketing segment was partially offset by increases in our midstream and speedway segments . income from operations for 2016 includes a non-cash benefit of $ 370 million related to the reversal of the company 's lcm inventory valuation reserve and impairment charges of $ 356 million related to equity method investments and $ 130 million recorded by mplx to impair a portion of the $ 2.21 billion of goodwill recorded in connection with the markwest merger . income from operations for 2015 includes a non-cash $ 370 million lcm inventory valuation charge and an impairment charge of $ 144 million . see segment results for additional information . sales and other operating revenues ( including consumer excise taxes ) decreased $ 8.71 billion in 2016 compared to 2015 and $ 25.77 billion in 2015 compared to 2014 . the decrease in 2016 was primarily due to lower refined product sales prices and sales volumes . the decrease in 2015 was primarily due to lower refined product sales prices , partially offset by increases in refined product sales volumes . mpc consolidated refined product sales decreased 32 mbpd in 2016 compared to 2015 and increased 163 mbpd in 2015 compared to 2014 . income ( loss ) from equity method investments decreased $ 273 million in 2016 compared to 2015 and $ 65 million in 2015 compared to 2014 .
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the revolving credit agreement provides for a senior secured asset-based revolving loan and letter of credit facility ( the “ revolving credit facility ” ) of up to $ 600 million and an uncommitted accordion feature that permits the borrowers , with consent of the lenders , to increase the facility by an aggregate additional principal amount of up to $ 150 million , which will allow borrowings of up to $ 750 million under the revolving credit facility . letters of credit in an aggregate amount of up to $ 30 million are also available under the revolving credit agreement , which would reduce the amount of the revolving loans available under the revolving credit facility . the maturity date of the revolving credit agreement is october 10 , 2022. the borrowers ' obligations under the revolving credit agreement are secured by a security interest in substantially all of our and our subsidiaries ' assets ( other than real property ) , including inventories , accounts receivable , and proceeds from those items . borrowings under the revolving credit agreement are subject to availability under the borrowing base ( as that term is defined in the revolving credit agreement ) . the borrowers are required to repay revolving loans thereunder to the extent that such revolving loans exceed the borrowing base then in effect . the revolving credit facility may be prepaid in whole or in part from time to time without penalty or premium , but including all breakage costs incurred by any lender thereunder . the revolving credit agreement provides for interest on the loans at a rate per annum equal to ( i story_separator_special_tag results of operations the following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this form 10-k. in addition to historical information , the following discussion and other parts of this form 10-k contain forward-looking information that involves risks and uncertainties . our actual results could differ materially from those anticipated by this forward-looking information due to the factors discussed under “ risk factors , ” “ cautionary statement concerning forward-looking statements , ” and elsewhere in this form 10-k. this section of this form 10-k does not address certain items regarding the fiscal year ended december 29 , 2018 ( “ fiscal 2018 ” ) . discussion and analysis of fiscal 2018 and year-to-year comparisons between fiscal 2019 and fiscal 2018 not included in this form 10-k can be found in “ item 7. management 's discussion and analysis of financial condition and results of operations ” of our annual report on form 10-k for the fiscal year ended december 28 , 2019. executive level overview company background bluelinx is a leading u.s. wholesale distributor of residential and commercial building products with both branded and private-label skus across product categories such as lumber , panels , engineered wood , siding , millwork , metal building products , and other construction materials . with a strong market position , broad geographic coverage footprint servicing 40 states , and the strength of a locally focused sales force , we distribute our comprehensive range of products to over 15,000 national , regional , and local dealers , specialty distributors , national home centers , and manufactured housing customers . bluelinx is able to provide a wide range of value added services and solutions to our customers and suppliers . we are headquartered in georgia , with executive offices located at 1950 spectrum circle , marietta , georgia , and we operate our distribution business through a broad network of distribution centers . as a “ two-step ” wholesale distributor of building products , bluelinx stocks products from leading manufacturers , such as huber engineered woods , james hardie , georgia pacific , weyerhaeuser , and oldcastle , and supplies these products to a broad range of customers , including lumber yards , dealers , home centers , and hardware stores . these customers then serve residential and commercial builders and contractors in their respective geographic areas . bluelinx plays a critical role in enabling its lumber yard , dealer , and home center customers to offer a broad range of products and brands , as most of bluelinx 's customers do not have the capability to purchase and warehouse directly from the manufacturers for such a large set of skus . similarly , bluelinx provides value to its manufacturer partners by enabling access to the fragmented network of lumber yards and dealers that the manufacturers could not adequately serve directly . our place in this distribution model of building products provides easy access to the marketplace for our suppliers and the value proposition of rapid delivery on an as-needed basis to our customers from our network of warehouse facilities . in addition to its broad portfolio of building products , bluelinx also offers a wide array of custom cutting and fabrication services for the wood products industry . recent developments real estate transactions during the first quarter of fiscal 2020 , we completed real estate financing transactions through sale-leaseback arrangements on fourteen of our distribution facilities . gross proceeds for these transactions were $ 78.3 million . net proceeds from these transactions were used to repay indebtedness under our term loan facility . upon completion of the transactions , we entered into long-term leases with multiple renewal options on the properties . these real estate financing transactions were accounted for as finance leases , in accordance with generally accepted accounting principles in the united states ( “ u.s . gaap ” ) . additionally , during the third quarter of fiscal 2020 , we completed a real estate financing transaction through a sale-leaseback arrangement on one distribution facility . gross proceeds for this transaction were $ 11.0 million and we recognized a gain of $ 8.7 million on the sale of this facility . net proceeds from this transaction were used to repay indebtedness under our term loan facility . story_separator_special_tag covid-19 pandemic we began preparations for the covid-19 pandemic in late february 2020 , and in early march 2020 we implemented policies and procedures to protect our associates , serve our customers , and support our suppliers . we also moved quickly to develop and execute plans and take actions designed to give financial and operating flexibility during the pandemic . to date , our business has been designated as “ essential ” in all states in which we operate , and we have continued to operate and provide service to our customers and suppliers . during fiscal 2020 , and into 2021 , we have continued to practice safety and hygiene protocols consistent with the centers for disease control and prevention ( “ cdc ” ) and local guidance . we also continued our efforts to reduce operating costs and optimize liquidity and took actions designed to sustain many of our first and second quarter cost reduction actions long-term . cost structure and liquidity will remain areas of acute focus for us as the pandemic continues . while the pandemic impacted many aspects of our business and operations during fiscal 2020 , that impact was offset by the recovery in single-family residential housing starts and the escalation in wood-based commodity pricing . our net sales and gross margin increased , largely driven by the significant increase in wood-based pricing . for fiscal 2020 , net sales increased $ 460.1 million compared to fiscal 2019 and net income improved $ 98.5 million as we moved from a net loss for fiscal 2019 to net income for fiscal 2020. the extent of the impact of the pandemic on our business for fiscal 2021 will depend on future developments , including , among others , the duration of the pandemic , the success of actions taken by governmental authorities to contain the pandemic and address its impact , the success of local return to work and business reopening plans , and the impact the covid-19 pandemic has on the supply chain , pricing , and demand in the markets we service . the trajectory of the pandemic continues to evolve rapidly , and we can not predict the extent to which our financial condition , results of operation , or cash flows will ultimately be impacted . we are closely monitoring the impact of the pandemic on industry conditions , the progress of local return to work and reopening plans , and any pandemic related restrictions that may have an impact on our business . cares act in an attempt to assist businesses during the covid-19 pandemic , congress enacted the coronavirus aid , relief , and economic security ( “ cares ” ) act on march 27 , 2020. the cares act contained several provisions , including tax-based measures , meant to counteract the effects of the covid-19 pandemic . after review of the many provisions , we took advantage of several of the provisions , including the deferral of our defined benefit plan pension contribution , deferral of the payment of employer payroll taxes , and the increase in the percentage of allowable percentage of interest expense under section 163 ( j ) of the internal revenue code ( “ irc ” ) . during fiscal 2020 , as a result of the cares act , we were able to recognize discrete tax benefits during the year of $ 4.8 million resulting from the release of the valuation allowance associated with nondeductible interest expense as the cares act increased the allowable percentage from 30 percent to 50 percent of adjusted taxable income . we also elected to defer the payment of employer payroll taxes that would normally be paid during fiscal 2020. these taxes are required to be paid in two tranches , with 50 percent due by the end of 2021 and 50 percent due by the end of 2022. we expect to make payments of $ 3.2 million by december 2021 and the remaining $ 3.1 million by december 2022. finally , we elected to defer defined benefit plan pension contributions totaling $ 0.6 million required during fiscal 2020 until december 31 , 2020. we were required to pay 23 interest on the contributions in accordance with the provision included in the cares act . we made the contributions , including interest , of $ 0.6 million , on december 15 , 2020. story_separator_special_tag :18pt '' > other expense ( income ) , net . other expense ( income ) , net was $ ( 0.3 ) million in fiscal 2020 compared to $ 2.5 million in fiscal 2019 , a decrease of $ 2.8 million . the decrease was due to expenses related to the lump sum payout offer made in fiscal 2019 to certain eligible retirees in the bluelinx hourly retirement plan instead of receiving their typical payment streams . provision for ( benefit from ) income taxes . our effective tax rate was 14.9 percent and 18.3 percent for fiscal 2020 and fiscal 2019 , respectively . primary drivers of the decline in our effective tax rate in fiscal 2020 versus fiscal 2019 included the 25 release of valuation allowances associated with state net operating losses and our previously nondeductible interest expense , both of which we believe we will be able to realize based on our positive taxable income for fiscal 2020. our effective tax rate for fiscal 2020 was impacted by the effect of the release of our valuation allowance for disallowed interest expense stemming from federal tax reforms , and the cares act , the partial release of our valuation allowance for state net operating losses that we anticipate being able to utilize , the tax benefit related to the lapse of statutes of limitations from uncertain tax positions ( fin 48 ) , changes in the state effective tax rate used to value deferred tax assets , and the permanent addback of certain nondeductible expenses including executive compensation and nondeductible meals and entertainment .
| results of operations fiscal 2020 compared to fiscal 2019 the following table sets forth our results of operations for fiscal 2020 and fiscal 2019 , which were comprised of 53 and 52 weeks , respectively . replace_table_token_3_th the following table sets forth changes in net sales by product category . prior year amounts have been reclassified to conform to the current year mix of structural and specialty products . replace_table_token_4_th the following table sets forth gross margin dollars and percentages by product category versus comparable prior periods . prior year amounts have been reclassified to conform to the current year product mix of structural and specialty products . replace_table_token_5_th 24 discussion of results of operations net sales . net sales of $ 3.1 billion in fiscal 2020 increased by 17.4 percent , or $ 0.5 billion , from fiscal 2019. the sales increase was primarily a result of wood-based commodity price inflation , partially offset by a slight decline in sales volume attributable to supply outages in structural products occurring during the second half of fiscal 2020. the covid-19 pandemic created unprecedented market conditions on the supply and demand of our products . as the severity of the covid-19 pandemic initially became apparent , manufacturers ran fewer shifts out of an abundance of caution creating supply bottlenecks . in addition , productivity was negatively impacted by covid-19 employee illnesses from our supply partners . at the same time , after an initial decline in single family housing starts and repair and remodeling activities , the housing market became more robust during fiscal year 2020 and the growth rate for single family housing starts was 11.5 percent , while housing repair and remodeling activity was estimated to have grown by 3.5 percent . the impact of the reduced supply coupled with increasing demand led to a historically high increase in wood-based commodity prices after the pandemic began .
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in the event temperatures during the typically warmer months are cooler than expected , or rainfall is greater than expected , the demand for water may decrease and our revenues may be adversely affected . we believe the effects of weather are short term and do not materially affect the execution of our strategic initiatives . our contract operations and other services provide a revenue stream that is not affected by changes in weather patterns . while water sales are our primary source of revenues , we continue to seek growth opportunities to provide wastewater services in delaware and the surrounding areas . we also continue to explore and develop relationships with developers and municipalities in order to increase revenues from contract water and wastewater operations , wastewater management services , and design , construction and engineering services . we plan to continue developing and expanding our contract operations and other services in a manner that complements our growth in water service to new customers . our anticipated growth in these areas is subject to changes in residential and commercial construction , which may be affected by interest rates , inflation and general housing and economic market conditions . we anticipate continued growth in our non-regulated division due to our water , sewer , and internal slp plans . water division artesian water , artesian water maryland and artesian water pennsylvania provide water service to residential , commercial , industrial , governmental , municipal and utility customers . increases in the number of customers contribute to increases , or help to offset any intermittent decreases , in our operating revenue . as of december 31 , 2018 , we had approximately 85,900 metered water customers in delaware , an increase of approximately 1,700 compared to december 31 , 2017. the number of metered water customers in maryland and in pennsylvania remained consistent compared to december 31 , 2017. for the year ended december 31 , 2018 , approximately 7.9 billion gallons of water were distributed in our delaware systems and approximately 138 million gallons of water were distributed in our maryland systems . wastewater division artesian wastewater owns wastewater collection and treatment infrastructure and began providing regulated wastewater services to customers in delaware in july 2005. artesian wastewater maryland was incorporated on june 3 , 2008 and is able to provide regulated wastewater services to customers in the state of maryland . it is not currently providing these services in maryland . our residential and commercial wastewater customers are billed a flat monthly fee , which contributes to providing a revenue stream unaffected by weather . there has been consistent customer growth over the years . the number of delaware wastewater customers totaled approximately 2,100 as of december 31 , 2018 , an increase of approximately 300 , or 16.6 % , compared to december 31 , 2017. in addition , artesian wastewater entered into a wastewater services agreement with allen harim foods , llc , or allen harim , a large industrial customer , under which service is expected to begin in 2019. the wastewater services agreement with allen harim is discussed further in the “ strategic direction ” section below . non-regulated division artesian utility provides contract water and wastewater operation services to private , municipal and governmental institutions . artesian utility also offers three protection plans to customers , the wslp plan , the sslp plan , and the islp plan . slp plan customers are billed a flat monthly or quarterly rate , which contributes to providing a revenue stream unaffected by weather . there has been consistent customer growth over the years . as of december 31 , 2018 , approximately 19,300 , or 23.3 % , of our eligible water customers enrolled in the wslp plan , approximately 15,500 , or 18.8 % , of our eligible customers enrolled in the sslp plan , and approximately 6,300 , or 7.6 % , of our eligible customers enrolled in the islp plan . approximately 1,700 non-utility customers enrolled in one of our three protection plans . 16 strategic direction and recent developments our strategy is to increase customer growth , revenues , earnings and dividends by expanding our water , wastewater and slp plan services across the delmarva peninsula . we remain focused on providing superior service to our customers and continuously seek ways to improve our efficiency and performance . by providing water and wastewater services , we believe we are positioned as the primary resource for developers and communities throughout the delmarva peninsula seeking to fill both needs simultaneously . we believe we have a proven ability to acquire and integrate high growth , reputable entities , through which we have captured additional service territories that will serve as a base for future revenue . we believe this experience presents a strong platform for further expansion and that our success to date also produces positive relationships and credibility with regulators , municipalities , developers and customers in both existing and prospective service areas . in our regulated water division , our strategy is to focus on a wide spectrum of activities , which include identifying new and dependable sources of supply , developing the wells , treatment plants and delivery systems to supply water to customers and educating customers on the wise use of water . our strategy includes focused efforts to expand in new regions added to our delaware service territory over the last 10 years . we plan to expand our regulated water service area in the cecil county designated growth corridor and to expand our business through the design , construction , operation , management and acquisition of additional water systems . the expansion of our exclusive franchise areas elsewhere in maryland and the award of contracts will similarly enhance our operations within the state . in june 2017 , artesian water purchased existing water assets from fort dupont redevelopment and preservation corporation . story_separator_special_tag artesian storm water was recently formed to expand contract work related to the design , installation , maintenance and repair services associated with existing or proposed storm water management systems in delaware and the surrounding areas . critical accounting policies and estimates critical accounting policies and estimates are those we believe are most important to portraying the financial condition and results of operations and also require significant estimates , assumptions or other judgments by management . the following provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of the company . changes in the estimates , assumptions or other judgments included within these accounting policies could result in a significant change to the financial statements in any quarterly or annual period . we consider the following policies to be the most critical in understanding the judgment that is involved in preparing our consolidated financial statements . senior management has discussed the selection and development of our critical accounting policies and estimates with the audit committee of the board of directors . all additions to utility plant are recorded at cost . cost includes direct labor , materials , and indirect charges for such items as transportation , supervision , pension , medical , and other fringe benefits related to employees engaged in construction activities . when depreciable units of utility plant are retired , any cost associated with retirement , less any salvage value or proceeds received , is charged to a regulated retirement liability . maintenance , repairs , and replacement of minor items of utility plant are charged to expense as incurred . we record water service revenue , including amounts billed to customers , on a cycle basis and unbilled amounts based upon estimated usage from the date of the last meter reading to the end of the accounting period . as actual usage amounts are received , adjustments are made to the unbilled estimates in the next billing cycle based on the actual results . estimates are made on an individual customer basis , based on one of three methods : the previous year 's consumption in the same period , the previous billing period 's consumption , or averaging . while actual usage for individual customers may differ materially from the estimate , we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption . we record accounts receivable at the invoiced amounts . the reserve for bad debts is adjusted based on the provision for bad debts , which is calculated as a percentage of total water sales . the company reviews the bad debt provision expense and the reserve for bad debts on a quarterly basis . account balances are written off against the reserve when it is probable the receivable will not be recovered . the financial accounting standards board , or fasb , accounting standards codification , or asc , topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency . our regulated utilities record deferred regulatory assets under fasb asc topic 980 , which are costs that may be recovered over various lengths of time as prescribed by the depsc , mdpsc and papuc . as the utility incurs certain costs , such as expenses related to rate case applications , a deferred regulatory asset is created . adjustments to these deferred regulatory assets are made when the depsc , mdpsc or papuc determines whether the expense is recoverable in rates , the length of time over which an expense is recoverable , or , because of changes in circumstances , whether a remaining balance of deferred expense is recoverable in rates charged to customers . in addition , our regulated utilities record deferred and or amortized regulatory liabilities under fasb asc topic 980 , as determined by the depsc , the mdpsc , and the papuc . regulatory liabilities represent excess recovery of cost or other items that have been deferred because it is probable such amounts will be returned to customers through future regulated rates . adjustments to reflect changes in recoverability of certain deferred regulatory assets or certain deferred regulatory liabilities may have a significant effect on our financial results . our long-lived assets consist primarily of utility plant in service and regulatory assets . we review for impairment of our long-lived assets , including utility plant in service , in accordance with the requirements of fasb asc topic 360. we review regulatory assets for the continued application of fasb asc topic 980. our review determines whether there have been changes in circumstances or events that have occurred that require adjustments to the carrying value of these assets . adjustments to the carrying value of these assets would be made in instances where changes in circumstances or events indicate the carrying value of the asset may not be recoverabl e in rates charged to customers . the company believes there are no impairments in the carrying amounts of its long-lived assets or regulatory assets at december 31 , 2018 . 18 story_separator_special_tag utility plant , which include the footage and size of pipe , hydrants and wells . non-utility expenses increased approximately $ 0.1 million , or 3.7 % , primarily due to an increase in plumbing services related to the slp plans as well as an increase in payroll and benefit costs . utility operating expenses increased $ 53,000 , or 0.1 % , for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the net increase is primarily related to the following . - maintenance costs increased $ 0.1 million , primarily due to an increase in hardware and software support fees . - purchase power expense increased $ 0.1 million , primarily due to an increase in electric demand related to an increase in water production .
| results of operations 2018 compared to 2017 operating revenues revenues totaled $ 80.4 million for the year ended december 31 , 2018 , $ 1.8 million , or 2.2 % , less than revenues for the year ended december 31 , 2017 . water sales revenue decreased $ 2.2 million , or 3.1 % , for the year ended december 31 , 2018 from the corresponding period in 2017 , primarily due to approximately $ 3.3 million placed in reserve that will be refunded to customers as a result of the tax cuts and jobs act , or tcja . this refund amount was approved by the depsc on january 31 , 2019 and is required to be paid in the second quarter of 2019 , the majority of which will be issued as a credit to customer bills . this decrease in revenue related to the reserve is partially offset by an increase in overall water consumption and an increase in customer charges from customer growth . we realized 88.1 % and 88.8 % of our total operating revenue for the years ended december 31 , 2018 and december 31 , 2017 , respectively , from the sale of water . other utility operating revenue increased approximately $ 0.3 million , or 6.7 % , for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the increase is primarily due to an increase in wastewater revenue from customer growth , partially offset by a decrease in water service charges . non-utility operating revenue increased approximately $ 0.1 million , or 2.5 % , for the year ended december 31 , 2018 compared to the same period in 2017. the increase is primarily due to an increase in slp plan revenue .
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we design , manufacture , personalize , rent , clean , deliver , and sell a wide range of uniforms and protective clothing , including shirts , pants , jackets , coveralls , lab coats , smocks , aprons and specialized protective wear , such as flame resistant and high visibility garments . we also rent and sell industrial wiping products , floor mats , facility service products and other non-garment items , and provide restroom and cleaning supplies and first aid cabinet services and other safety supplies , to a variety of manufacturers , retailers and service companies . we serve businesses of all sizes in numerous industry categories . typical customers include automobile service centers and dealers , delivery services , food and general merchandise retailers , food processors and service operations , light manufacturers , maintenance facilities , restaurants , service companies , soft and durable goods wholesalers , transportation companies , and others who require employee clothing for image , identification , protection or utility purposes . we also provide our customers with restroom and cleaning supplies , including air fresheners , paper products and hand soaps . at certain specialized facilities , we also decontaminate and clean work clothes and other items that may have been exposed to radioactive materials and service special cleanroom protective wear and facilities . typical customers for these specialized services include government agencies , research and development laboratories , high technology companies and utilities operating nuclear reactors . we continue to expand into additional geographic markets through acquisitions and organic growth . we currently service over 275,000 customer locations in the united states , canada and europe from over 225 customer service , distribution and manufacturing facilities . us gaap establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in interim financial reports issued to shareholders . operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision-maker , or decision-making group , in making decisions on how to allocate resources and assess performance . our chief operating decision-maker is our chief executive officer . we have six operating segments based on the information reviewed by our chief executive officer : us rental and cleaning , canadian rental and cleaning , manufacturing ( “ mfg ” ) , specialty garments rental and cleaning ( “ specialty garments ” ) , first aid and corporate . the us rental and cleaning and canadian rental and cleaning operating segments have been combined to form the us and canadian rental and cleaning reporting segment . refer to note 15 , “ segment reporting ” , of our consolidated financial statements for our disclosure of segment information . the us and canadian rental and cleaning reporting segment purchases , rents , cleans , delivers and sells , uniforms and protective clothing and non-garment items in the united states and canada . the operations of the us and canadian rental and cleaning reporting segment are referred to by us as our ‘ industrial laundry operations ' and we refer to the locations related to this reporting segment as our ‘ industrial laundries ' . the mfg operating segment designs and manufactures uniforms and non-garment items primarily for the purpose of providing these goods to the us and canadian rental and cleaning reporting segment . the amounts reflected as revenues of mfg are generated when goods are shipped from our manufacturing facilities , or subcontract manufacturers , to our other locations . these revenues are recorded at a transfer price which is typically in excess of the actual manufacturing cost . products are carried in inventory and subsequently placed in service and amortized at this transfer price . on a consolidated basis , intercompany mfg revenues and mfg income are eliminated and the carrying value of inventories and rental merchandise in service is reduced to the manufacturing cost . income before income taxes from mfg , net of the intercompany mfg elimination , offsets the merchandise amortization costs incurred by the us and canadian rental and cleaning reporting segment as the merchandise costs of this reporting segment are amortized and recognized based on inventories purchased from mfg at the transfer price which is above our manufacturing cost . the corporate operating segment consists of costs associated with our distribution center , sales and marketing , information systems , engineering , materials management , manufacturing planning , finance , budgeting , human resources , other general and administrative costs and interest expense . the revenues generated from the corporate operating segment represent certain direct sales made directly from our distribution center . the products sold by this operating segment are the same products rented and sold by the us and canadian rental and cleaning reporting segment . in the segment disclosures in note 15 , “ segment reporting ” , of our consolidated financial statements , no assets or capital expenditures are presented for the corporate operating segment as no assets are allocated to this operating segment in the information reviewed by our chief executive officer . however , depreciation and amortization expense related to certain assets are reflected in income from operations and income before income taxes for the corporate operating segment . the assets that give rise to this depreciation and amortization are included in the total assets of the us and canadian rental and cleaning reporting segment as this is how they are tracked and reviewed by us . 18 we refer to our us and canadian rental and cleaning , mfg , and corporate segments combined as our “ core laundry operations ” . the specialty garments operating segment purchases , rents , cleans , delivers and sells , specialty garments and non-garment items primarily for nuclear and cleanroom applications and provides cleanroom cleaning services at limited customer locations . the first aid operating segment sells first aid cabinet services and other safety supplies as well as maintains wholesale distribution and pill packaging operations . story_separator_special_tag judgments and estimates are used in determining the potential value associated with reported claims and for events that have occurred , but have not been reported . our estimates consider historical claim experience and other factors . our liabilities are based on our estimates , and , while we believe that our accruals are adequate , the ultimate liability may be significantly different from the amounts recorded . changes in our claim experience , our ability to settle claims or other estimates and judgments we use could have a material impact on the amount and timing of expense for any given period . environmental and other contingencies we are subject to legal proceedings and claims arising from the conduct of our business operations , including environmental matters , personal injury , customer contract matters and employment claims . accounting principles generally accepted in the united states require that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated . significant judgment is required to determine the existence of a liability , as well as the amount to be recorded . we regularly consult with our attorneys and outside consultants , in our consideration of the relevant facts and circumstances , before recording a contingent liability . we record accruals for environmental and other contingencies based on enacted laws , regulatory orders or decrees , our estimates of costs , insurance proceeds , participation by other parties , the timing of payments , and the input of our attorneys and outside consultants . the estimated liability for environmental contingencies has been discounted as of august 29 , 2015 using risk-free interest rates ranging from 2.2 % to 2.9 % over periods ranging from ten to thirty years . the estimated current costs , net of legal settlements with insurance carriers , have been adjusted for the estimated impact of inflation at 3 % per year . changes in enacted laws , regulatory orders or decrees , our estimates of costs , risk-free interest rates , insurance proceeds , participation by other parties , the timing of payments , the input of our attorneys and outside consultants or other factual circumstances could have a material impact on the amounts recorded for our environmental and other contingent liabilities . refer to note 11 , “ commitments and contingencies ” , of our consolidated financial statements for additional discussion and analysis . asset retirement obligations under us gaap , asset retirement obligations generally apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition , construction , development and or the normal operation of a long-lived asset . current accounting guidance requires that we recognize asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made . the associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset . we have recognized as a liability the present value of the estimated future costs to decommission our nuclear laundry facilities in accordance with us gaap . we depreciate , on a straight-line basis , the amount added to property , plant and equipment and recognize accretion expense in connection with the discounted liability over the various remaining lives which range from approximately six to twenty-nine years . 20 our estimated liability has been based on historical experience in decommissioning nuclear laundry facilities , estimated useful lives of the underlying assets , external vendor estimates as to the cost to decommission these assets in the future , and federal and state regulatory requirements . the estimated current costs have been adjusted for the estimated impact of inflation at 3 % per year . the liability has been discounted using credit-adjusted risk-free rates that range from approximately 7.0 % to 7.5 % . revisions to the liability could occur due to changes in the estimated useful lives of the underlying assets , estimated dates of decommissioning , changes in decommissioning costs , changes in federal or state regulatory guidance on the decommissioning of such facilities , or other changes in estimates . changes due to revisions in our estimates will be recognized by adjusting the carrying amount of the liability and the related long-lived asset if the assets are still in service , or charged to expense in the period if the assets are no longer in service . supplemental executive retirement plan and other pension plans we recognize pension expense on an accrual basis over our employees ' estimated service periods . pension expense is generally independent of funding decisions or requirements . the calculation of pension expense and the corresponding liability requires us to use of a number of critical assumptions , including the expected long-term rates of return on plan assets , the assumed discount rate , the assumed rate of compensation increases and life expectancy of participants . changes in our assumptions can result in different expense and liability amounts , and future actual expense can differ from these assumptions . pension expense increases as the expected rate of return on pension plan assets decreases . future changes in plan asset returns , assumed discount rates and various other factors related to the participants in our pension plans will impact our future pension expense and liabilities . we can not predict with certainty what these factors will be in the future . income taxes we compute income tax expense by jurisdiction based on our operations in each jurisdiction . deferred income taxes are provided for temporary differences between the amounts recognized for income tax and financial reporting purposes at currently enacted tax rates . we are periodically reviewed by u.s. domestic and foreign tax authorities regarding the amount of taxes due . these reviews typically include inquiries regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions . in evaluating our exposure associated with various filing positions , we have recorded estimated reserves .
| results of operations the following table presents certain selected financial data , including the percentage of revenues represented by each item , for our three fiscal years ended august 29 , 2015 , august 30 , 2014 and august 31 , 2013 . 21 replace_table_token_3_th ( 1 ) exclusive of depreciation on our property , plant and equipment and amortization of our intangible assets . revenues and income ( loss ) from operations by reporting segment for the three fiscal years ended august 29 , 2015 , august 30 , 2014 , and august 31 , 2013 are presented in the following table . refer to note 15 , “ segment reporting ” , of our consolidated financial statements for discussion of our reporting segments . replace_table_token_4_th 22 general we derive our revenues through the design , manufacture , personalization , rental , cleaning , delivering , and selling of a wide range of uniforms and protective clothing , including shirts , pants , jackets , coveralls , lab coats , smocks and aprons and specialized protective wear , such as flame resistant and high visibility garments . we also rent industrial wiping products , floor mats , facility service products , other non-garment items , and provide restroom and cleaning supplies and first aid cabinet services and other safety supplies , to a variety of manufacturers , retailers and service companies . we have five reporting segments , us and canadian rental and cleaning , manufacturing ( “ mfg ” ) , corporate , specialty garments rental and cleaning ( “ specialty garments ” ) , and first aid . we refer to the us and canadian rental and cleaning , mfg , and corporate reporting segments combined as our “ core laundry operations. ” cost of revenues include the amortization of rental merchandise in service and merchandise costs related to direct sales as well as labor and other production , service and delivery costs , and distribution costs associated with operating our core laundry operations , specialty garments facilities , and first aid locations .
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our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances , but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . an audit also includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements , assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audit provides a reasonable basis for our opinion . in our opinion , the financial statements referred to above present fairly , in all material respects , the financial position of spar todopromo , sapi , de cv , as of december 31 , 2012 , and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in united states of america . gossler , sociedad civil , member crowe horwath international mexico city , mexico march 1 , 2013 f-3 report of independent registered public accounting firm the board of directors and stockholders sgrp meridian ( pty ) ltd. we have audited the accompanying consolidated balance sheet of sgrp meridian ( pty ) ltd. , as of december 31 , 2012 and the related consolidated statements of income and comprehensive income , equity , and cash flows for the year then ended . sgrp meridian ( pty ) ltd. 's management is responsible for these consolidated financial statements . our responsibility is to express an opinion on these consolidated financial statements based on our audit . we conducted our audit in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances , but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . an audit also includes examining , on a test basis , evidence supporting the amounts and disclosures in the consolidated financial statements , assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audit provides a reasonable basis for our opinion . in our opinion , the consolidated financial statements referred to above present fairly , in all material respects , the consolidated financial position of sgrp meridian ( pty ) ltd. , as of december 31 , 2012 , and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in united states of america . bdo south africa , inc . umhlanga , south africa march 4 , 2013 f-4 spar group , inc. and subsidiaries consolidated balance sheets ( in thousands , except share and per share data ) replace_table_token_6_th see accompanying notes . f-5 spar group , inc. and subsidiaries consolidated statements of income and comprehensive income ( in thousands , except per share data ) replace_table_token_7_th see accompanying notes . f-6 spar group , inc. and subsidiaries consolidated statements of equity ( in thousands ) replace_table_token_8_th see accompanying notes . f-7 spar group , inc. and subsidiaries consolidated statements of cash flows ( in thousands ) replace_table_token_9_th see accompanying notes . f-8 spar group , inc. and subsidiaries notes to consolidated financial statements 1. business and organization the spar group , inc. , a delaware corporation ( `` sgrp `` ) , and its subsidiaries ( together with sgrp , the `` spar group `` or the `` company `` ) , is a supplier of merchandising and other marketing services throughout the united states and internationally . the company also provides in-store event staffing , product sampling , audit services , furniture and other product assembly services , technology services and marketing research services . assembly services are performed in stores , homes and offices while those other services are primarily performed in mass merchandisers , office supply , grocery , drug store , home improvement , independent , convenience and electronics stores . merchandising services primarily consist of regularly scheduled , special project and other product services provided at the store level , and the company may be engaged by either the retailer or the manufacturer . those services may include restocking and adding new products , removing spoiled or outdated products , resetting categories `` on the shelf `` in accordance with client or store schematics , confirming and replacing shelf tags , setting new sale or promotional product displays and advertising , replenishing kiosks , providing in-store event staffing and providing assembly services in stores , homes and offices . other merchandising services include whole store or departmental product sets or resets , including new store openings , new product launches and in-store demonstrations , audit services , special seasonal or promotional merchandising , focused product support and product recalls . the company also provides technology services and marketing research services . story_separator_special_tag the company does not intend or promise , and the company expressly disclaims any obligation , to publicly update or revise any forward-looking statements , risk factors or other risks , cautions and information ( in whole or in part ) , whether as a result of new information , risks or uncertainties , future events or recognition or otherwise , except as and to the extent required by applicable law . overview spar group , inc. ( `` sgrp '' ) , and its subsidiaries ( together with sgrp , the `` spar group '' or the `` company '' ) , is a diversified international merchandising and marketing services company and provides a broad array of services worldwide to help companies improve their sales , operating efficiency and profits at retail locations . the company provides merchandising and other marketing services to manufacturers , distributors and retailers worldwide , primarily in mass merchandisers , office supply , grocery , drug store , home improvement , independent , convenience and electronics stores , as well as providing furniture and other product assembly services in stores , homes and offices . the company has supplied these services in the united states since certain of its predecessors were formed in 1979 and internationally since the company acquired its first international subsidiary in japan in may 2001. today the company operates in 9 countries that encompass approximately 47 % of the total world population through operations in the united states , canada , japan , south africa , india , china , australia , mexico and turkey . 25 critical accounting policies & estimates the company 's critical accounting policies , including the assumptions and judgments underlying them , are disclosed in the note 2 to the consolidated financial statements - summary of significant accounting policies . these policies have been consistently applied in all material respects and address such matters as revenue recognition , depreciation methods , asset impairment recognition , consolidation of subsidiaries and other companies . while the estimates and judgments associated with the application of these policies may be affected by different assumptions or conditions , the company believes the estimates and judgments associated with the reported amounts are appropriate in the circumstances . five critical accounting policies are impairment of long-lived assets , consolidation of subsidiaries , revenue recognition , allowance for doubtful accounts , and internal use software development costs . impairment of long-lived assets the company continually monitors events and changes in circumstances that could indicate that the carrying amounts of the company 's property and equipment and intangible assets subjected to amortization may not be recoverable . when indicators of potential impairment exist , the company assesses the recoverability of the assets by estimating whether the company will recover its carrying value through the undiscounted future cash flows generated by the use of the asset and its eventual disposition . based on this analysis , if the company does not believe that it will be able to recover the carrying value of the asset , the company records an impairment loss to the extent that the carrying value exceeds the estimated fair value of the asset . if any assumptions , projections or estimates regarding any asset change in the future , the company may have to record an impairment to reduce the net book value of such individual asset . accounting for joint venture subsidiaries for the company 's less than wholly owned joint venture subsidiaries , the company first analyzes to determine if a joint venture subsidiary is a variable interest entity ( a “ vie ” ) in accordance with asc 810 and if so , whether the company is the primary beneficiary requiring consolidation . a vie is an entity that has ( i ) insufficient equity to permit it to finance its activities without additional subordinated financial support or ( ii ) equity holders that lack the characteristics of a controlling financial interest . vies are consolidated by the primary beneficiary , which is the entity that has both the power to direct the activities that most significantly impact the vie 's economic performance and the obligation to absorb losses or the right to receive benefits from the vie that potentially could be significant to the owning entity . variable interests are contractual , ownership , or other financial interests in a vie that change with changes in the fair value of the vie 's net assets . the company continuously re-assesses at each level of the joint venture subsidiary whether the entity is ( i ) a vie , and ( ii ) if so , whether the company is the primary beneficiary of the vie . if it was determined that an entity in which the company holds an interest qualified as a vie and the company was the primary beneficiary , it would be consolidated . the company has analyzed each of its joint venture subsidiaries to determine whether it is a vie . the company owns 51 % of the equity interest in these subsidiaries , the other 49 % is owned by local unrelated third parties , and the joint venture agreements with those third parties generally provide each venturer with equal voting rights . based on these and other factors , the company has determined that each joint venture subsidiary is a vie and that company is the primary beneficiary . accordingly , the company consolidates each joint venture subsidiary under the vie rules and reflects the 49 % interests of the local third party owners in the consolidated financial statements as noncontrolling interests .
| results of operations the following table sets forth selected financial data and such data as a percentage of net revenues for the years indicated ( dollars in millions ) . replace_table_token_4_th 26 results of operations for the year ended december 31 , 2013 , compared to the year ended december 31 , 2012 net revenues net revenues for the year ended december 31 , 2013 , were $ 112.0 million compared to $ 98.6 million for the year ended december 31 , 2012 , an increase of $ 13.4 million or 13.6 % . domestic net revenues totaled $ 44.6 million in the year ended december 31 , 2013 , compared to $ 43.1 million for the same period in 2012. domestic net revenues increased by $ 1.5 million or 3.4 % primarily attributable to continued growth from the company 's syndicated services and assembly businesses , increased project work and the acquisition of a competitive company in 2013. international net revenues totaled $ 67.4 million for the year ended december 31 , 2013 , compared to $ 55.5 million for the year ended december 31 , 2012 , an increase of $ 11.9 million or 21.5 % . the increase in 2013 international net revenues was primarily due to south africa ( $ 6.2 million ) , india ( $ 3.4 million ) and china ( $ 2.1 million ) .
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2014 year in review the year 2014 marks the eighth consecutive year of profitability for us . we achieved a net income of $ 225.5 million ( $ 3.08 per share , diluted ) , compared to a net income of $ 176.9 million ( $ 2.42 per share , diluted ) in 2013 . the increase in our net income was a result of our increased capacity , lower fuel cost as well as continued focus on low costs which help maintain our high profit margins . for the year ended december 31 , 2014 , we achieved an operating profit margin of 18.4 % , the highest in our history , on $ 1,931.6 million in operating revenues . our traffic grew by 18.0 % as we continued to stimulate demand with ultra-low fares . total revenue per passenger flight segment increased by 1.4 % from $ 133.27 to $ 135.14 . total rasm for 2014 was 11.82 cent s , a decrease of 1.0 % compared to the prior year period , driven by lower operating yields on relatively stable load factors year over year . our operating cost structure is a primary area of focus and is at the core of our ulcc business model in which we compete solely on the basis of price . our unit operating costs continue to be among the lowest of any airline in the americas . during 2014 , we increased our capacity by 17.9 % as we grew our fleet of airbus single-aisle aircraft from 54 to 65 aircraft , including purchased aircraft for the first time in our history . we launched service to 23 new markets in 2014 and added one new destination : kansas city . during 2014 , we increased our average non-ticket revenue per passenger flight segment by 2.2 % , or $ 1.19 , to $ 55.03 . our total non-ticket revenue increased by 17.7 % , or $ 118.2 million , to $ 786.6 million in 2014 . the year-over-year increase in average non-ticket revenue per passenger flight segment was primarily driven by a higher volume of passengers electing to purchase seat assignments , largely due to a software update completed in 2014 that enables us to sell seat assignments through more channels as well as a more rigorous approach to managing our seat inventory . additionally , in july 2013 , we increased our passenger usage fee ( puf ) , helping to drive the increase in puf fees year over year . during 2014 , our adjusted casm ex-fuel decreased by 0.5 % to 5.88 cent s. the decrease was primarily due to lower passenger re-accommodation expense year over year , due to better operational performance during 2014 , as compared to 2013. we improved on-time performance year over year and maintained one of the highest completion factors in the industry . in addition , on a per asm basis , distribution expense decreased , primarily due to a $ 2.9 million settlement gain received in 2014 , and aircraft rent expense decreased due to reduced rent expense related to 14 a319 aircraft for which lease extensions with reduced rates were negotiated with the lessor at the end of the second quarter of 2013 , providing for a full year of benefit in 2014 versus 2013. this decrease was partially offset by an increase in depreciation and amortization expense , landing fees and other rents expense , salaries , wages and benefits expense , and maintenance , materials and repairs expense per asm . during 2014 , we grew our aicraft fleet by 20.4 % and we took delivery of purchased aircraft for the first time in our history . as of december 31 , 2014 , our 65 airbus a320-family aircraft fleet was comprised of 29 a319s , 34 a320s and 2 a321s , of which 4 are owned and 61 are financed under operating leases . as of december 31 , 2014 , our aircraft orders consisted of 101 a320 family aircraft with airbus and 5 direct operating leases for a320neos with a third party , scheduled for delivery from 2015 through 2021 . our plan calls for growing the fleet by 23.1 % in 2015. operating revenues our operating revenues are comprised of passenger revenues and non-ticket revenues . passenger revenues . passenger revenues consist of the base fares that customers pay for air travel . non-ticket revenues . non-ticket revenues are generated from air travel-related charges for baggage , passenger usage fee ( puf ) for bookings through certain of our distribution channels , advance seat selection , itinerary changes , hotel travel packages and loyalty programs such as our free spirit affinity credit card program and $ 9 fare club . non-ticket revenues also include revenues derived from services not directly related to providing transportation such as the sale of advertising to third parties on our website and on board our aircraft . 36 substantially all of our revenues are denominated in u.s. dollars . passenger revenues are recognized once the related flight departs . accordingly , the value of tickets sold in advance of travel is included under our current liabilities as “ air traffic liability , ” or atl , until the related air travel is provided . non-ticket revenues are generally recognized at the time the ancillary products are purchased or ancillary services are provided . non-ticket revenues also include revenues from our subscription-based $ 9 fare club , which we recognize on a straight-line basis over 12 months . revenue generated from the free spirit credit card affinity program are recognized in accordance with the criteria as set forth in accounting standards update asu no . 2009-13. please see “ —critical accounting policies and estimates—frequent flier program. ” we recognize revenues net of certain taxes and airport passenger fees , which are collected by us on behalf of airports and governmental agencies and remitted to the applicable governmental entity or airport on a periodic basis . story_separator_special_tag for 2014 , other expense included a charitable contribution of $ 1.0 million that is specifically creditable against current income tax in the state of florida , as allowed under state law . income taxes we account for income taxes using the liability method . we record a valuation allowance to reduce the deferred tax assets reported if , based on the weight of the evidence , it is more likely than not that some portion or all of the deferred tax assets will not be realized . deferred taxes are recorded based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carryforwards . in assessing the realizability of the deferred tax assets , we consider whether it is more likely than not that some or all of the deferred tax assets will be realized . in evaluating the ability to utilize our deferred tax assets , we consider all available evidence , both positive and negative , in determining future taxable income on a jurisdiction by jurisdiction basis . in connection with our ipo in 2011 , we entered into the tra and thereby distributed immediately prior to the completion of the ipo to the holders of common stock as of such time , or the pre-ipo stockholders , the right to receive an amount equal to 90 % of the cash savings in federal income tax realized by it by virtue of the use of the federal net operating loss , deferred interest deductions and alternative minimum tax credits held by us as of march 31 , 2011 , which was defined as the pre-ipo nol . cash tax savings were generally computed by comparing actual federal income tax liability to the amount of such taxes that we would have been required to pay had such pre-ipo nols ( as defined in the tra ) not been available . upon consummation of the ipo and execution of the tra , we recorded a liability with an offsetting reduction to additional paid in capital . the amount and timing of payments under the tra depended upon a number of factors , including , but not limited to , the amount and timing of taxable income generated in future periods and any limitations that may have been imposed on our ability to use the pre-ipo nols . the term of the tra was to continue until the first to occur ( a ) the full payment of all amounts required under the agreement with respect to utilization or expiration of all of the pre-ipo nols , ( b ) the end of the taxable year including the tenth anniversary of the ipo or ( c ) a change in control of the company . in accordance with the tra , we were required to submit a tax benefit schedule showing the proposed tra payout amount to the stockholder representatives within 45 calendar days of filing our tax return . stockholder representatives were defined as indigo pacific partners , llc and ocm fie , llc , representing the two largest ownership interest of pre-ipo shares . the tax benefit schedule was to become final and binding on all parties unless a stockholder representative , within 45 calendar days after receiving such schedule , provided us with notice of a material objection to such schedule . if the parties , for any reason , were unable to successfully resolve the issues raised in any notice within 30 calendar days of receipt of such notice , we and the stockholder representatives had the right to employ the reconciliation procedures as set forth in the tra . if the tax benefit schedule was accepted , we then had five days after acceptance to make payments to the pre-ipo stockholders . pursuant to the tra 's reconciliation procedures , any disputes that could not be settled amicably , were to be settled by arbitration conducted by a single arbitrator jointly selected by both parties . during the second quarter of 2012 , we paid $ 27.2 million , or 90 % of the 2011 tax savings realized from the utilization of nols , including $ 0.3 million of applicable interest , to the pre-ipo stockholders . 38 during 2013 , we filed an amended 2009 income tax return which resulted in a reduction to the estimated tra liability from $ 8.0 million to $ 5.6 million . on september 13 , 2013 , we filed our 2012 federal income tax return , and on october 14 , 2013 , we submitted a tax benefit schedule to the stockholder representatives . on november 27 , 2013 , pursuant to the tra , we received an objection notice to the tax benefit schedule from the stockholder representatives . on april 7 , 2014 , we received a demand for arbitration from the stockholder representatives . prior to commencing arbitration proceedings , on june 17 , 2014 , we and stockholder representatives agreed on a settlement amount of $ 7.0 million in addition to interest of $ 0.3 million . the agreed upon settlement was in excess of the outstanding liability of $ 5.6 million at the time of settlement . the excess payment of $ 1.4 million was recorded within other expense in the statement of operations and recorded as cash from operations in the statement of cash flows . as of december 31 , 2014 , we had made all payments in accordance with the agreed upon settlement terms and had no outstanding obligations related to the tra . trends and uncertainties affecting our business we believe our operating and business performance is driven by various factors that affect airlines and their markets , trends affecting the broader travel industry and trends affecting the specific markets and customer base that we target . the following key factors may affect our future performance . competition . the airline industry is highly competitive .
| resulting in an 18.4 % operating margin and net earnings of $ 225.5 million . in 2013 , we generated operating revenues of $ 1,654.4 million and operating income of $ 282.3 million resulting in a 17.1 % operating margin and net earnings of $ 176.9 million . operating revenues increased year over year mainly as a result of an 18.0 % increase in traffic , as compared to prior year . the increase in operating income in 2014 over 2013 of $ 73.0 million , is mainly due to a 16.8 % increase in revenue partially offset by increased fuel and other expenses resulting from an increase in operations . fuel costs increase d by $ 61.2 million during 2014 compared to 2013 , primarily driven by a 16.6 % increase in consumption offset by a lower fuel cost per gallon year over year . operating expenses increase d primarily due to our growth in capacity resulting from the addition of eleven aircraft to our fleet and our route network expansion . as of december 31 , 2014 , our cash and cash equivalents grew to $ 632.8 million , an increase of $ 102.2 million compared to the prior year , mainly driven by cash from our operating activities offset by cash used to fund pdps and capital expenditures . 43 operating revenues replace_table_token_8_th 2014 compared to 2013 operating revenue increase d by $ 277.2 million , or 16.8 % , to $ 1,931.6 million in 2014 compared to 2013 , primarily due to an increase in traffic of 18.0 % , offset slightly by a decrease in average yield of 1.1 % to 13.64 cents . our results for 2014 were driven by a capacity increase of 17.9 % compared to 2013 , while maintaining a high load factor of 86.7 % .
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management believes excluding the results of such assets provides the most relevant perspective on the ongoing operations of the company . p l ease refer to “ item 1 5 . exhibits and financial statement schedules ” for financial metrics that include results from assets sold or held for development . the company focuses on increasing profitability and cash flow aimed at maximizing shareholder value . the company strives to maintain high occupancy levels while increasing rental rates and minimizing capital expenditures when market conditions allow , although the company may decrease rental rates in markets where conditions require . the company also acquires properties it believes will create long-term value , and from time to time dispose s of properties which no longer fit within the company 's strategic objectives . operating results are driven primarily by income from rental operations and are therefore substantially influenced by d emand for rental space within our properties and our markets , which impacts occupancy , rental rates and capital requirements . during 2016 , the company executed leases comprising 7 . 6 million square feet of space including 5.1 million square feet of renewals of existing leases and 2.5 million square feet of new leases . overall , the change in rental rates for the company continued to improve . see further discussion of operating results below . critical accounting policies and estimates : our accounting policies are described in note 2 to the consolidated financial statements included in this form 10-k. we believe our most critical accounting policies relate to revenue recognition , property acquisitions , allowance for doubtful accounts , impairment of long-lived assets , depreciation , accruals of operating expenses and accruals for contingencies , each of which are more fully discuss ed below . revenue recognition : the company must meet four basic criteria before revenue can be recognized : persuasive evidence of an arrangement exists ; the delivery has occurred or services have been rendered ; the fee is fixed or determinable ; and collectability is reasonably assured . all leases are classified as operating leases . rental income is recognized on a straight-line basis over the terms of the leases . straight-line rent is recognized for all tenants with contractual fixed increases in rent that are not included on the company 's credit watch list . deferred rent receivable represents rental revenue recognized on a straight-line basis in excess of billed rents . reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as rental income in the period the applicable costs are incurred . property management fees are recognized in the period earned . property acquisitions : the purchase price of acquired properties is recorded to land , buildings and improvements ( including tenant improvements , unamortized lease commissions , acquired in-place lease values , and tenant relationships , if any ) and intangible assets and liabilities associated with the value of above-market and below-market leases based on their respective estimated fair values . acquisition related costs are expensed as incurred . in determining the fair value of the tangible assets of the acquired properties , management considers the value of the properties as if vacant as of the acquisition date . management must make significant assumptions in determining the value of assets acquired and liabilities assumed . using different assumptions in the recording of the purchase cost of the acquired properties would affect the timing of recognition of the related revenue and expenses . amounts recorded to land are derived from comparable sales of land within the same region . amounts recorded to buildings and improvements , tenant improvements and unamortized lease commissions are based on current market replacement costs and other market information . 23 the value recorded to the above-market or below-market in-place lease values of acquired properties is determined based upon the present value ( using a discount rate which reflects the risks associated with the acquired leases ) of the difference between ( i ) the contractual rents to be paid pursuant to the in-place leases , and ( ii ) management 's estimate of fair market lease rates for the corresponding in-place leases , measured over a period equal to the remaining non-cancelable term of the lease . the amounts recorded to above-market or below-market leases are included in other assets or other liabilities in the accompanying consolidated balance sheets and are amortized on a straight-line basis as an increase or reduction of rental income over the remaining non-cancelable term of the respective leases . allowance for doubtful accounts : rental revenue from our tenants is our principal source of revenue . tenant receivables consist primarily of amounts due for contractual lease payments , reimbursements of common area maintenance expenses , property taxes and other expenses recoverable from tenants . deferred rent receivable represents the amount that the cumulative straight-line rental income recorded to date exceeds cash rents billed to date under the lease agreement . we monitor the collectability of our receivable balances including the deferred rent receivable on an ongoing basis . based on these reviews , we maintain an allowance for doubtful accounts for estimated losses resulting from the possible inability of our tenants to make contractual rent payments to us . tenant receivabl es and deferred rent receivable are carried net of the allowances for uncollectible tenant receivables and deferred rent . d etermination of the adequacy of these allowances requires significant judgments and estimates , and our evaluation of the adequacy of the allowance for uncollectible current tenant receivables and deferred rent receivable are performed using a methodology that incorporates specific identification , aging analysis , an overall evaluation of the historical loss trends and the current economic and business environment . impairment of long-lived assets : the company evaluates a property for potential impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . on a quarterly basis , we evaluate our entire portfolio for impairment based on current operating information . story_separator_special_tag effect of acquisitions , development and dispositions of properties on the company 's operations : the company is focused on growing its operations by looking for opportunities to expand its presence in existing and new markets through strategic acquisitions that meet the company 's focus on multi-tenant flex , industrial and office parks in markets where it has or may obtain a substantial market presence . the company may also from time to time dispose of assets based on market conditions . 25 on september 28 , 2016 , the company acquired two multi-tenant office buildings aggregating 226,000 square feet in rockville , maryland , for a purchase price of $ 13.3 million . the buildings , which were 18.5 % leased at the time of acquisition , are located within shady grove executive park , where the company owns three other buildings aggregating 352,000 square feet , which were 85.2 % leased as of december 31 , 2016 . as of december 31 , 2016 , the blended occupancy rate of the six assets acquired during 2014 and 2016 , which comprise the 904,000 square feet of non-same park portfolio ( defined below ) , was 76 .9 % compared to a blended occupancy rate of 39.7 % at the time of acquisition . as of december 31 , 2016 , the company had 209 ,000 square feet of vacant space spread over these acquisitions , which we believe provides the company with the opportunity to generate additional rental income given that the company 's same park assets in these same submarkets have a weighted average occupancy of 95.1 % at december 31 , 2016 . the table below c ontains the assets acquired during 2014 and 2016 ( dollars and square feet in thousands ) : replace_table_token_10_th as of november 1 , 2016 , the company transferred a 123,000 square foot building located in tysons , virginia to land and building held for development . during 2015 , the company completed the sale of assets in tempe , arizona , sacramento , california , milwaukie , oregon and redmond , washington . the assets sold aggregated 574,000 square feet and generated net proceeds of $ 55.2 million , which resulted in an aggregate gain of $ 28.2 million . during 2014 , the company sold five business parks aggregating 1.9 million square feet and 11.5 acres of land in non-strategic markets , including portland , oregon and phoenix , arizona , for net proceeds of $ 212.2 million , which resulted in a gain of $ 92.4 million . psb holds a 95.0 % interest in the joint venture with the remaining 5.0 % held by the jv partner . the aggregate amount of development costs are estimated to be $ 105.6 million ( excluding unrealized land appreciation ) , of which the company is committed to funding $ 75.0 million through a construction loan . the company 's investment in and advances to unconsolidated joint venture was $ 67 . 2 million as of december 31 , 2016. the project is expected to deliver its first completed units in the spring of 2017 , with final completion of the project expected in early 2018 . scheduled lease expirations : in addition to the 1.6 million square feet , or 5.6 % , of vacancy in our total portfolio as of december 31 , 2016 , 2,217 leases , representing 6.3 million square feet , or 24 . 0 % of the leased square footage of our total portfolio are scheduled to expire in 2017 . our ability to re-lease available space will depend upon market conditions in the specific submarkets in which our properties are located . as a result , w e can not predict with certainty the rate at which expiring leases will be re-leased . impact of inflation : although inflation has not been significant in recent years , it remains a potential factor in our economy , and the company continues to seek ways to mitigate its potential impact . a substantial portion of the company 's leases require tenants to pay operating expenses , including real estate taxes , utilities , and insurance , as well as increases in common area expenses , partially reducing the company 's exposure to inflation . to present comparative results , for the purpose of computing noi , the tables below exclude amortization of the senior management long-term equity incentive plan ( “ lteip ” ) for the years ended december 31 , 2016 , 2015 and 2014 . 26 concentration of portfolio by region : the table below reflects the company 's square footage based on regional concentration as of december 31 , 2016 . as part of the table below , we have reconciled total noi to net income ( in thousands ) : replace_table_token_11_th 27 concentration of credit risk by industry : the information below depicts the industry concentration of our tenant base as of december 31 , 2016 . the company analyzes this concentration to minimize significant industry exposure risk . replace_table_token_12_th the information below depicts the company 's top 10 customers by annualized rental income as of december 31 , 2016 ( in thousands ) : replace_table_token_13_th ( 1 ) for leases exp iring prior to december 31 , 2017 , annualized rental income represents income to be received under exis ting leas es from january 1 , 2017 through the date of expiration . comparison of 2016 to 2015 results of operations : net income for the year ended december 31 , 2016 was $ 145.0 million compared to $ 149.0 million for the year ended december 31 , 2015 . net income allocable to common shareholders for the year ended december 31 , 2016 was $ 62.9 million compared to $ 68.3 million for the year ended december 31 , 2015 .
| results of operations : net income for the year ended december 31 , 2015 was $ 149.0 million compared to $ 204.7 million for the year ended december 31 , 2014 . net income allocable to common shareholders for the year ended december 31 , 2015 was $ 68.3 million compared to $ 113.2 million for the year ended december 31 , 2014 . net income per common share on a diluted basis was $ 2.52 for the year ended december 31 , 2015 compared to $ 4.19 for the year ended december 31 , 2014 ( based on weighted average diluted common shares outstanding of 27,051,000 and 27,000,000 , respectively ) . the de crease in net income allocable to common shareholders was primarily due to higher 31 gain on sale of assets reported in 2014 ( gain on sale of real estate facilities was $ 28.2 million in 2015 compared to $ 92.4 million in 2014 ) . for the year s ended december 31 , 2015 and 2014 , the same park facilities constitute 27.2 million rentable square feet , representing 97.1 % of the 28.0 million square feet in the company 's total portfolio as of december 31 , 2015 . the following table presents the operating results of the company 's properties for the years ended dece mber 31 , 2015 and 2014 in addition to other income and expenses items affecting net income ( in thousands , except per square foot data ) : replace_table_token_17_th ( 1 ) adjusted rental income excludes rental income from assets sold or held for development of $ 6.3 million and $ 28 . 6 million for the years ended december 31 , 2015 and 2014 , respectively .
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corporation . overview the separation the proposed separation . on february 8 , 2019 , parentco announced that its board of directors approved a plan to separate into two standalone , publicly-traded companies ( the “ separation ” ) . the spin-off company , arconic rolled products corporation ( “ arconic corporation ” or the “ company ” ) , will include the rolled aluminum products , aluminum extrusions , and architectural products operations of parentco , as well as the latin america extrusions operations sold in april 2018 ( collectively , the “ arconic corporation businesses ” ) . the existing publicly-traded company , parentco , will continue to own the engine products , engineered structures , fastening systems , and forged wheels operations ( collectively , the “ howmet aerospace businesses ” ) . the separation is subject to a number of conditions , including , but not limited to : final approval by parentco 's board of directors ( see below ) ; receipt of an opinion of legal counsel regarding the qualification of the distribution , together with certain related transactions , as a “ reorganization ” within the meaning of sections 355 and 368 ( a ) ( 1 ) ( d ) of the u.s. internal revenue code ( i.e. , a transaction that is generally tax-free for u.s. federal income tax purposes ) ; and the u.s. securities and exchange commission ( the “ sec ” ) declaring effective a registration statement on form 10 , as amended , filed with the sec on february 13 , 2020 ( effectiveness was declared by the sec on february 13 , 2020 ) . arconic corporation and howmet aerospace have entered into and will enter into several agreements to implement the legal and structural separation between the two companies ; govern the relationship between arconic corporation and howmet aerospace after the completion of the separation ; and allocate between arconic corporation and howmet aerospace various assets , liabilities , and obligations , including , among other things , employee benefits , environmental liabilities , intellectual property , and tax-related assets and liabilities . one agreement in particular , the separation and distribution agreement , will identify the assets to be transferred , the liabilities to be assumed , and the contracts to be transferred to each of arconic corporation and howmet aerospace as part of the separation , and will provide for when and how these transfers and assumptions will occur . parentco may , at any time and for any reason until the separation is complete , abandon the separation plan or modify its terms . parentco is incurring costs to evaluate , plan , and execute the separation , and arconic corporation is allocated a pro rata portion of these costs based on segment revenue ( see cost allocations below ) . in 2019 , parentco recognized $ 78 for such costs , of which $ 40 was allocated to arconic corporation . the allocated amounts were included in selling , general administrative , and other expenses on arconic corporation 's statement of combined operations . on february 5 , 2020 , parentco 's board of directors approved the completion of the separation , which is scheduled to become effective on april 1 , 2020 ( the “ separation date ” ) at 12:01 a.m. eastern daylight time . the separation will occur by means of a pro rata distribution by parentco of all of the outstanding shares of common stock of arconic corporation to parentco common shareholders of record as of the close of business on march 19 , 2020 ( the “ record date ” ) . specifically , parentco common shareholders are expected to receive one share of arconic corporation common stock for every four shares of parentco common stock held as of the record date ( parentco common shareholders will receive cash in lieu of fractional shares ) . in connection with the consummation of the separation , parentco will change its name to howmet aerospace inc. ( “ howmet aerospace ” ) and arconic rolled products corporation will change its name to arconic corporation . “ when-issued ” trading of arconic corporation common stock began on march 18 , 2020 under the ticker symbol “ arnc wi ” and will continue until the distribution date . “ regular-way ” trading of arconic corporation common stock is expected to begin with the opening of the new york stock exchange on april 1 , 2020 under the ticker symbol “ arnc. ” basis of presentation . the combined financial statements of arconic corporation are prepared in conformity with accounting principles generally accepted in the united states of america ( gaap ) . in accordance with gaap , certain situations require management to make estimates based on judgments and assumptions , which may affect the reported amounts of assets 40 and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements . they also may affect the reported amounts of revenues and expenses during the reporting periods . actual results could differ from those estimates upon subsequent resolution of identified matters . the combined financial statements of arconic corporation are prepared from parentco 's historical accounting records and are presented on a standalone basis as if the arconic corporation businesses have been conducted independently from parentco . such combined financial statements include the historical operations that are considered to comprise the arconic corporation businesses , as well as certain assets and liabilities that have been historically held at parentco 's corporate level but are specifically identifiable or otherwise attributable to arconic corporation . cost allocations . the combined financial statements of arconic corporation include general corporate expenses of parentco that were not historically charged to the arconic corporation businesses for certain support functions that are provided on a centralized basis , such as expenses related to finance , audit , legal , information technology , human resources , communications , compliance , facilities , employee benefits and compensation , and research and development activities . story_separator_special_tag the increase of $ 58 , or 20 % , was primarily the result of a higher allocation ( increase of $ 59 ) of parentco 's corporate overhead , which was mostly driven by the following : costs incurred for the planned separation ( $ 78 , of which $ 40 was allocated to arconic corporation ) and higher expenses for both executive compensation and estimated annual employee incentive compensation , all of which was somewhat offset by reductions in several other overhead costs . sg & a expenses were $ 288 , or 3.9 % of sales , in 2018 compared with $ 361 , or 5.3 % of sales , in 2017 . the decrease of $ 73 , or 20 % , was primarily the result of a lower allocation ( decrease of $ 64 ) of parentco 's corporate overhead , which was mostly driven by overall cost reductions and the non-recurring nature of certain parentco costs in 2017 for proxy , advisory , and governance-related matters . in 2020 , the company expects to recognize no expense in sg & a related to u.s. pension and other postretirement employee defined benefit plans compared to $ 13 recognized in 2019 ( see cost of goods sold above for additional information ) . research and development expenses . r & d expenses were $ 45 in 2019 compared with $ 63 in 2018 and $ 66 in 2017 . the decrease in both periods was principally related to a lower allocation of parentco 's expenses , which was driven by decreased spending . in 2020 , the company expects to recognize no expense in r & d related to u.s. pension and other postretirement employee defined benefit plans compared to $ 2 recognized in 2019 ( see cost of goods sold above for additional information ) . provision for depreciation and amortization . the provision for d & a was $ 252 in 2019 compared with $ 272 in 2018 . the decrease of $ 20 , or 7 % , was primarily due to the divestiture of the texarkana ( texas ) rolling mill and cast house . the provision for d & a was $ 272 in 2018 compared with $ 266 in 2017 . the increase of $ 6 , or 2 % , was primarily due to capital projects placed into service related to arconic corporation 's davenport ( iowa ) ( very thick plate stretcher related to aerospace expansion ) and tennessee ( equipment upgrades and conversions to transition to automotive sheet and industrial applications from can sheet ) rolling mills . restructuring and other charges . in 2019 , restructuring and other charges were $ 87 , which were comprised of the following components : a $ 53 impairment charge for the assets associated with an aluminum rolling mill in brazil as a result of signing a definitive sale agreement ; a $ 30 charge for layoff costs , including the separation of approximately 480 employees ( 240 in the rolled products segment , 190 in the building and construction systems segment , and 50 in the extrusions segment ) ; a $ 20 benefit for contingent consideration received related to the sale of the texarkana ( texas ) cast house ; a $ 10 charge for the impairment of the carrying value of a trade name intangible asset ; a $ 7 charge for an allocation of parentco 's corporate restructuring charges ( see cost allocations in overview above ) ; and a $ 7 net charge for other items . in 2018 , restructuring and other charges were a net benefit of $ 104 , which were comprised of the following components : a $ 154 gain on the sale of the texarkana ( texas ) rolling mill and cast house ; a $ 50 charge for an allocation of parentco 's corporate restructuring charges ( see cost allocations in overview above ) ; a $ 2 charge for a post-closing adjustment related to 43 the divestiture of the latin america extrusions business ; an $ 8 net charge for other items ; and a $ 10 benefit for the reversal of several layoff reserves related to prior periods . in 2017 , restructuring and other charges were $ 133 , which were comprised of the following components : a $ 60 loss related to the divestiture of the fusina ( italy ) rolling mill ; a $ 41 impairment charge for the assets associated with the latin america extrusions business as a result of signing a definitive sale agreement ( completed sale in april 2018 ) ; a $ 31 charge for layoff costs related to cost reduction initiatives , including the separation of approximately 400 employees ( the majority of which related to the rolled products and building and construction systems segments ) ; a $ 6 charge for an allocation of parentco 's corporate restructuring charges ( see cost allocation in overview above ) ; a $ 2 net benefit for other items ; and a $ 3 benefit for the reversal of several layoff reserves related to prior periods . see note e to the combined financial statements in part ii item 8 financial statements and supplementary data . interest expense . interest expense was $ 115 in 2019 compared with $ 129 in 2018 . the decrease of $ 14 , or 11 % , was mostly the result of a lower allocation ( decrease of $ 10 ) of parentco 's financing costs due to a lower average amount of parentco 's outstanding debt in 2019 compared to 2018 and an increase ( $ 3 ) in the amount of interest capitalized due to expansion projects at the company 's davenport ( iowa ) and tennessee facilities ( see investing activities in liquidity and capital resources below ) . interest expense was $ 129 in 2018 compared with $ 168 in 2017 .
| results of operations earnings summary net income . net income was $ 225 in 2019 compared to $ 170 in 2018 . the improvement in results of $ 55 was principally caused by favorable product pricing and mix and a favorable change in lifo inventory accounting . these negative impacts were mostly offset by the absence of a 2018 gain on the sale of a rolling mill , 2019 asset impairment charges and layoff costs , and an allocation of costs related to the proposed separation . net income was $ 170 in 2018 compared with $ 209 in 2017 . the decrease in results of $ 39 was principally caused by the non-recurring nature of an allocation of two gains related to parentco 's 2017 investing and financing activities , an allocation of a net charge associated with several actions taken by parentco related to employee retirement benefit plans , and unfavorable pricing and product mix . these negative impacts were mostly offset by a gain on the sale of the texarkana ( texas ) rolling mill , lower allocations of parentco 's corporate overhead and financing costs , the absence of charges related to the divestiture of the fusina ( italy ) rolling mill and latin america extrusions business , and higher volumes in the rolled products and building and construction systems segments . sales . sales in 2019 were $ 7,277 compared with $ 7,442 in 2018 , a decrease of $ 165 , or 2 % . the decrease was largely attributable to lower aluminum prices , the absence of sales ( $ 169 combined ) as a result of both the ramp down of arconic corporation 's north american packaging operations ( completed in december 2018 ) and the divestiture of the latin america extrusions business ( april 2018 ) , and unfavorable foreign currency movements .
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2011-11 , disclosures about offsetting assets and liabilities , which creates new disclosure requirements about the nature of an entity 's rights of setoff and related arrangements associated with its financial instruments and derivative instruments . the disclosure requirements are effective for annual reporting periods beginning on or after january 1 , 2013 , and interim periods therein , with retrospective application required . in january 2013 , the fasb issued asu no . 2013-01 , clarifying the scope of story_separator_special_tag company inquiry and restatement at the request and under the direction of the audit committee an inquiry was conducted by the company relating to a tax issue arising from the fact that the company is organized in the u.s. and earned substantial cumulative income through foreign subsidiaries , and relating to the interpretation of certain provisions contained in the company 's credit agreements . in connection with the inquiry process , on october 19 , 2012 , the audit committee , on the recommendation of management , concluded that the company 's previously issued financial statements for at least the three years ended december 31 , 2011 and associated interim periods , and for the quarters ended march 31 and june 30 , 2012 , should no longer be relied upon . upon completion of the inquiry , it was determined that there were errors in the company 's previously issued financial statements for each of the years in the twelve year period ended december 31 , 2011 ( including the interim periods within those years ) , and for each of the calendar quarters ended march 31 , 2012 and june 30 , 2012 , and such financial statements should be restated . specifically , because osg international , inc. ( “ oin ” ) , a wholly-owned subsidiary of the company incorporated in the marshall islands , was a co-obligor with osg and osg bulk ships , inc. ( “ obs ” ) , a wholly-owned subsidiary of the company incorporated in the u.s. , on a joint and several basis for amounts drawn under the company 's unsecured revolving credit facility scheduled to mature on february 8 , 2013 and certain predecessor credit facilities ( the “ credit facilities ” ) , the company determined that oin could be deemed under section 956 of the u.s. internal revenue code ( “ section 956 ” ) to have made taxable distributions to osg for each taxable year in which such joint and several liability existed . under the relevant tax rules , the amount of any deemed distributions for any taxable year that would be considered taxable income as a result of this issue generally ( and subject to certain complex variables ) would be determined by reference to the excess of : ( i ) the average of the quarter-end outstanding balances under the credit facilities for that year , over ( ii ) the average of the quarter-end balances for prior years , plus any other amounts that might have given rise to deemed distributions for prior years . in the case of oin and osg , this calculation could produce an aggregate amount of up to $ 1,317,500 of earnings deemed repatriated from oin though the end of 2012 as a result of drawdowns under the credit facilities , although the final determination of the amount will depend upon several interrelated issues that have yet to be settled with the internal revenue service ( “ irs ” ) . furthermore , the company determined that it had not properly accounted for the tax consequences of intercompany balances that have existed between domestic and international entities within the company . the company determined that , due to insufficient processes to identify and evaluate adequately the income tax accounting impact of section 956 to intercompany balances , these intercompany balances could be deemed under section 956 to have been taxable distributions to osg in the years in which such balances existed . this resulted in the company recording deemed dividend income aggregating $ 77,000 for taxable years 2012 and earlier . the company 's financial statements for years prior to 2012 and for each of the quarters ended march 31 , 2012 and june 30 , 2012 did not properly take account of these issues and , therefore , these errors caused the financial statements to be misstated . the irs has asserted a number of other adjustments to the company 's taxable income . these adjustments represent an additional $ 234,853 of asserted taxable income across taxable years 2009 and earlier . the company disagrees with several of the irs 's asserted adjustments and intends to dispute them vigorously . in some cases , the asserted adjustments , including certain adjustments resulting from intercompany balances described in the previous paragraph , interrelate with the calculation of any deemed dividends under section 956 described above in a way that may reduce the amount of deemed dividends if the irs 's asserted adjustments are sustained . the company believes , based on its analysis and its interactions with the irs to date , that the actual amount of tax that the company ultimately will be required to pay to the irs in respect of the potential deemed dividends and other adjustments discussed above will be significant and could be as high as $ 460,000 , or potentially higher , for all periods ending on or before december 31 , 2012 , not taking in account any potential penalties but including interest . however , the company has several defenses available to mitigate its liability and intends to assert those defenses vigorously . the irs has filed proofs of claim against the company in its chapter 11 proceedings in the aggregate liquidated amount of $ 463,013 that the company believes are in respect of these issues , but no agreement has been made in respect of these claims . story_separator_special_tag 57 overseas shipholding group , inc. the following is a discussion and analysis of ( i ) industry operations that have an impact on the company 's financial position and results of operations , ( ii ) critical accounting policies used in the preparation of the company 's consolidated financial statements and ( iii ) the company 's financial condition at december 31 , 2012 and 2011 and its results of operations comparing the years ended december 31 , 2012 and 2011 and the years ended december 31 , 2011 and 2010. this section should be read together with the accompanying consolidated financial statements including the notes thereto . all dollar amounts are in thousands , except daily dollar amounts and per share amounts . operations and oil tanker markets the company 's revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by the company and the trades in which those vessels operate . rates for the transportation of crude oil and refined petroleum products from which the company earns a substantial majority of its revenues are determined by market forces such as the supply and demand for oil , the distance that cargoes must be transported , and the number of vessels expected to be available at the time such cargoes need to be transported . the demand for oil shipments is significantly affected by the state of the global economy and level of opec exports . the number of vessels is affected by newbuilding deliveries and by the removal of existing vessels from service , principally because of storage , scrappings or conversions . the company 's revenues are also affected by the mix of charters between spot ( voyage charter ) and long-term ( time or bareboat charter ) . because shipping revenues and voyage expenses are significantly affected by the mix between voyage charters and time charters , the company manages its vessels based on tce revenues . management makes economic decisions based on anticipated tce rates and evaluates financial performance based on tce rates achieved . average annual spot market rates in 2012 exceeded those in 2011 for all international crude tanker sectors , but were lower for product carriers . crude tanker rates during 2012 benefited from a worldwide increase in oil inventories of approximately one million barrels per day ( “ b/d ” ) compared with an inventory drawdown of 420,000 b/d in 2011. opec crude oil production increased by about 1.5 million b/d , primarily in libya , where production in 2012 returned to pre-civil war levels , and in the middle east , where increased production in iraq , saudi arabia and kuwait more than offset lower production in iran . incremental oil shipments from the middle east during 2012 boosted demand for larger size tankers , especially vlccs , and an increase in exports from libya benefited the aframax tanker market . these positive factors were , however , largely offset by an increase of approximately 5 % in tanker tonnage that exacerbated an existing oversupply situation and lower seaborne imports into the u.s. , where a significant increase in production displaced light sweet crude oil imports from both west and north africa . continued sanctions against iran during 2012 resulted in its oil production declining to approximately 3.0 million b/d , the lowest level since 1990. iranian exports to the european union ( “ eu ” ) were essentially eliminated during the middle of 2012. iranian exports to asia , specifically japan , india , china and south korea , were also reduced from 2011 levels as asian countries complied with tightened u.s. sanctions against iran . as sanctions went into full effect during 2012 , other middle east opec countries increased their oil output to compensate for lower iranian exports and to meet the increase in world inventory requirements . a worldwide buildup of commercial and strategic petroleum reserves to compensate for any unanticipated supply disruptions that might occur given iran 's threat to disrupt oil shipments through the straits of hormuz temporarily increased tanker demand in the first half of 2012. oil demand in 2012 amounted to 89.8 million b/d , an increase of approximately 970,000 b/d , or 1.1 % , over 2011 levels . oil demand declined in oecd areas by about 400,000 b/d largely due to the substitution of natural gas for fuel oil and from continued economic weakness ( especially in europe ) . reduced demand in both north america and europe completely offset oil demand growth in japan as japan used more fuel oil and direct burn crude to generate power following the closure of most of its nuclear facilities caused by the 2011 tsunami / earthquake . non-oecd demand rose by 1.4 million b/d , led by an increase of 360,000 b/d in china , where a 4.3 % increase in new vehicle sales stimulated higher gasoline consumption . demand in india rose by 320,000 b/d , led by strong demand for middle distillates . non-opec oil production increased by 560,000 b/d in 2012 , which met almost 60 % of the world 's oil demand growth . production in the u.s. and canada increased by approximately one million b/d and 250,000 b/d , respectively , as oil shale production in the u.s. and oil sands production in canada continued to increase . the increase in u.s. oil shale production accounted for a reduction in light sweet crude oil imports into the u.s. of approximately 500,000 b/d while the increase in canadian oil sands production accounted for a reduction of heavy sour crude imports from latin america of about 120,000 b/d . the increase in north american production was somewhat offset by lower north sea production and reduced production stemming from civil unrest in syria and yemen and disputes between sudan and south sudan . 58 overseas shipholding group , inc. opec crude oil production in 2012 averaged about 31.4 million b/d , an increase of about 1.5 million b/d over 2011 levels .
| results from vessel operations during 2012 , results from vessel operations decreased by $ 237,045 to an operating loss of $ 379,233 from a loss of $ 142,188 in 2011. this decrease reflected $ 271,359 in vessel impairment charges net of gains on disposal of vessels in 2012 , as well as an increase in depreciation expense relating to eight newbuild vessel deliveries during 2011 and early 2012. partially offsetting the unfavorable variances were year-over-year increased tce revenues , as well as lower charter hire expense in 2012 that resulted primarily from a significant decline in the vlcc fleet 's chartered-in days . tce revenues increased by $ 50,645 , or 6 % , to $ 840,846 in 2012 from $ 790,201 in 2011 primarily due to the recognition of $ 40,400 in shipping revenues from the termination , settlement and replacement lightering agreement that the company entered into with sunoco during 2012. the impact of this contract combined with the continued growth of the u.s. flag market resulted in a total tce revenue increase of $ 70,330 in the u.s. flag segment . the suezmax fleet also provided higher tce revenues with increased average spot rates and higher revenue days . these increases were partially offset by a decrease in the average blended rates earned by the company 's international flag handysize product carriers , as well as substantial idle time for the company 's ulcc and a decline in average daily tce rates for the smaller crude vessel classes ( aframaxes and panamaxes ) . during 2011 , results from vessel operations decreased by $ 62,893 to an operating loss of $ 142,188 from an operating loss of $ 79,295 in 2010 primarily as a result of the period-over-period decline in overall tce revenues .
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a company 's internal control over financial reporting includes those policies and procedures that ( 1 ) pertain to the maintenance of records that , in reasonable detail , accurately and fairly reflect the transactions and dispositions of the assets of the company ; ( 2 ) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles , and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company ; and ( 3 ) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use , or disposition of the company 's assets that could have a material effect on the financial statements . because of its inherent limitations , internal control over financial reporting may story_separator_special_tag story_separator_special_tag recognition in providing for an adequate credit loss allowance . because of the nature of the customers under the company 's contracts and its direct loan program , the company considers the establishment of adequate reserves for credit losses to be imperative . the company segregates its contracts into static pools for purposes of establishing reserves for losses . all contracts purchased by a branch during a fiscal quarter comprise a static pool . the company pools contracts according to branch location because the branches purchase contracts in different geographic markets . this method of pooling by branch and quarter allows the company to evaluate the different markets where the branches operate . the pools also allow the company to evaluate the different levels of customer income , stability and credit history , and the types of vehicles purchased in each market . each such static pool consists of the contracts purchased by a branch office during the fiscal quarter . contracts are purchased from many different dealers and are all purchased on an individual contract by contract basis . individual contract pricing is determined by the automobile dealerships and is generally the lesser of state maximum interest rates or the maximum interest rate which the customer will accept . in certain markets , competitive forces will drive down contract rates from the maximum rate to a level where an individual competitor is willing to buy an individual contract . the company only buys contracts on an individual basis and never purchases contracts in batches , although the company may consider portfolio acquisitions as part of its growth strategy . the company has detailed underwriting guidelines it utilizes to determine which contracts to purchase . these guidelines are specific and are designed to cause all of the contracts that the company purchases to have common risk characteristics . the company utilizes its district managers to evaluate their respective branch locations for adherence to these underwriting guidelines . the company also utilizes an internal audit department to assure adherence to its underwriting guidelines . the company utilizes the branch model , which allows for contract purchasing to be done on the branch level . each branch manager may interpret the guidelines differently , and as a result , the common risk characteristics tend to be the same on an individual branch level but not necessarily compared to another branch . a dealer discount represents the difference between the finance receivable , net of unearned interest , of a contract , and the amount of money the company actually pays for the contract . the discount negotiated by the company is a function of the credit quality of the customer , the wholesale value of the vehicle , and competition in any given market . the automotive dealer accepts these terms by executing a dealer agreement with the company . the entire amount of discount is related to credit quality and is considered to be part of the allowance for credit losses . the company utilizes a static pool approach to track portfolio performance . a static pool retains an amount equal to 100 % of the discount as an allowance for credit losses . 21 subsequent to the purchase , if the reserve for credit losses is determined to be inadequate for a static pool which is not fully liquidated , then an additional charge to income through the provision is used to reestablish adequate reserves . if a static pool is fully liquidated and has any remaining reserves , the excess discounts are immediately recognized into income and the excess provision is immediately reversed during the period . for static pools not fully liquidated that are determined to have excess discounts , such excess amounts are accreted into income over the remaining life of the static pool . for static pools not fully liquidated that are deemed to have excess reserves , such excess amounts are reversed against provision for credit losses during the period . in analyzing a static pool , the company considers the performance of prior static pools originated by the branch office , the performance of prior contracts purchased from the dealers whose contracts are included in the current static pool , the credit rating of the customers under the contracts in the static pool , and current market and economic conditions . each static pool is analyzed monthly to determine if the loss reserves are adequate and adjustments are made if they are determined to be necessary . fiscal 2011 compared to fiscal 2010 interest and fee income on finance receivables interest income on finance receivables , predominantly finance charge income , increased 11 % to $ 62.7 million in fiscal 2011 from $ 56.4 million in fiscal 2010. the average finance receivables , net of unearned interest , totaled $ 251.0 million for the fiscal year ended march 31 , 2011 , an increase of 12 % from $ 223.5 million for the fiscal year ended march 31 , 2010. the primary reason average finance receivables , net of unearned interest increased was the increase in the receivable base of several existing branches and the development of new markets in georgia , indiana , illinois and missouri . story_separator_special_tag the company utilizes a static pool approach to analyzing portfolio performance and looks at specific static pool performance and recent trends as leading indicators of the future performance of its portfolio . the company considers the following factors to assist in determining the appropriate loss reserve levels : unemployment rates ; competition ; the number of bankruptcy filings ; the results of internal branch audits ; consumer sentiment ; consumer spending ; economic growth ( i.e. , changes in gdp ) ; the condition of the housing sector ; and other leading economic indicators . the company continues to evaluate reserve levels on a pool-by-pool basis during each reporting period . while unemployment rates have stabilized , they remain elevated , which will make it difficult for additional improvement in loss rates . the longer term outlook for portfolio 23 performance will depend on overall economic conditions , the unemployment rate , the rationale or irrational behavior of the company 's competitors , and the company 's ability to monitor , manage and implement its underwriting philosophy in additional geographic areas as it strives to continue its expansion . income taxes the provision for income taxes increased to approximately $ 10.5 million in fiscal year 2011 from approximately $ 6.8 million in fiscal year 2010 primarily as a result of higher pretax income . the company 's effective tax rate increased to 38.51 % in fiscal 2011 from 38.45 % in fiscal 2010. the primary reason for this increase was an increase in the amount of taxable income subject to higher graduated tax rates associated with federal income taxes . fiscal 2010 compared to fiscal 2009 interest and fee income on finance receivables interest income on finance receivables , predominantly finance charge income , increased 6 % to $ 56.4 million in fiscal 2010 from $ 53.0 million in fiscal 2009. the average finance receivables , net of unearned interest , totaled $ 223.5 million for the fiscal year ended march 31 , 2010 , an increase of 8 % from $ 207.4 million for the fiscal year ended march 31 , 2009. the primary reason average finance receivables , net of unearned interest increased was the increase in the receivable base of several existing branches and the development of new markets in ohio , north carolina , indiana and virginia . the gross finance receivable balance increased 9 % to $ 325.4 million at march 31 , 2010 from $ 297.9 million at march 31 , 2009. the primary reason interest income increased was the increase in the outstanding loan portfolio . the gross portfolio yield decreased from 25.57 % for the fiscal year ended march 31 , 2009 to 25.23 % for the fiscal year ended march 31 , 2010. the net portfolio yield increased from 15.07 % for the fiscal year ended march 31 , 2009 to 17.86 % for the fiscal year ended march 31 , 2010. the gross portfolio yield decreased due to a lower weighted apr on contracts purchased during fiscal year 2010. the net portfolio yield increased primarily due to the decrease in provisions for credit losses . marketing , salaries , employee benefits , depreciation , and administrative expenses marketing , salaries , employee benefits , depreciation , and administrative expenses increased to $ 23.3 million for the fiscal year ended march 31 , 2010 from $ 22.2 million for the fiscal year ended march 31 , 2009. this increase of 5 % was primarily attributable to additional staffing at existing branches . marketing , salaries , employee benefits , depreciation , and administrative expenses as a percentage of average finance receivables , net of unearned interest , decreased from 10.57 % for the fiscal year ended march 31 , 2009 to 10.35 % for the fiscal year ended march 31 , 2010. interest expense interest expense decreased to $ 5.2 million for the fiscal year ended march 31 , 2010 as compared to $ 5.4 million for the fiscal year ended march 31 , 2009. the following table summarizes the company 's average cost of borrowed funds for the fiscal years ended march 31 : replace_table_token_11_th the primary reason the company 's average cost of funds decreased was the change in the weighted-average 30-day libor rate which decreased to 0.29 % for the fiscal year ended march 31 , 2010 as compared to 2.12 % for the fiscal year ended march 31 , 2009. the reduction in 30-day libor rates was offset in part by the company 's interest rate swap agreements , which converted a portion of the company 's floating rate debt to fixed rate debt , as well as an increase in the credit spread under a new credit facility executed in the fourth quarter of the fiscal year ended march 31 , 2010. the weighted average notional amount of interest rate swaps was $ 67.8 million at a weighted average fixed rate of 3.95 % during the fiscal year ended march 31 , 2010 as compared to $ 80.0 million at 4.03 % for the fiscal year ended march 31 , 2009. for a further discussion regarding the effect of our interest rate swap agreements , see note 6 ( interest rate swap agreements ) to our audited consolidated financial statements included elsewhere in this report . on january 12 , 2010 , the company executed a new line of credit facility . at this time , the pricing changed from 162.5 basis points above 30-day libor to 300 basis points above 30-day libor with a 1 % floor on libor . the average cost of borrowings in future 24 periods will continue to be impacted by the pricing increases . for a further discussion regarding the company 's line of credit , see note 5 ( line of credit ) to our audited consolidated financial statements included elsewhere in this report . analysis of credit losses as of march 31 , 2010 , the company had 1,055 active static pools .
| overview nicholas financial-canada is a canadian holding company incorporated under the laws of british columbia in 1986. nicholas financial-canada conducts its business activities through two wholly-owned florida corporations : nicholas financial , which purchases and services contracts , makes direct loans and sells consumer-finance related products ; and nds , which supports and updates certain computer application software . nicholas financial accounted for more than 99 % of the company 's consolidated revenue for the fiscal years ended march 31 , 2011 , 2010 , and 2009. nicholas financial-canada , nicholas financial and nicholas data services are collectively referred to herein as the company . the company 's consolidated revenues increased for the fiscal year ended march 31 , 2011 to $ 62.8 million as compared to $ 56.5 million and $ 53.1 million for the fiscal years ended march 31 , 2010 and 2009 , respectively . the company 's consolidated net income increased for the fiscal year ended march 31 , 2011 to $ 16.8 million as compared to $ 10.9 million and $ 4.7 million for the fiscal years ended march 31 , 2010 and 2009 , respectively . the company 's earnings were positively impacted by a decrease in the net charge-off percentage to 4.65 % for the fiscal year ended march 31 , 2011 as compared to 7.37 % for the fiscal year ended march 31 , 2010. the company believes the decrease in the charge-off percentage was primarily attributable to the following factors : the increased market value of auctioned cars , the continued application of stricter underwriting guidelines , and the continued allocation of additional resources focused on collections .
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our primary product groups include i ) powertrain cooling and engine cooling ; ii ) coils , coolers , and coatings ; and iii ) heating , ventilation and air conditioning . our products are used in on - and off-highway original-equipment vehicular applications . in addition , we provide our thermal management technology and solutions to a wide array of commercial , industrial , and building heating , ventilating , air conditioning , and refrigeration markets . company strategy during fiscal 2018 , we successfully integrated our recently-acquired luvata hts business , which now operates as our cis segment . this acquisition , which was completed in late fiscal 2017 , was particularly key in achieving our “ diversify ” and “ grow “ objectives within our sdg strategic transformation initiative launched in fiscal 2016. through this acquisition , we successfully broadened our customer base , reduced our reliance upon vehicular end markets by increasing our presence in non-vehicular markets , and grew our company with cis segment net sales of $ 620 million in fiscal 2018. we 've been focused on realizing the previously-announced $ 15 million of targeted cost synergies in three to four years following this acquisition and believe we are on track to exceed this target . in addition , we 've continued strengthening our company . our actions during fiscal 2018 have included i ) the closure of a cis manufacturing facility in austria , aimed at reducing excess capacity and lowering manufacturing costs in europe , ii ) targeted headcount reductions in our europe segment , which have resulted in lower operating and sg & a cost structures , and iii ) product line transfers to hungary from other europe segment manufacturing facilities , aimed at expanding our low-cost country footprint in europe and ensuring continued competitiveness in the region . looking ahead , we are confident that our sdg strategy will keep us grounded , thriving , and transforming . our company 's foundation is rooted in thermal management , proven products and our commitment to always improve and always innovate , which we believe will continue to ground us as we broaden our foundation and continue to diversify our business . our business is thriving and we are growing both domestically and abroad . our asia segment has grown significantly and our planned expansion in china will be instrumental to meeting demand in the region 's vehicular markets . looking forward , we aim to continue transforming our company and the thermal management industry by diligently analyzing our market positions and making strategic decisions about where we want to focus both our capital and resources . we are focused on high-return , high-growth and high-performing business opportunities , and , as a stronger company , we believe we have the ability to pursue strategic opportunities in new channels and with new customers around the world . we anticipate the demand for more economical , efficient and sustainable technologies will drive innovation across the markets we serve . we believe our ability to quickly react to rapidly evolving markets will position us well to provide greater value and innovative solutions to our customers and to continue to deliver sustainable shareholder value . development of new products and technology our ability to develop new products and technologies based upon our building block strategy for new and emerging markets is one of our competitive strengths . under this strategy , we focus on creating core technologies that form the basis for multiple products and product lines across multiple business segments . each of our business segments have a strong heritage of new product development , and our entire global technology organization benefits from mutual strengths . we own four global , state-of-the-art technology centers , dedicated to the development and testing of products and technologies . the centers are located in racine , wisconsin , grenada , mississippi , pocenia , italy and bonlanden , germany . our reputation for providing high quality products and technologies has been a company strength valued by our customers . 22 we continue to benefit from relationships with customers that recognize the value of having us participate directly in product design , development and validation processes . this has resulted , and we expect it to continue to result , in strong , long-term customer relationships with companies that value partnerships with their suppliers . strategic planning and corporate development we employ both short-term ( one year ) and longer-term ( five-to-seven year ) strategic planning processes , which enable us to continually assess our opportunities , competitive threats , and economic market challenges . we devote significant resources to global strategic planning and development activities to strengthen our competitive position . our recently-acquired cis segment increased our industrial portfolio , broadened our customer base , reduced cyclical exposure , and expanded our growth profile . we expect to continue to pursue acquisitions in “ industrial ” markets and expand our market share in high-growth engine and powertrain cooling areas through focused research and development activities and commercial pursuits . operational and financial discipline we operate in a dynamic , global marketplace ; therefore , we manage our business with a disciplined focus on increasing productivity and reducing waste . the nature of the global marketplace requires us to move toward a greater manufacturing scale in order to create a more competitive cost base . in order to optimize our cost structure and improve efficiency of our operations , we have engaged in restructuring activities in our cis , europe , americas and bhvac segments during fiscal 2018. in addition , as costs for materials and purchased parts may rise from time to time due to increases in commodity markets , we seek low-cost sourcing , when appropriate , and enter into contracts with some of our customers that provide for commodity price adjustments , on a lag basis . we follow a rigorous financial process for investment and returns , intended to enable increased profitability and cash flows over the long term . story_separator_special_tag we are continuing to ramp up production of aluminum oil coolers in our facility in shanghai , china , and production levels at our manufacturing facilities in changzhou , china and chennai , india also increased in fiscal 2018. we expect this trend to continue in fiscal 2019. in order to provide additional capacity for growth , we are expanding our manufacturing capacity in changzhou , china . we manufacture various stainless steel products in china within our modine puxin thermal system ( jiangsu ) co. , ltd. joint venture . this joint venture continues to expand in sales and product offerings to local and global customers . in recent years , our technology , performance , quality , and reputation have enabled us to win new engine products and powertrain cooling business in asia . emissions standards in china and india have historically lagged behind those in north america and europe . as a result , some local on- and off-highway powertrain cooling customers have focused on price more than technology . however , emissions standards in asia are expected to change in the coming years and we expect to benefit from additional powertrain ( e.g. , electric vehicle ) and engine cooling opportunities , as a result . we do expect , however , that customers in the asia markets will remain very price-sensitive . 24 our strategy in this segment is to increase sales volume levels and enhance sustained profitability . our focus is on securing incremental business with existing and new product offerings and to further diversify our customer base . simultaneously , we are focused on controlling costs and increasing our asset utilization and manufacturing capabilities . we believe our asia segment is well positioned for growth and new programs in fiscal 2019 and beyond . commercial and industrial solutions ( 29 percent of fiscal 2018 net sales ) our cis segment provides a broad offering of thermal management products to the hvac & r markets , including solutions tailored to indoor and mobile climates , food storage and transport-refrigeration , and industrial processes . cis 's primary product groups include coils , coolers , and coatings . our coils products include custom-designed condensers , evaporators , round-tube solutions , as well as steam and water/fluid coils . our coolers include commercial refrigeration units , which are used across the food supply chain as well as for precision climate control for other applications such as data centers , and other types such as carbon dioxide and ammonia unit coolers , remote condensers , transformer oil coolers , and brine coolers . in addition , we offer proprietary coating solutions for corrosion protection , prolonging the life of heat-transfer equipment . we are continuing to harmonize the cis business processes with those of the rest of our company . during fiscal 2018 , cis experienced modest growth . strength in the north america recreational vehicle air conditioning and china industrial power markets was partially offset by weakness in the european industrial power market . we expect modest growth in each of the cis markets we serve during fiscal 2019. looking forward , our strategy in this segment is to realize potential synergies and grow future earnings . we are working towards our goal of attaining $ 15 million of synergy savings over the first two years of operations . we are deriving cost savings from a variety of synergy opportunities including procurement activities , operational improvements , plant consolidation , system conversions , and organizational efficiencies . we believe our cis segment is well-positioned for sustained , positive long-term financial results , driven in particular by growing market demand . building hvac ( 9 percent of fiscal 2018 net sales ) our bhvac segment manufactures and distributes a variety of original equipment and aftersales hvac products , primarily for commercial buildings and related applications in north america , the united kingdom , mainland europe , the middle east , asia , and africa . we sell and distribute our heating , ventilation and cooling products through wholesalers , distributors , consulting engineers , contractors and building owners for applications such as warehouses , repair garages , greenhouses , residential garages , schools , data centers , manufacturing facilities , hotels , hospitals , restaurants , stadiums , and retail stores . our heating products include gas ( natural and propane ) , electric , oil and hydronic unit heaters , low- and high-intensity infrared , and large roof-mounted direct- and indirect-fired makeup air units . our ventilation products include single-packaged vertical units and unit ventilators used in school room applications , air-handling equipment , and rooftop packaged ventilation units used in a variety of commercial building applications . our cooling products include precision air conditioning units used primarily for data center cooling applications , air- and water-cooled chillers , and ceiling cassettes , which are also used in a variety of commercial building applications . economic conditions , such as demand for new commercial construction , building renovations , including hvac replacement , growth in data centers and school renovations , and higher efficiency requirements , are growth drivers for our building hvac products . during fiscal 2018 , sales improved across all of our north america product platforms , including heating , ventilation , air conditioning , and aftersales . our u.k. business experienced sales volume improvements in air-handling equipment and aftersales , but also experienced unfavorable currency impacts during the first half of the fiscal year . late in fiscal 2018 , we made the strategic decision to discontinue manufacturing and selling products to the north american residential geothermal heat pump market and , as a result , recorded a $ 1.2 million impairment charge for intangible assets we will no longer use . we expect continued growth in each of the hvac markets we serve during fiscal 2019. the markets we serve are heavily impacted by construction activity , building regulations , and owner/occupant comfort requirements .
| consolidated results of operations on november 30 , 2016 , we acquired luvata hts for consideration totaling $ 415.6 million ( $ 388.2 million , net of cash acquired ) . operating as our cis segment , this business is a leading global supplier of coils , coolers and coatings to the heating , ventilation , air conditioning , and refrigeration industry . as we have consolidated cis financial results since the acquisition date , fiscal 2017 included four months of financial results from cis operations . in december 2017 , the tax cuts and jobs act ( “ tax act ” ) was enacted and included numerous changes to existing u.s. tax regulations , including u.s. corporate tax rates , business deductions , and taxes on income in foreign jurisdictions . during fiscal 2018 , we recorded provisional charges totaling $ 38 million for certain income tax effects of the tax act . see note 7 of the notes to consolidated financial statements for additional information fiscal 2018 net sales increased $ 600 million , or 40 percent , from the prior year , primarily due to $ 442 million of additional sales from our cis segment , which we owned for four months of fiscal 2017 , and higher sales in all of our other operating segments . gross profit increased $ 103 million , including $ 66 million of additional contribution from our cis segment . sg & a expenses increased $ 43 million , primarily due to a $ 38 million increase in sg & a expenses in our cis segment . during fiscal 2018 , we recorded $ 16 million of restructuring expenses , primarily related to a facility closure in our cis segment and targeted headcount reductions in our europe segment . fiscal 2018 operating income increased $ 50 million to $ 92 million .
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70 ( 14 ) defined contribution plan the company sponsors defined contribution plans for employees in the u.s. and europe . the cost of these plans , including employer contributions , was $ 504 and $ 698 for the years ended december 31 , 2020 and 2019 respectively . ( 15 ) income taxes income tax expense of $ 142 and $ 275 for the years ended december 31 , 2020 and 2019 , respectively is story_separator_special_tag this annual report ( `` annual report '' ) contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities act of 1934 , as amended ( the `` exchange act '' ) . these statements involve known and unknown risks , uncertainties and other factors that may cause our actual results , performance or achievements to be materially different from any future results , performances or achievements expressed or implied by the forward-looking statements . in some cases , you can identify forward-looking statements by terms such as `` anticipates , '' `` believes , '' `` could , '' `` estimates , '' `` expects , '' `` intends , '' `` may , '' `` plans , '' `` potential , '' `` predicts , '' `` projects , '' `` should , '' `` will , '' `` would , '' and similar expressions intended to identify forward-looking statements . forward-looking statements reflect our current views with respect to future events , are based on assumptions , and are subject to risks , uncertainties and other important factors . in particular , statements , whether express or implied , concerning future operating results or the ability to generate sales , income or cash flow are forward-looking statements . they involve risks , uncertainties and assumptions that are beyond our ability to control or predict , including those discussed in part ii , item 1a , of this annual report . given these risks , uncertainties , and other important factors , you should not place undue reliance on these forward-looking statements . also , forward-looking statements represent our estimates and assumptions only as of the date of this annual report . except as required by law , we assume no obligation to update any forward-looking statements publicly , or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements , even if new information becomes available in the future . the following discussion should be read in conjunction with our consolidated financial statements and related notes contained elsewhere in this annual report on form 10-k. `` apollo , '' orbera ® , overstitch , x-tack , the apollo logo and other trademarks , service marks and trade names of apollo are registered marks of apollo endosurgery , inc. in the u.s. and other jurisdictions . overview we are a medical technology company primarily focused on the design , development and commercialization of innovative medical devices to advance gastrointestinal therapeutic endoscopy . we develop and distribute devices that are used by gastroenterologists and surgeons for a variety of procedures related to closing gastrointestinal defects and managing surgical or endoscopic adverse events or bariatric ( weight loss ) intervention . our core products are the overstitch endoscopic suturing system ( `` ess '' ) and intragastric balloon ( `` igb '' ) ( most often branded as orbera ) . in december 2020 , we received 510 ( k ) approval for the x-tack endoscopic helix tacking system . in december 2018 , we divested our surgical product line , which consisted of the lap-band® system and related laparoscopic accessories . 40 we have offices in the united kingdom and italy that oversee commercial activities outside the u.s. ( `` ous '' ) and a products manufacturing facility in costa rica . all other activities are managed and operated from facilities in austin , texas . impact of covid-19 on our business beginning in early march 2020 , the covid-19 pandemic and the measures imposed to contain this pandemic disrupted our business , financial condition , and results of operations . the united states and other countries implemented a variety of public health interventions to reduce the risk of disease transmission and conserve healthcare resources for addressing the community health needs of covid-19 . this resulted in an unprecedented decline in global healthcare resources available for procedures that use our products . following sales growth in the months of january and february 2020 that were consistent with management 's pre-covid-19 expectations , our sales results in the months of march and april declined commensurate with the global decline in elective procedures and reduced patient access to treatments by shelter in place and social distancing rules , which resulted in cancellation or postponement of procedures that use our products . beginning in may 2020 , our sales began to recover primarily as certain public health interventions implemented by various countries to reduce covid-19 transmission risks were eased and procedures that use our products increased . as a result , our sales for the six months ended december 31 , 2020 have exceeded those in the same period of 2019. demand for our products and our business showed recovery in the third and fourth quarters of 2020 as hospitals began to accept patients for elective procedures though there can be no assurance that this recovery will continue . the covid-19 pandemic remains active and continues to represent high uncertainty concerning our sales outlook and risk to our business operations . business challenges and periodic disruption resulting from covid-19 will likely continue for the duration of the pandemic , which is uncertain . we can not assure you that our recent recovery during the second half of 2020 will be indicative of future results or that we will not experience future sales or business disruptions due to covid-19 , which could be significant . see item 1a . risk factors—risks related to our business—our business will be adversely affected by the effects of the recent covid-19 outbreak . story_separator_special_tag amortization of intangible assets definite-lived intangible assets primarily consist of customer relationships , product technology , trade names , patents and trademarks and capitalized software . intangible assets are amortized over the asset 's estimated useful life . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which management has prepared in accordance with existing u.s. generally accepted accounting principles , or gaap . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenue and expenses during the reporting periods . management evaluates estimates and judgments on an ongoing basis . estimates relate to aspects of our revenue recognition , valuation of intangible assets , long-lived assets and goodwill , going concern assessment , allowance for doubtful accounts , and inventory valuation . we base our estimates on historical experience and on various other factors that management believes are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our actual results may differ from these estimates under different assumptions or conditions . 42 the critical accounting policies addressed below reflect our most significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition our principal source of revenues is from the sale of our products to hospitals , physician practices and distributors . we utilize a network of employee sales representatives in the u.s. and a combination of employee sales representatives , independent agents and distributors in ous markets . revenue is recognized when control of the promised goods is transferred to our customers , in an amount that reflects the consideration we expect to be entitled to in an exchange for those goods . generally , these conditions are met upon product shipment . customers generally have the right to return or exchange products purchased from us for up to thirty days from the date of product shipment . distributors , who resell the products to their customers , take title to products and assume all risks of ownership at the time of shipment and are obligated to pay within specified terms regardless of when , if ever , they sell their products . at the end of each period , we determine the extent to which our revenues need to be reduced to account for expected rebates , returns and exchanges . we classify any shipping and handling cost billed to customers as revenue and the related expenses as cost of sales . in connection with the december 2018 sale of the surgical product line , we entered into a transition services agreement , supply agreement and distribution agreement which obligated us to provide specific services for designated periods of time for each service and manufacture surgical products through december 2020. transition service revenue is recognized as the support is provided in accordance with the prices established in the transition services agreement . supply agreement revenue is recognized when products are shipped at the net amount earned based upon the prices established in the supply agreement less the cost to produce the product . transition service and supply agreement revenue are included in other revenue . inventory valuation inventory is stated at the lower of cost or net realizable value . charges for excess and obsolete inventory are based on specific identification of excess and obsolete inventory items and an analysis of inventory items approaching expiration date . we evaluate the carrying value of inventory in relation to the estimated forecast of product demand . 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 . non-gaap financial measures to supplement our financial results , we are providing a non-gaap financial measure , endoscopy product sales percentage change in constant currency , which removes the impact of changes in foreign currency exchange rates that affect the comparability and trend of our endoscopy product sales . endoscopy product sales percentage change in constant currency is calculated by translating current foreign currency sales using last year 's exchange rate . this supplemental measure of our performance is not required by , and is not determined in accordance with gaap . we believe the non-gaap financial measure included herein is helpful in understanding our current financial performance . we use this supplemental non-gaap financial measure internally to understand , manage and evaluate our business , and make operating decisions . we believe that making non-gaap financial information available to investors , in addition to gaap financial information , may facilitate more consistent comparisons between our performance over time with the performance of other companies in the medical device industry , which may use similar financial measures to supplement their gaap financial information . however , our non-gaap financial measure is not meant to be considered in isolation or as a substitute for the comparable gaap metric . 43 story_separator_special_tag style= '' min-height:42.75pt ; width:100 % '' > non-gaap endoscopy product sales percentage change in constant currency for the year ended december 31 , 2019 were as follows : % increase/decrease in constant currency ous total revenues ess 12.5 % 23.4 % igb ( 1.6 ) % ( 2.5 ) % total endoscopy 5.5 % 12.3 % total revenues in 2019 were $ 50.7 million , compared to $ 60.9 million in 2018 , a decrease of 16.7 % .
| results of operations comparison of the years ended december 31 , 2020 and 2019 replace_table_token_1_th revenues product sales by product group and geographic market for the periods shown were as follows : replace_table_token_2_th ( 1 ) other u.s. revenue includes $ 0.9 million and $ 1.3 million of transition and manufacturing services provided for the years ended december 31 , 2020 and 2019 , respectively . non-gaap endoscopy product sales percentage changes in constant currency for the year ended december 31 , 2020 were as follows : % increase/decrease in constant currency ous total revenues ess ( 24.0 ) % ( 8.4 ) % igb ( 16.9 ) % ( 12.4 ) % total endoscopy ( 20.7 ) % ( 9.9 ) % 44 total revenues in 2020 were $ 42.0 million , compared to $ 50.7 million in 2019 , a decrease of 17.1 % . the decline in total revenues was due to the impact of the covid-19 pandemic and related shelter-in-place restrictions and diversion of healthcare resources that began in march of 2020. total endoscopy product sales decreased 10.3 % to $ 40.5 million in 2020 from $ 45.1 million in 2019. during the second quarter of 2020 , total endoscopy product sales declined $ 6.8 million compared to the same period in 2019 due to the impact of the covid-19 pandemic . in the second half of 2020 , endoscopy procedures and product utilization in the u.s. recovered while ous markets continued to be slowed periodically from sporadic covid-19 resurgence . direct markets accounted for 82.8 % and 79.3 % of total endoscopy product sales in 2020 and 2019 , respectively . sales also declined $ 3.7 million in 2020 due to the previously described divestiture of our surgical products . included in other revenues was $ 0.9 million and $ 1.3 million of transition and manufacturing services provided in 2020 and 2019 , respectively .
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the following table presents quantitative information about the significant unobservable inputs utilized by the company in the fair value measure story_separator_special_tag overview greenhill is a leading independent investment bank that provides financial and strategic advice on significant domestic and cross-border mergers and acquisitions , divestitures , restructurings , financings , capital raising and other strategic transactions to a diverse client base , including corporations , partnerships , institutions and governments globally . we serve as a trusted advisor to our clients throughout the world from our offices in the united states , australia , brazil , canada , germany , hong kong , japan , spain , sweden , and the united kingdom . our revenues are derived from both corporate advisory services related to mergers and acquisitions ( m & a ) and financings and restructurings and capital advisory services related to sales or capital raises pertaining to alternative assets . revenues from corporate advisory are primarily driven by total deal volume and the size of individual transactions . while fees payable upon the successful conclusion of a transaction generally represent the largest portion of our corporate advisory fees , we also earn other fees , including on-going retainer fees , substantially all of which relate to non-success based strategic advisory and financing advisory and restructuring assignments , and fees payable upon the commencement of an engagement or upon the achievement of certain milestones , such as the announcement of a transaction or the rendering of a fairness opinion . fees earned from capital advisory services are typically based upon a fixed percentage of the transaction value or the amount of capital raised . greenhill was established in 1996 by robert f. greenhill , the former president of morgan stanley and former chairman and chief executive officer of smith barney . since our founding , greenhill has grown by recruiting talented managing directors and other senior professionals , by acquiring complementary advisory businesses and by training , developing and promoting professionals internally . we have expanded beyond merger and acquisition advisory services to include financing , restructuring and capital advisory services , and we have expanded the breadth of our sector expertise to cover substantially all major industries . since the opening of our original office in new york , we have expanded globally to 15 offices across five continents . over our 23 years as an independent investment banking firm , we have sought to opportunistically recruit new managing directors with a range of industry and transaction specialties , as well as high-level corporate and other relationships , from major investment banks , independent financial advisory firms and other institutions . we also have sought to expand our geographic reach both through recruiting managing directors in new locations and through strategic acquisitions , such as our 2006 acquisition of beaufort partners limited ( now greenhill canada ) in canada and our 2010 acquisition of caliburn partnership pty limited ( now greenhill australia ) in australia . additionally , we expanded the breadth of our advisory services through the hiring of managing directors to focus on financing and restructuring advisory services , and through our acquisition in 2015 of cogent partners , lp , which provides capital advisory services related to the secondary fund placement market . through our recruiting and acquisition activity , we have significantly increased our geographic reach by adding offices in the united states , united kingdom , germany , canada , japan , australia , sweden , hong kong , brazil and spain . we intend to continue our efforts to recruit new managing directors with industry sector experience and or geographic reach who can help expand our advisory capabilities . during 2018 , we have recruited 15 additional managing directors to expand our regional and sector coverage of consumer products , industrials , insurance , energy , real estate , telecommunications , transportation and healthcare , as well as to expand our restructuring practice . we had 76 client facing managing directors as of december 31 , 2018 , including those whose hiring we had announced . in september 2017 , we announced plans for a leveraged recapitalization to put in place a capital structure designed to enhance long term shareholder value in the context of our then current equity valuation , existing tax rates and existing opportunities in the credit market . under that plan , net proceeds from the borrowing of $ 350.0 million of term loans , which closed in early october 2017 , were used to repay in full the existing bank indebtedness outstanding at the time . the remaining term loan proceeds , in addition to the proceeds from the purchase of $ 10.0 million of our common stock by each of our chairman and chief executive officer , which closed in early november 2017 , were intended to be used to repurchase up to $ 285.0 million of our common stock ( together , the term loan borrowing , common stock purchases , bank debt repayment and the plan for the repurchase of common stock are referred to as the “ recapitalization ” ) . the recapitalization plan is intended to reduce taxes , increase earnings per share and increase employee alignment with shareholders , while offering those wishing to monetize their shares a significant opportunity for liquidity . we began the implementation of our repurchase plan during the fourth quarter of 2017 and , as of january 31 , 2019 , we had repurchased 11,588,283 common shares at an average price of $ 22.52 per share , for a total cost of $ 261.0 million , which represents approximately 92 % of the repurchases authorized . at january 31 , 2019 we had $ 24.0 million remaining and authorized for repurchase under the plan . the repurchased shares represent approximately 39 % of our total outstanding shares at the time we announced the recapitalization plan . story_separator_special_tag 27 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 272 different clients in 2018 and 197 different clients in 2017 . of this group of clients , 36 % were new to us in 2018 . we earned fees of $ 1 million or more from 82 clients in 2018 , up 41 % , compared to 58 clients in 2017 . the ten largest fee-paying clients contributed 34 % of our total revenues in 2018 and 39 % in 2017 . there was no single client in 2018 or 2017 that represented greater than 10 % of our revenues . 2017 versus 2016 . advisory revenues were $ 238.0 million for the year ended december 31 , 2017 compared to $ 334.8 million for the year ended december 31 , 2016 , a decrease of 29 % . the decrease in our 2017 advisory revenues , as compared to 2016 , resulted from significantly fewer larger merger and acquisition completion fees as well as a decrease in announcement fees , offset in part by higher capital advisory revenues and an increase in retainer fee revenues . capital advisory fees for 2017 were $ 70.9 million , an increase of $ 19.7 million , or 38 % , compared to $ 51.2 million for 2016 . for 2017 , we generated 30 % of our advisory revenues from capital advisory fees . we earned advisory revenues from 197 different clients in 2017 and 212 different clients in 2016 . of this group of clients , 44 % were new to us in 2017 . we earned fees of $ 1 million or more from 58 clients in 2017 , down 18 % compared to 71 clients in 2016 . the ten largest fee-paying clients contributed 39 % of our total revenues in 2017 and 40 % in 2016 . there was no single client in 2017 or 2016 that represented greater than 10 % of our revenues . investment revenues we also generate a small portion of our revenues from interest income and gains ( or losses ) in merchant banking fund investments , which we substantially liquidated in prior years . operating expenses we classify operating expenses as employee compensation and benefits expenses and non-compensation operating expenses . non-compensation operating expenses include costs for office space , information services , professional fees , recruiting , travel and entertainment , insurance , communications , depreciation and amortization , and other operating expenses . for the year ended december 31 , 2018 , total operating expenses were $ 271.1 million compared to $ 232.3 million in 2017 . the increase of $ 38.8 million , or 17 % , principally resulted from an increase in our compensation and benefits expenses , as described in more detail below . our operating profit margin was 23 % for 2018 as compared to 3 % for 2017 . for the year ended december 31 , 2017 , total operating expenses were $ 232.3 million compared to $ 244.4 million in 2016 . the decrease of $ 12.1 million , or 5 % , resulted principally from a decrease in our compensation and benefits expenses , offset in part by an increase in non-compensation expenses , both as described in more detail below . our operating profit margin was 3 % for 2017 as compared to 27 % for 2016 . the following table sets forth information relating to our operating expenses . as a result of the adoption of the new revenue recognition guidance , beginning in 2018 , reimbursed client expenses are reported as a component of advisory revenues and are no longer netted against operating expenses , which resulted in revenue and expense both increasing by $ 7.0 million for the year ended december 31 , 2018 . total operating income was not impacted by this change . as provided for in the new revenue recognition 29 accounting guidance , we elected to continue to report operating expenses net of reimbursement of client expenses for years prior to 2018. the following table sets forth information relating to our operating expenses , which are reported net of reimbursements of certain expenses by our clients : replace_table_token_6_th compensation and benefits expenses the largest component of our operating expenses is employee compensation and benefits expenses , which we determine annually based on a percentage of revenues . the actual percentage of revenue is determined by management in consultation with the compensation committee at each year-end and based on such factors as the relative level of revenues , anticipated compensation requirements to retain and reward our employees , the cost to recruit and exit employees , the charge for amortization of restricted stock and deferred cash compensation awards and related forfeitures and other relevant factors . the ratio of compensation and benefits expense to revenues declined to 55 % in 2018 , which was back within its historic range , as compared to 67 % and 54 % in 2017 and 2016 , respectively . our compensation and benefits expenses principally consist of ( i ) base salary and benefits , ( ii ) amortization of long-term incentive compensation awards of restricted stock units and deferred cash compensation and ( iii ) annual incentive compensation payable as cash bonus awards . base salary and benefits are paid ratably throughout the year . awards of restricted stock units and deferred cash compensation are discretionary and are amortized into compensation expense ( based upon the fair value of the award at the time of grant ) during the service period over which the award vests , which is generally three to five years for the majority of the awards . as we expense the restricted stock awards , the restricted stock units recognized are recorded within stockholders ' equity . annual cash bonuses , which are accrued each quarter , are discretionary and dependent upon a number of factors , including our financial performance , and are generally paid in the first quarter in respect of the preceding year .
| results of operations the following tables set forth data relating to the firm 's sources of revenues : historical revenues by source replace_table_token_3_th advisory revenues historical advisory revenues by client location replace_table_token_4_th historical advisory revenues by industry replace_table_token_5_th we operate in a highly competitive environment where there are no long-term contracted sources of revenue . each revenue-generating engagement is separately awarded and negotiated . our list of clients with whom there are active engagements changes continually . to develop new client relationships , and to develop new engagements from historic client relationships , we maintain , on an ongoing basis , active business dialogues with a large number of clients and potential clients . we gain new clients each year through our business development initiatives , through recruiting additional senior investment banking professionals who bring with them client relationships and expertise in certain industry sectors or geographies and through referrals from members of boards of directors , attorneys and other parties with whom we have relationships . at the same time , we lose clients each year as a result of the sale or merger of a client , a change in a client 's senior management team , turnover of our senior banking professionals , competition from other investment banks and other causes . our revenues are largely derived from corporate advisory services on m & a , financings and restructurings and are primarily driven by total deal volume and the size of individual transactions . a majority of our advisory revenue is contingent upon the closing of a merger , acquisition , financing , restructuring , or other advisory transaction .
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the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit , including resolution of related appeals or litigation processes , if any . the second step is to estimate and measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon ultimate settlement . it is inherently difficult and subjective to estimate such amounts , as this requires us to determine the probability of various possible outcomes . we consider many factors when evaluating and estimating our tax positions and tax benefits , which may require periodic adjustments and may not accurately anticipate actual outcomes . the tax reform act of 1986 and similar state provisions limit the use of nol carryforwards in certain situations where equity transactions result in a change of story_separator_special_tag financial condition and results of operations the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the related notes that appear 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 exchange act . these statements are often identified by the use of words such as “ may , ” “ will , ” “ expect , ” “ believe , ” “ anticipate , ” “ intend , ” “ could , ” “ should , ” “ 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 discussed in the section titled “ risk factors , ” set forth in part i , item 1a of this annual report on form 10-k and elsewhere in this report . the forward-looking statements in this annual report on form 10-k represent our views as of the date of this annual report on form 10-k. we anticipate that subsequent events and developments will cause our views to change . however , while we may elect to update these forward-looking statements at some point in the future , we have no current intention of doing so except to the extent required by applicable law . you should , therefore , not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this annual report on form 10-k. business overview we discover , develop and sell proteins that deliver value to our clients in a growing set of industries . we view proteins as a vast untapped source of value-creating materials , and we are using our proven technologies , which have been continuously improved over our fifteen year history , to commercialize an increasing number of novel proteins , both as proprietary codexis products and in partnership with our customers . many companies have historically used naturally occurring proteins to produce or enhance goods used in everyday life . despite the growing number of commercial applications of naturally occurring proteins across many industries , the inherent limitations of naturally-occurring proteins frequently restrict their commercial use . through the application of our proprietary codeevolver ® protein engineering technology platform , we are able to engineer novel proteins to overcome these restrictions , thereby adding value or opening up new prospects for our potential clients ' products , processes or businesses . we have developed new proteins that are significantly more stable and or active in our commercial applications than proteins derived from nature . we are also a pioneer in the harnessing of computational technologies to drive biology advancements . over the last fifteen years , we have made substantial investments in the development of our codeevolver ® protein engineering technology platform , the primary source of our competitive advantage . our technology platform is powered by proprietary , artificial intelligence-based , computational algorithms that rapidly mine our large and continuously growing library of protein variants ' performance attributes . these computational outputs enable increasingly reliable predictions for next generation protein variants to be engineered , enabling delivery of targeted performance enhancements in a time-efficient manner . in addition to its computational prowess , our codeevolver ® protein engineering technology platform integrates additional modular competencies , including robotic high-throughput screening and genomic sequencing , organic chemistry and process development which are all coordinated to create our novel protein innovations . we use our codeevolver ® protein engineering technology platform to engineer custom enzymes . most of our custom enzymes are intended for use as biocatalysts or protein catalysts . in simple terms , our protein catalysts can accelerate and or improve yields of chemical reactions . we use our codeevolver ® protein engineering technology platform to develop novel enzymes that enable industrial biocatalytic reactions and fermentations . our technology platform has enabled commercially viable products and processes for the manufacture of pharmaceutical intermediates and active ingredients and fine chemicals . our approach to develop commercially viable biocatalytic manufacturing processes begins by conceptually designing the most cost-effective and practical process for a targeted product . we then develop optimized protein catalysts to enable that process design , using our codeevolver ® protein engineering platform technology . engineered protein catalyst candidates - many thousands for each protein engineering project - are then rapidly screened and validated in high throughput under relevant manufacturing operating conditions . this approach results in an optimized protein catalyst enabling cost-efficient processes that typically are relatively simple to run in conventional manufacturing equipment . this also allows for the efficient technical transfer of our process to our manufacturing partners . story_separator_special_tag other potential payments from nestlé health science under the nestlé agreement include ( i ) development and approval milestones of up to $ 86.0 million , ( ii ) sales-based milestones of up to $ 250.0 million in the aggregate , which aggregate amount is achievable if net sales exceed $ 1.0 billion in a single year , and ( iii ) tiered royalties , at percentages ranging from the middle single digits to low double-digits , of net sales of product . in addition to the nestlé agreement , we and nestlé health science concurrently entered into a strategic collaboration agreement ( the “ strategic collaboration agreement ” ) pursuant to which we and nestlé health science will collaborate to leverage the codeevolver ® protein engineering technology platform to develop novel enzymes for nestlé health science 's established consumer care and medical nutrition business areas . under the strategic collaboration agreement , we recognized research and development fees of $ 0.5 million in 2017. as of december 31 , 2017 , we had deferred revenue of $ 1.1 million . see item 1 , “ business-our market opportunities-pharmaceutical market-our solutions for the pharmaceutical market-self-funded biotherapeutic product development- nestlé health science ” for a more detailed description of the nestlé agreement . 42 results of operations the following table shows the amounts from our consolidated statements of operations for the periods presented ( in thousands ) : replace_table_token_5_th revenues our revenues are comprised of product sales , research and development revenues and a revenue sharing arrangement . product sales consist of sales of protein catalysts , pharmaceutical intermediates , and codex ® biocatalyst panels and kits . research and development revenues include license , technology access and exclusivity fees , research services fees , milestone payments , royalties , and optimization and screening fees . revenue sharing arrangement is recognized based upon sales of licensed products by exela . replace_table_token_6_th revenues typically fluctuate on a quarterly basis due to the variability in our customers ' manufacturing schedules and the timing of our customers ' clinical trials . in addition , we have limited internal capacity to manufacture enzymes . as a result , we are dependent upon the performance and capacity of third party manufacturers for the commercial scale manufacturing of the enzymes used in our pharmaceutical and fine chemicals businesses . we accept purchase orders for deliveries covering periods from one day up to approximately one year from the date on which the order is placed . however , purchase orders can generally be revised or cancelled by the customer without penalty . considering these industry practices and our experience , we do not believe the total of customer purchase orders outstanding ( backlog ) provides meaningful information that can be relied on to predict actual sales for future periods . 43 2017 compared to 2016 total revenues increased $ 1.2 million in 2017 to $ 50.0 million , as compared to 2016 . the increase was driven by growth in product sales of $ 11.4 million or 74 % and an increase of $ 0.4 million in revenue sharing arrangement , offset by a decrease of $ 10.6 million in research and development revenues . product sales , which consist primarily of sales of protein catalysts , pharmaceutical intermediates , and codex ® biocatalyst panels and kits , were $ 26.7 million in 2017 , an increase of 74 % compared with $ 15.3 million in 2016 . the increase was primarily due to higher customer demand in 2017 as compared to 2016 , in particular higher sales of enzymes to the existing 2016 customer base . research and development revenues decreased $ 10.6 million in 2017 to $ 20.7 million , as compared to 2016 . the revenue decrease in 2017 was primarily due to the absence of $ 22.5 million of non-recurring revenues from the technology transfer of our proprietary codeevolver ® protein engineering platform technology to merck and gsk in 2016 , and was comprised of a milestone payment of $ 8.0 million from merck , a milestone payment of $ 7.5 million from gsk and $ 7.0 million in recognition of license fees under both agreements . the revenue decrease in 2017 was partially offset by revenues of $ 13.1 million for research services under our agreements with nestlé health sciences , tate & lyle and novartis . revenue sharing arrangement increased $ 0.4 million in 2017 to $ 2.6 million , as compared to 2016 . this includes $ 1.5 million in revenue from exela in 2017 for granting them an exclusive license and for loss of agreed upon future revenues from the license agreement as a result of mutual termination of our revenue sharing arrangement . we do not expect future revenues from the revenue sharing arrangement due to the termination of the arrangement in the fourth quarter of 2017 . 2016 compared to 2015 total revenues increased $ 7.0 million in 2016 to $ 48.8 million , as compared to 2015 . the increase was driven by an increase of $ 5.7 million in research and development revenues , plus growth in product sales of $ 3.9 million , partially offset by a decrease of $ 2.6 million in revenues from our revenue sharing arrangement . product sales increased $ 3.9 million in 2016 to $ 15.3 million , as compared to 2015 . the increase was primarily due to higher customer demand in 2016 as compared to 2015 , in particular higher sales of enzymes for merck 's manufacture of sitagliptin . research and development revenues increased $ 5.7 million in 2016 to $ 31.3 million , as compared to 2015 .
| results of operations overview revenues were $ 50.0 million in 2017 , a 2 % increase from $ 48.8 million in 2016 . product sales , which consist primarily of sales of protein catalysts , pharmaceutical intermediates , and codex ® biocatalyst panels and kits , were $ 26.7 million in 2017 , an increase of 74 % compared with $ 15.3 million in 2016 . the increase was primarily due to higher customer demand from existing customers in 2017 as compared to 2016. research and development revenues , which include license , technology access and exclusivity fees , research service fees , milestone payments , royalties , and optimization and screening fees , totaled $ 20.7 million in 2017 , a decrease of 34 % , compared with $ 31.3 million in 2016 . the revenue decrease in 2017 was primarily due to the presence of $ 22.5 million of non-recurring revenues from the technology transfer of our proprietary codeevolver ® protein engineering platform technology to merck and gsk in 2016. revenues from the revenue sharing arrangement were $ 2.6 million in 2017 , an increase of 18 % , compared with $ 2.2 million in 2016 . the increase is primarily attributable to revenue of $ 1.5 million from exela in 2017 for an exclusive license under codexis licensed know-how technology in connection with the termination of our revenue sharing arrangement with them . we do not expect future revenues from our revenue sharing arrangement with exela due to the termination of our arrangement in the fourth quarter of 2017. product gross margins increased to 46 % in 2017 , compared to 36 % in 2016 due to improved sales mix . research and development expenses were $ 29.7 million in 2017 , an increase of 33 % from $ 22.2 million in 2016 .
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h. dean cubley holds the investment and voting power over certain of these family related trusts while scott cubley and brian cubley , the sons of h. dean cubley , have the investment and voting power over other of the remaining family trusts . e-series bond investor note during the year ended december 31 , 2012 , the company issued to certain accredited investors a principal amount of $ 1,193,000 of e-series bonds ( the `` bonds `` ) in addition to the $ 30,000 which was outstanding at december 31 , 2011. at december 31 , 2012 , the outstanding principal balance of the bonds totaled $ 687,000 . the bonds are due and payable upon maturity , a three-year period from the issuance date . interest on the bonds is payable at the rate of 7.5 % per annum , and is payable semiannually . the bondholder may require the company to convert the bond ( including any unpaid interest ) into shares of common stock at any time only during story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations ( md & a ) should be read in conjunction with the other sections of this annual report on form 10-k , including the financial statements . overview we are a leading provider of wireless broadband access solutions for the energy industry . our primary business strategy is to develop and provide a long-term terrestrial wireless broadband solution for the exploration , drilling , and production sectors of the energy industry in rural and remote locations in north america that lack existing communications infrastructure . we intend to continue to build upon our market position in the areas in which we operate by offering an integrated and comprehensive package of services that will allow us to provide our oil and gas customers with wellsite it communications services required throughout their drilling locations . we intend to continue to supplement our wellsite communications business with our enterprise , commercial and residential bandwidth delivery to maximize the return from our investment in network infrastructure throughout the regions in which we operate . historically , our revenues have been generated primarily from internet and construction services . our internet revenues result from our offering of broadband and basic communications services to residential and enterprise customers . our construction revenues result from the construction of bank networks and other services associated with providing wireless products and services to the regional banking industry . during fiscal 2012 , approximately 31 % of our revenues were generated from internet services , 64 % of our revenues were generated from providing broadband services to the energy industry and 5 % of our revenues were generated from construction services . we expect that the most growth during fiscal 2013 will continue to come from devoting significant capital resources to developing the oil and gas market utilizing wireless services . the company 's financial condition improved dramatically in 2012 as compared to the prior fiscal year ended december 31 , 2011. such improvements are highlighted as follows : · the company reported revenues of $ 7,328,000 for the year ended december 31 , 2012 , as compared to revenues of $ 5,320,000 for the same prior year ended december 31 , 2011 ; an increase of $ 2,008,000 or 38 % . · we reported gross profit of $ 3,353,000 for the year ended december 31 , 2012 , compared to $ 1,818,000 for the same prior year period ended december 31 , 2011 , an increase of $ 1,535,000 or 84 % . this increase reflects the strong operating margins recognized in our oil and gas internet service operations . · the company reported total comprehensive loss of $ 4,821,000 for the year ended december 31 , 2012 , as compared to a total comprehensive loss of $ 3,404,000 for the same prior year ended december 31 , 2011 ; an increase of $ 1,417,000 or 42 % . · the company 's energy broadband , inc. subsidiary reported revenues of $ 4,642,000 for the year ended december 31 , 2012 , as compared to revenues of $ 2,713,000 for the same prior year ended december 31 , 2011 ; an increase of $ 1,929,000 or 71 % . · the company reported an increase of $ 1,439,000 or 26 % increase in operating expenses in the year ended december 31 , 2012 , as compared to the same prior year ended december 31 , 2011. the increase is primarily related to employment and professional expense . · lastly , the company invested $ 1,453,000 in cash during the year ended december 31 , 2012 , primarily for the purchase of assets in its energy broadband , inc. subsidiary for the continued expansion of networks and infrastructure , including increasing its mobile broadband trailer , ( `` mbt '' ) fleet associated with the increased oil and gas business growth being experienced . critical accounting policies revenue recognition our revenue is generated primarily from the sale of wireless communications products and services on a nationwide basis , including providing enterprise-class wireless broadband services . we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable , and collectibility is probable . we record revenues from its fixed-price , long-term contracts using the percentage-of-completion method . revenues are recorded based on construction costs incurred to date as a percentage of estimated total cost at completion . the percentage-of-completion , determined by using total costs incurred to date as a percentage of estimated total costs at completion , reflects the actual physical completion of the project . if the current projected costs on a fixed fee contract exceed projected revenue , the entire amount of the loss is recognized in the period such loss is identified . 29 we recognize product sales generally at the time the product is shipped . story_separator_special_tag the contracts completed three year initial terms in january 2012. during the fourth quarter of 2010 , we entered into a contractual mediation with schlumberger to attempt to resolve various financial issues in the reseller agreements . mediation was unsuccessful , and in 2011 we availed ourselves of the right to submit a claim against schlumberger technology corporation in binding arbitration as mandated in the parties ' reseller agreement . the arbitration process is still pending and is scheduled for hearing by summer 2013. a separate mediation proceeding has been commenced recently against schlumberger canada limited . story_separator_special_tag travel and utility cost . 32 other ( income ) expense , net for the year ended december 31 , 2012 , the increase in other expense of $ 1,588,000 from prior period is primarily attributable to an increase in our interest expense , net on debt obligations totaling $ 1,524,000 and offset with an increase in our net derivative income of $ 335,000 as compared to interest expense , net of 817,000 offset with derivative income of $ 33,000 and a gain on sale of assets of $ 1,183,000 for the year ended december 31 , 2011. the derivative expense represents the net unrealized ( non-cash ) charge during the years ended december 31 , 2012 and 2011 , in the fair value of our derivative instrument liabilities related to warrants and embedded derivatives in our debt instruments that have been bifurcated and accounted for separately . comprehensive loss for the year ended december 31 , 2012 , our total comprehensive loss was $ 4,821,000 compared to comprehensive loss of $ 3,404,000 for the year ended december 31 , 2011. the increased comprehensive loss for the year ended december 31 , 2012 as compared to the comprehensive loss for the year ended december 31 , 2011 is primarily attributable to the factors described above . cash flows the company 's operating activities decreased net cash used by operating activities to $ 1,439,000 in the year ended december 31 , 2012 , compared to net cash used of $ 2,822,000 in the year ended december 31 , 2011. the decrease in net cash used by operating activities was primarily attributable to accounts payable , accrued and derivative liabilities compared to the prior year . the company 's investing activities used net cash of $ 1,427,000 in the year ended december 31 , 2012 , compared to net cash provided of $ 566,000 in the year ended december 31 , 2011. the decrease in cash provided by investing activities is primarily attributable to the expansion of oil and gas networks to utilize our mbts to provide service to our customers and the cash received from the sale of non-core assets of our north and central texas network during february 2011 in the amount of $ 2,700,000 and of gain on sale assets of $ 7,000 during 2011. the company 's financing activities provided net cash of $ 2,393,000 in the year ended december 31 , 2012 , compared to $ 2,804,000 of cash provided in year ended december 31 , 2011. the cash provided in the year ended december 31 , 2012 , was primarily associated with proceeds from debt financing and the line of credit , net . liquidity and capital resources general at december 31 , 2012 , the company 's current assets totaled $ 1,925,000 ( including cash and cash equivalents of $ 118,000 ) total current liabilities were $ 4,385,000 , resulting in negative working capital of $ 2,460,000. the company has funded operations to date primarily through a combination of utilizing cash on hand and borrowings . the company 's operations for the year ended december 31 , 2012 , were primarily funded by the company 's line of credit , net totaling $ 823,000 , debt of $ 1,481,000 and convertible debt financing of $ 1,193,000. current debt facilities and instruments during december 2012 , the company extended its maturity date of its $ 12.0 million unsecured revolving credit facility with angus capital partners , a related party , maturing from december 31 , 2013 to december 30 , 2015. at december 31 , 2012 , the company had an outstanding principal balance of $ 3,168,000 on this line of credit . the remaining balance available on the revolving credit facility was approximately $ 8,832,000 at december 31 , 2012. the terms of the unsecured revolving credit facility will allow us to draw upon the facility as financing requirements dictate and provides for quarterly interest payments on outstanding principal at an annual rate of 12 % per annum . the loan may be prepaid without penalty or repaid at maturity . during the year ended december 31 , 2012 , the company issued 2,222,198 shares of its common stock for the settlement of $ 2,589,000 of principal and interest owed to angus capital partners . the company issued common stock at an average price of $ 1.17 per share calculated based on the closing price the day the debt was settled . additionally , during the year ended december 31 , 2012 , the company issued 118,095 shares of its series a preferred stock for the settlement principal amount of $ 124,000 owed to angus capital partners the company issued series preferred a stock at an average price of $ 1.05 per share calculated based on the closing price of the common stock the day the debt was settled . in november 2011 , we entered into a debt financing agreement with dakota capital fund llc for financing of up to $ 3,000,000. during the fourth quarter of 2011 , the company received proceeds of $ 2,000,000 and had the option of additional funding of $ 1,000,000 for equipment purchases . this debt facility is secured by certain erf wireless assets and there is no prepayment penalty . at december 31 , 2012 , the outstanding principal balance on the facility totaled $ 1,763,000 and we have elected not to request any additional funds under this credit facility .
| results of operations year ended december 31 , 2012 , compared to year ended december 31 , 2011 the following table sets forth summarized consolidated financial information for the years ended december 31 , 2012 and 2011 : replace_table_token_3_th for the year ended december 31 , 2012 , the company 's business operations reflected an increase in sales for its ebi , wbs and wms subsidiaries that were offset by a decrease in sales by the ens subsidiary . for the year ended december 31 , 2012 , the company 's consolidated operations generated net sales of $ 7,328,000 compared to prior-year net sales of $ 5,320,000 for the year ended december 31 , 2011. the $ 2,008,000 increase in net sales is primarily attributable to $ 1,929,000 increased sales in ebi from deployment of our mbt 's in the oil and gas regions . services sales increased $ 2,151,000 and product sales decreased $ 143,000 for a total increase of $ 2,008,000 , the sales increase is primarily attributable to ebi 's deployment of mbt 's in the oil and gas regions . for the year ended december 31 , 2012 , the company had a gross profit margin of 46 % , compared to a gross profit margin of 34 % for the prior year . the $ 1,535,000 increase in gross profit margin is primarily attributed to ; ( i ) approximately $ 1,138,000 increase in gross margin in ebi attributable to increased sales associated with deployment of mbt 's in the oil and gas regions ( ii ) $ 391,000 increase in gross margins in wbs primarily related to decrease third party service and depreciation cost , and ( iii ) $ 18,000 increase in gross margin in ens primarily related to decrease in material and supplies cost , and ( iv ) offset with $ 12,000 decrease in gross margins in wms due to increase third party cost .
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based on this evaluation as of the end of the period covered by this report , our ceo and cfo concluded that , as of such date , our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the exchange act is ( i ) accumulated and communicated to our management , including our ceo and story_separator_special_tag financial condition and results of operations overview we are a leading , less-than-truckload ( “ ltl ” ) , union-free motor carrier providing regional , inter-regional and national ltl services through a single integrated organization . our service offerings , which include expedited transportation , are provided through an expansive network of service centers located throughout the continental united states . through strategic alliances , we also provide ltl services throughout north america . in addition to our core ltl services , we offer a range of value-added services including container drayage , truckload brokerage and supply chain consulting . more than 97 % of our revenue has historically been derived from transporting ltl shipments for our customers , whose demand for our services is generally tied to industrial production and the overall health of the u.s. domestic economy . in analyzing the components of our revenue , we monitor changes and trends in our ltl services using the following key metrics , which exclude certain transportation and logistics services where pricing is generally not determined by weight , commodity or distance : ltl revenue per hundredweight - this measurement reflects the application of our pricing policies to the services we provide , which are influenced by competitive market conditions and our growth objectives . generally , freight is rated by a class system , which is established by the national motor freight traffic association , inc. light , bulky freight typically has a higher class and is priced at higher revenue per hundredweight than dense , heavy freight . fuel surcharges , accessorial charges , revenue adjustments and revenue for undelivered freight are included in this measurement . revenue for undelivered freight is deferred for financial statement purposes in accordance with our revenue recognition policy ; however , we believe including it in our revenue per hundredweight metrics results in a better indicator of changes in this metric by matching total billed revenue with the corresponding weight of those shipments . revenue per hundredweight is a commonly-used indicator of pricing trends , but this metric can be influenced by many other factors , such as changes in fuel surcharges , weight per shipment , length of haul and the class , or mix , of our freight . as a result , changes in revenue per hundredweight do not necessarily indicate actual changes in underlying base rates . ltl weight per shipment - fluctuations in weight per shipment can indicate changes in the mix of freight we receive from our customers , as well as changes in the number of units included in a shipment . generally , increases in weight per shipment indicate higher demand for our customers ' products and overall increased economic activity . changes in weight per shipment can also be influenced by shifts between ltl and other modes of transportation , such as truckload and intermodal , in response to capacity , service and pricing issues . fluctuations in weight per shipment generally have an inverse effect on our revenue per hundredweight , as a decrease in weight per shipment will typically cause an increase in revenue per hundredweight . average length of haul - we consider lengths of haul less than 500 miles to be regional traffic , lengths of haul between 500 miles and 1,000 miles to be inter-regional traffic , and lengths of haul in excess of 1,000 miles to be national traffic . this metric is used to analyze our tonnage and pricing trends for shipments with similar characteristics , and also allows for comparison with other transportation providers serving specific markets . by analyzing this metric , we can determine the success and growth potential of our service products in these markets . changes in length of haul generally have a direct effect on our revenue per hundredweight , as an increase in length of haul will typically cause an increase in revenue per hundredweight . our primary revenue focus is to increase density , which is shipment and tonnage growth within our existing infrastructure . increases in density allow us to maximize our asset utilization and labor productivity , which we measure over many different functional areas of our operations including linehaul load factor , p & d stops per hour , p & d shipments per hour , platform pounds handled per hour and platform shipments per hour . in addition to our focus on density and operating efficiencies , it is critical for us to obtain an appropriate yield , which is measured as revenue per hundredweight , on the shipments we handle . we are committed to a disciplined yield management process that focuses on individual account profitability . we believe yield management and improvements in efficiency are key components in our ability to produce profitable growth . our primary cost elements are direct wages and benefits associated with the movement of freight , operating supplies and expenses , which include diesel fuel , and depreciation of our equipment fleet and service center facilities . we gauge our overall success in managing costs by monitoring our operating ratio , a measure of profitability calculated by dividing total operating expenses by revenue , which also allows for industry-wide comparisons with our competition . we continually upgrade our technological capabilities to improve our customer service and lower our operating costs . our technology provides our customers with visibility of their shipments throughout our network , increases the productivity of our workforce and provides key metrics that we use to monitor and enhance our processes . 19 story_separator_special_tag and p & d operations related to training of our new employees . story_separator_special_tag although our costs increased , our aggregate productive labor costs as a percent of revenue decreased to 28.3 % for 2017 from 28.9 % for 2016 and our other indirect salaries and wages as a percent of revenue decreased to 12.0 % for 2017 from 12.2 % for 2016. employee benefit costs increased $ 28.1 million or 6.7 % , due primarily to an increase in our average number of full-time employees and higher wage rates , which led to higher payroll-related taxes and paid-time-off benefits . our employee benefit costs also increased for certain retirement benefit plans directly linked to the improvement in our net income and the share price of our common stock . our group health costs and workers ' compensation expenses decreased as a percent of salaries and wages , which contributed to the overall improvement in total employee benefit costs as a percent of salaries and wages to 33.2 % for 2017 from 34.2 % for 2016. operating supplies and expenses increased $ 58.8 million , or 18.2 % in 2017 as compared to 2016 , due primarily to increased costs of diesel fuel . the cost of diesel fuel , excluding fuel taxes , represents the largest component of operating supplies and expenses , and can vary based on both average price per gallon and consumption . the increase in our diesel fuel costs , excluding fuel taxes , was 22 due primarily to a 23.5 % increase in our average cost per gallon of diesel fuel during 2017. in addition , our gallons consumed increased 4.3 % in 2017 as compared to 2016 due primarily to a 4.5 % increase in linehaul and p & d miles driven . we do not use diesel fuel hedging instruments , and our costs are therefore subject to market price fluctuations . general supplies and expenses increased $ 21.1 million , or 24.4 % in 2017 as compared to 2016. the increase was due primarily to an increase in our advertising and marketing costs and higher costs for technology and related support . depreciation and amortization increased $ 15.9 million , or 8.4 % due primarily to the assets acquired as part of our 2016 and 2017 capital expenditure programs . these costs , however , were relatively consistent as a percent of revenue between the periods compared . while our investments in real estate , equipment and technology can increase our costs in the short-term , we believe these investments are necessary to support our continued growth and strategic initiatives . our effective tax rate in 2017 was 19.5 % as compared to 38.1 % in 2016. our provision for income taxes in 2017 included a $ 104.9 million income tax benefit resulting from the revaluation of our deferred tax liabilities in connection with the passage of the tax act in december 2017. in addition , our effective tax rates for 2017 and 2016 were favorably impacted by various tax credits . our effective tax rate generally exceeds the federal statutory rate due to the impact of state taxes and , to a lesser extent , certain other non-deductible items . liquidity and capital resources a summary of our cash flows is presented below : replace_table_token_8_th the change in our cash flows provided by operating activities during 2018 as compared to 2017 was impacted by an increase in income before income taxes of $ 239.7 million , an increase in depreciation and amortization of $ 24.6 million , a decrease in income taxes paid of $ 29.4 million and fluctuations in certain working capital accounts . the change in our cash flows provided by operating activities during 2017 was impacted by an increase in income before income taxes of $ 98.2 million and an increase in depreciation and amortization of $ 15.9 million . these increases were more than offset by an increase in income taxes paid of $ 76.0 million and other fluctuations in certain working capital accounts . the changes in cash flows used in investing activities for all periods were due to the timing of equipment purchases under our capital expenditure plans . changes in our capital expenditures are more fully described below in “ capital expenditures. ” the changes in cash flows used in financing activities for all periods were due primarily to fluctuations in capital returned to shareholders and fluctuations in our long-term debt , which includes our senior unsecured revolving line of credit . our financing arrangements are more fully described below under “ financing agreements. ” our return of capital to shareholders is more fully described below under “ stock repurchase program ” and “ dividends to shareholders , ” respectively . we have three primary sources of available liquidity : cash and cash equivalents , cash flows from operations and available borrowings under our senior unsecured revolving credit agreement , which is described below . we believe we also have sufficient access to debt and equity markets to provide other sources of liquidity , if needed . 23 capital expenditures the table below sets forth our net capital expenditures for property and equipment , including those obtained through capital leases , for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_9_th our capital expenditures varied based upon the projected increase in the number and size of our service center facilities to support our plan for long-term growth , our planned tractor and trailer replacement cycle and forecasted tonnage and shipment growth . expenditures for land and structures can be dependent upon the availability of land in the geographic areas where we are looking to expand . we expect to continue to maintain a high level of capital expenditures in order to support our long-term plan for market share growth .
| results o f operations the following table sets forth , for the years indicated , expenses and other items as a percentage of revenue from operations : replace_table_token_5_th our financial results for 2018 reflected company records in revenue and profitability , as we exceeded $ 4.0 billion of annual revenue with an operating ratio below 80.0 % . we believe the increase in revenue during the year was driven by the continued strength of the domestic economy and consistent execution of our long-term strategy of providing industry-leading service to our customers at a fair price . these factors , combined with the increase in freight density in our service center network and our continued focus on improving operating efficiency , led to a 310 basis-point improvement in our operating ratio compared to 2017. as a result , our net income and diluted earnings per share increased 30.6 % and 31.1 % , respectively , in 2018 as compared to 2017 . 2018 compared to 2017 key financial and operating metrics for 2018 and 2017 are presented below : replace_table_token_6_th revenue revenue increased $ 685.6 million , or 20.4 % as compared to 2017 , due to a $ 679.1 million increase in ltl revenue and a $ 6.5 million increase in non-ltl revenue . ltl revenue was higher in 2018 due to increases in both ltl tons and yield . the 10.1 % increase in ltl tons during 2018 resulted from a 9.4 % increase in ltl shipments and a 0.6 % increase in ltl weight per shipment as compared to 2017. we believe these increases were driven by a stronger u.s. domestic economy and market share gains resulting from increased demand for the consistent levels of superior service that we provide to our customers . 20 ltl revenue per hundredweight increased 9 . 6 % to $ 21.25 in 201 8 as com pared to 2017 .
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3. fair value measurements the company measures certain financial assets and liabilities at fair value on a recurring basis , including cash equivalents . fair value is an exit price , representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . as such , fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability . a three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value : level 1 — observable inputs such as quoted prices ( unadjusted ) for identical assets or liabilities in active markets . level 2 — include other inputs that are based upon quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , and model-based valuation techniques for which all significant inputs are story_separator_special_tag this annual report on form 10-k , including under item 1- business and in this management 's discussion and analysis of financial condition and results of operations , contains forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended . these statements relate to , among other things , our focus on the discovery and development of novel therapies with the potential to fundamentally change the course of devastating diseases ; our goal of advancing a pipeline of therapeutic candidates for a number of potential indications and novel targets ; our ability to integrate scientific insights around neurological dysfunction and the biology of misfolded proteins ; ; the treatment potential and proposed mechanisms of action of prasinezumab and prx004 ; our efforts to advance our preclinical candidates including tau , and amyloid beta , as well as our discovery programs including tdp-40 , vaccines for alzheimers , and other candidates ; the potential to receive future milestones and royalties under the roche collaboration ; the potential to receive future exercise payments , milestones and royalties under the celgene collaboration ; our plans to collaborate or engage in other business development activities with other third parties ; the expected terms of our patents ; our expected research and development ( “ r & d ” ) and general and administrative ( “ g & a ” ) expenses in 2020 ; the sufficiency of our cash and cash equivalents to meet our obligations ; our anticipated need for additional capital ; our current intention not to repatriate funds to ireland ; and our estimates of certain future contractual obligations . forward-looking statements may include words such as “ aim , ” “ anticipate , ” “ assume , ” “ believe , ” “ contemplate , ” “ continue , ” “ could , ” “ due , ” “ estimate , ” “ expect , ” “ goal , ” “ intend , ” “ may , ” “ objective ” “ plan , ” “ predict , ” “ potential , ” “ positioned , ” “ seek , ” “ should , ” “ target , ” “ will , ” “ would ” and other similar expressions that are predictions of or indicate future events and future trends , or the negative of these terms or other comparable terminology . forward-looking statements may include words such as “ aim , ” “ anticipate , ” “ assume , ” “ believe , ” “ contemplate , ” “ continue , ” “ could , ” “ due , ” “ estimate , ” “ expect , ” “ goal , ” “ intend , ” “ may , ” “ objective , ” “ plan , ” “ predict , ” “ potential , ” “ positioned , ” “ seek , ” “ should , ” “ target , ” “ will , ” “ would ” and other similar expressions that are predictions of or indicate future events and future trends , or the negative of these terms or other comparable terminology . forward-looking statements are subject to risks and uncertainties , and actual events or results may differ materially . factors that could cause our actual results to differ materially include , but are not limited to , the risks and uncertainties listed below as well as those discussed under item 1a - risk factors of this form 10-k. our ability to obtain additional financing in future offerings and or obtain funding from future collaborations ; our operating losses ; our ability to successfully complete research and development of our drug candidates ; our ability to develop , manufacture and commercialize products ; our collaborations with third parties , including roche and bristol-myers squibb ( which acquired celgene ) ; our ability to protect our patents and other intellectual property ; our ability to hire and retain key employees ; tax treatment of our separation from elan and subsequent distribution of our ordinary shares ; our ability to maintain financial flexibility and sufficient cash , cash equivalents and investments and other assets capable of being monetized to meet our liquidity requirements ; potential disruptions in the u.s. and global capital and credit markets ; government regulation of our industry ; the volatility of our ordinary share price ; business disruptions ; and the other risks and uncertainties described in item 1a - risk factors of this form 10-k. we undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that arises after the date of this report . story_separator_special_tag as such , expense accruals related to clinical trials are recognized based on our estimate of the degree of completion of the events specified in the specific clinical study or trial contract . payments for these activities are based on the terms of the individual arrangements , which may differ from the pattern of costs incurred , and are reflected in our consolidated financial statements as prepaid or accrued research and development . amounts due may be fixed fee , fee for service , and may include upfront payments , monthly payments , and payments upon the completion of milestones or receipt of deliverables . the information contained in note 2 to the consolidated financial statements under the heading “ recent accounting pronouncements ” is hereby incorporated by reference into this part ii , item 7. story_separator_special_tag the prior year , primarily related to increases in our director and officer insurance premiums . restructuring and impairment related charges in may 2018 , we commenced a reorganization plan to reduce our operating costs and better align our workforce with the needs of our business following our decision in april 2018 to discontinue further development of neod001 . for the year ended december 31 , 2019 , we recorded a restructuring credit of approximately $ 61,000 primarily due to an adjustment in previously recorded employee termination benefits . we have completed all of our restructuring activities and do not expect to incur additional costs associated with the restructuring . the cumulative amount incurred to date is $ 16.1 million as of december 31 , 2019 . see note 11 , “ restructuring ” to the consolidated financial statements for more information . restructuring charges incurred under this plan primarily consisted of employee termination benefit and contract termination costs ( including costs associated with the termination of our commercial supply contract with rentschler biopharma se ) . employee termination benefits include severance costs , employee-related benefits , supplemental one-time termination payments and non-cash share-based compensation expense related to the acceleration of stock options . all of the cash payments were paid out by the end of the first quarter of 2019. impairment charges in 2018 were related to the write off of approximately $ 0.5 million of long-lived assets surrendered to the landlord as part of the full and final settlement of our office lease in dún laoghaire , ireland . we entered into a surrender agreement for our office space in dún laoghaire , ireland in october 2018. other income ( expense ) 50 replace_table_token_5_th interest income ( expense ) , net increased by $ 5.5 million , or 205 % , for the year ended december 31 , 2019 , compared to the prior year , primarily due to higher interest income in our cash and money market accounts associated with higher interest rates and no recorded interest expense associated with the build-to-suit accounting upon the adoption of asc 842 in 2019. other income ( expense ) , net for the year ended december 31 , 2019 , was primarily foreign exchange gains from transactions with vendors denominated in euros . interest income ( expense ) , net increased by $ 2.8 million , or 1,996 % , for the year ended december 31 , 2018 , compared to the prior year , primarily due to $ 2.8 million higher interest income associated with higher interest rates and higher balances in our cash and money market accounts . other income , net for the year ended december 31 , 2018 , was primarily foreign exchange gains from transactions with vendors denominated in euros . provision for ( benefit from ) income taxes replace_table_token_6_th the provision for ( benefit from ) income taxes were $ 0.4 million , $ ( 0.5 ) million and $ ( 4.4 ) million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . the provision for income taxes increased by $ 0.8 million for the year ended december 31 , 2019 . the change in provision for ( benefit from ) income taxes for the year ended december 31 , 2019 as compared to the same period in the prior year was primarily due to an increase in stock option cancellations for which we wrote off the associated deferred tax assets and an increase in the amount disallowed as tax deduction related to compensation of certain executives during the year . the benefit from income taxes decreased by $ 3.9 million for the year ended december 31 , 2018 , compared to the prior year , primarily due to lower excess tax benefits in the year ended december 31 , 2018 . the tax provisions for all periods presented primarily reflect u.s. federal taxes associated with recurring profits attributable to intercompany services that our u.s. subsidiary performs for the company , and to a lesser extent 2018 and 2017 also include swiss taxes associated with intercompany services that our swiss subsidiary performed for the company . no tax benefit has been recorded related to tax losses recognized in ireland and any deferred tax assets for those losses are offset by a valuation allowance . on december 22 , 2017 , the u.s. tax cuts and jobs act ( the “ tcja ” ) was signed into law . the tcja was effective in the first quarter of 2018 and , among other things , lowered our u.s. federal income tax rate from 34 % to 21 % . we recorded a tax benefit of $ 0.4 million during the year ended december 31 , 2017 related to the remeasurement of its u.s. deferred tax assets to reflect the lower statutory tax rate . liquidity and capital resources overview 51 replace_table_token_7_th working capital was $ 360.7 million as of december 31 , 2019 , a decrease of $ 55.8 million from working capital of $ 416.5 million as of december 31 , 2018 .
| results of operations comparison of years ended december 31 , 2019 , 2018 and 2017 revenue replace_table_token_2_th total revenue was $ 0.8 million , $ 1.0 million , and $ 27.5 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . collaboration revenue includes reimbursements under our license agreement with roche . for the year ended december 31 , 2017 , collaboration revenue recognized also included $ 26.6 million of a $ 30.0 million clinical milestone from roche . see note 7 , “ significant agreements ” to the consolidated financial statements regarding the roche license agreement for more information . operating expenses replace_table_token_3_th _ nm = not meaningful total operating expenses consist of r & d expenses , general and administrative ( “ g & a ” ) expenses and restructuring and related impairment charges . our operating expenses were $ 86.5 million , $ 159.8 million and $ 182.8 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . 48 our r & d expenses primarily consist of personnel costs and related expenses , including share-based compensation and external costs associated with nonclinical activities and drug development related to our drug programs , including neod001 , prasinezumab , prx004 and our discovery programs . pursuant to our license agreement with roche , we make payments to roche for our share of the development expenses incurred by roche the related to the prasinezumab program , which is included in our r & d expense . prior to january 1 , 2018 , we recorded reimbursements from roche for development as an offset to r & d expense . our g & a expenses primarily consist of professional service expenses and personnel costs and related expenses , including share-based compensation . research and development expenses our r & d expense decreased by $ 50.3 million , or 50 % , for the year ended december 31 , 2019 , compared to the prior year .
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you can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts . these statements may include words such as `` aim , '' `` anticipate , '' `` believe , '' `` estimate , '' `` expect , '' `` forecast , '' `` outlook , '' `` potential , '' `` project , '' `` projection , '' `` plan , '' `` intend , '' `` seek , '' `` may , '' `` could , '' `` would , '' `` will , '' `` should , '' `` can , '' `` can have , '' `` likely , '' the negatives thereof and other similar expressions . you should evaluate all forward-looking statements made in this form 10-k in the context of the risks and uncertainties disclosed in part i , item 1a of this form 10-k under the heading `` risk factors . '' the forward-looking statements included in this form 10-k are made only as of the date hereof . we undertake no obligation to publicly update any forward-looking statement as a result of new information , future events or otherwise , except as otherwise required by law . if we do update one or more forward-looking statements , no inference should be made that we will make additional updates with respect to those or other forward-looking statements . overview shake shack is a modern day `` roadside '' burger stand serving a classic american menu of premium burgers , hot dogs , crispy chicken , crinkle cut fries , shakes , frozen custard , beer and wine . our fine dining heritage and commitment to community building , hospitality and the sourcing of premium ingredients is what we call `` fine casual . '' fine casual couples the ease , value and convenience of fast casual concepts with the high standards of excellence grounded in our fine dining heritage—thoughtful ingredient sourcing and preparation , hospitality and quality . our mission is to stand for something good in all aspects of our business , including the exceptional team we hire and train , the premium ingredients making up our menu , our community engagement and the design of our shacks . stand for something good is a call to action for all of our stakeholders—our team , guests , communities , suppliers and investors—and we actively invite them all to share in this philosophy with us . this commitment drives our integration into the local communities in which we operate and fosters a deep and lasting connection with our guests . fiscal 2019 highlights fiscal 2019 was another strong year for shake shack in which we continued to execute upon our growth strategy by opening a record-breaking number of domestic company-operated shacks , further expanded our licensed business both internationally and domestic , enhanced our infrastructure and support systems and kept focus on our digital strategy , specifically in rolling out our delivery partnership . we met our targeted growth plan and opened 39 domestic company-operated shacks and we entered into the new markets of new orleans , salt lake city and columbus , as well as deepened our roots in our current markets across the country . internationally , we expanded our footprint by opening 24 new licensed shacks , which included our first shack openings in shanghai , mexico city , singapore and manila . additionally , we opened 10 domestic licensed shacks , further supporting our licensed growth strategy with eight of those openings in airports across the country . shake shack inc. form 10-k | 54 we further executed upon our commitment of putting our people first . to foster an inclusive and diverse work environment , we launched our all-in initiative across the entire organization . the all-in program works to provide equal opportunities for success , removing obstacles and fostering a culture of diversity , inclusion and empowerment . this program included a number of new initiatives , including a mentorship program , flexible work arrangement policy and the pilot of our 4-day workweek for shack managers . we were proud to be named one of the `` best places to work for lgbtq+ equality '' and earn a 100 % score on the human rights campaign 's corporate equality index for our support of the lgbtq+ community in the workplace . we continued to innovate our menu throughout fiscal 2019 with exciting promotions and events , chef collaborations , ltos and limited launches from our innovation kitchen . one of the biggest promotions we ran was i n honor of the final season of game of throne where we launched our limited-edition # forthethrone menu . this promotion included our icy dragonglass shake and our dracarys burger , as well as offering limited edition shake cups at shacks nationwide . we also featured a different shake each month throughout the year as well as a variety of lemonades . additionally , we launched chick ' n bites as an lto and have since added to the core menu . for the past couple of years we have participated in various delivery pilots with a number of partners . in 2019 we announced our national integrated partnership with grub hub . we believe our partnership allows us to provide faster delivery , fresher food and a winning guest experience . we will also have access to enhanced tools to analyze performance and ordering trends to be able to connect with guests in new and more personalized ways , as well as engage in joint marketing initiatives that we believe will generate connections with new guests and drive order frequency for existing fans . we also ran our # shackup campaign throughout the year in celebration of our new delivery partnership . this campaign featured an elevated shake shack experience highlighting key delivery moments , such as treat yourself , family dinner , date night , celebrating with friends and ordering for the office team . to support our growth and rapid expansion we needed to enhance our infrastructure and support systems . story_separator_special_tag though our base is heavily weighted toward free-standing pads , and we plan on building many more of those , we are also looking to expand our footprint with our other formats , including : airports , events , food trucks , digital focused , urban , stadium , shopping center , mall , food court and roadside . creating buzz-worthy ltos , innovating our core menu and looking towards new menu categories in fiscal 2020 , which includes bringing back some guest favorites like the shackmeister burger and hot chick ' n , as well as adding hot chick ' n bites . we will continue to use our innovation kitchen in new york and regionally around the country and globe to collaborate with chefs and test new items . we will continue to evolve our digital strategy by providing the best app , kiosk and delivery experiences . as part of our digital expansion , we are working to redesign the full web experience , which encompasses everything from ordering on the app or your desktop , at the shack or via grubhub . the first phase of our enterprise-wide systems upgrade initiative , project concrete , was completed in june 2019 and we plan on continuing the next phase in fiscal 2020. given our expected growth of between 40 to 42 shacks to open in fiscal 2020 , and digital expansion over the past year , we recognize that it is essential for our infrastructure and support systems to be sufficiently robust and scalable to deliver upon our anticipated future growth opportunities . we will be focusing on our operational and back-office systems during this phase of the initiative and continuing in making those key investments necessary to reduce the administrative tasks in the shacks . while we believe there are significant opportunities ahead of us , we also face many challenges , along with our industry , particularly around labor and related expenses , our digital expansion and geopolitical factors . we expect the high labor cost trends to continue into fiscal 2020 , as we have seen for the last couple of years . we believe that rising minimum wage legislation and a competitive and low unemployment labor market will continue to affect the restaurant industry and with significant mandatory increases in both minimum wages and salaries in many of our key markets . additionally , we have seen increased regulatory pressures , such as the fair workweek legislation in new york city , with similar legislation proposed in other jurisdictions as well , including philadelphia and chicago in fiscal 2020. several states in which we operate have enacted minimum wage increases and it is possible that other states or the federal government could also enact minimum shake shack inc. form 10-k | 56 wage increases . our primary challenge for fiscal 2020 and the next few years will be preserving our margins in the face of these rising labor costs . as more minimum wage increases are enacted , we may be required to implement additional pay increases or offer additional benefits in the future in order to attract and retain the most qualified people , which we expect to put further pressure on our operating margins . in addition to recruiting the most qualified people , we are committed to retaining our employees and will continue to evolve training , compensation and benefits to do so , for example , by extending our equity-based compensation program to general managers . as we have described throughout our growth strategies , the digital space is a key area of focus for us and we are continuing to evolve in it . digital touches upon almost every aspect of our guest experience , so it is crucial for us to understand our guest behaviors and remain competitive in the industry . for example , our delivery partnership with grubhub was launched in 2019 and will take some time for us to evaluate and apply the insights we will learn through the guest data we retrieve . in fiscal 2019 we further expanded internationally by opening our first shacks in mainland china , hong kong , singapore , the philippines and mexico . as with any international shack , there remains risk due to political and economicl uncertainties . specifically , due to the geopolitical factors in hong kong , we expect to see some impact due to closures from time to time . additionally , with the onset of the coronavirus outbreak in china and the world health organization 's declaration of its global health emergency , we would also expect to see lower traffic in the impacted areas and potentially beyond . we expect our operating profit to increase in absolute terms and our margin to begin to stabilize in 2020 compared to the contraction seen over the past few years . with 275 shacks system-wide as of december 25 , 2019 , we remain excited for the new opportunities ahead of us , both domestically and abroad . despite the challenges we face , we believe that we are positioned well for future growth . shake shack inc. form 10-k | 57 fiscal 2020 guidance these forward-looking projections are subject to known and unknown risks , uncertainties and other important factors that may cause actual results to be materially different from the guidance set forth below . factors that may cause such differences include , but are not limited to , those discussed in part i , item 1a of our form 10-k for the fiscal year under the heading “ risk factors. ” these forward-looking projections should be reviewed in conjunction with the consolidated financial statements and the section titled “ trends in our business ” which forms the basis of our assumptions used to prepare these forward-looking projections . you should not attribute undue certainty to these projections and we undertake no obligation to update any forward-looking information , except as required by law .
| summary of cash flows the following table and discussion presents , for the periods indicated , a summary of our key cash flows from operating , investing and financing activities . replace_table_token_24_th operating activities for fiscal 2019 , net cash provided by operating activities was $ 89.9 million compared to $ 85.4 million for fiscal 2018 , an increase of $ 4.5 million . this increase was primarily driven by the opening of 39 new domestic company-operated shacks during fiscal 2019 , offset by spending related to our foundational infrastructure upgrades to support our ongoing growth initiatives . shake shack inc. form 10-k | 71 for fiscal 2018 , net cash provided by operating activities was $ 85.4 million compared to $ 70.9 million for fiscal 2017 , an increase of $ 14.5 million . this increase was primarily driven by the opening of 34 new domestic company-operated shacks during fiscal 2018 . investing activities for fiscal 2019 , net cash used in investing activities was $ 80.7 million compared to $ 86.6 million for fiscal 2018 , a decrease of $ 5.9 million . this decrease primarily relates to an increase of $ 25.0 million of proceeds from sales of marketable securities offset by an increase in capital expenditures of $ 19.0 million to construct new domestic company-operated shacks compared to fiscal 2018 . for fiscal 2018 , net cash used in investing activities was $ 86.6 million compared to $ 61.9 million for fiscal 2017 , an increase of $ 24.7 million . this increase primarily relates to an increase in capital expenditures of $ 26.0 million to construct new domestic company-operated shacks compared to fiscal 2017. financing activities for fiscal 2019 , net cash provided by financing activities was $ 3.2 million compared to $ 4.5 million for fiscal 2018 , a decrease of $ 1.3 million .
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note 7. stockholders ' equity preferred stock — the company is story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto which are included in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k. certain information contained in the discussion and analysis set forth below includes forward-looking statements . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those set forth under “ special note regarding forward-looking statements , ” “ item 1a . risk factors ” and elsewhere in this annual report on form 10-k. overview we are a blank check company formed under the laws of the state of delaware on august 24 , 2018 for the purpose of effecting a merger , share exchange , asset acquisition , stock purchase , recapitalization , reorganization or similar business combination with one or more businesses . we intend to effectuate our business combination using cash from the proceeds of the initial public offering and the sale of the private placement warrants , our securities , debt or a combination of cash , securities and debt . our efforts to identify a prospective target business will not be limited to a particular geographic region or industry . we expect to continue to incur significant costs in the pursuit of our business combination with celularity or any other business combination . we can not assure you that our plans to raise capital or to complete our business combination will be successful . recent developments on january 8 , 2021 , we entered into the merger agreement with first merger sub , second merger sub and celularity . pursuant to the merger agreement , at the closing , and in accordance with the dgcl , ( i ) first merger sub will merge with and into celularity , with celularity surviving the first merger as a wholly owned subsidiary of the company ; and ( ii ) immediately following the first merger and as part of the same overall transaction as the first merger , the surviving corporation will merge with and into second merger sub , with second merger sub being the surviving entity of the second merger . the aggregate merger consideration payable to stockholders of celularity upon the closing consists of up to 147,327,224 newly issued shares of the gx class a common stock valued at approximately $ 10.15 per share . immediately prior to effective time , celularity will cause each share of celularity preferred stock that is issued and outstanding immediately prior to the effective time to be automatically converted into a number of shares celularity common stock at the then-effective conversion rate as calculated pursuant to the celularity charter . upon the consummation of the celularity business combination , the company intends to change its name to “ celularity inc. ” the celularity business combination will be consummated subject to certain conditions as further described in the merger agreement . for additional information regarding celularity , the merger agreement and related agreements and the celularity business combination , see the s-4 registration statement . the celularity business combination will be accounted for as a reverse recapitalization in accordance with gaap . under this method of accounting , we will be treated as the “ acquired ” company for financial reporting purposes . for accounting purposes , celularity will be deemed to be the accounting acquirer in the transaction and , consequently , the transaction will be treated as a recapitalization of celularity ( i.e. , a capital transaction involving the issuance of our stock for the stock of celularity ) . accordingly , the consolidated assets , liabilities and results of operations of celularity will become our historical financial statements after the celularity business combination , and our assets , liabilities and results of operations will be consolidated with celularity beginning on the acquisition date . 43 story_separator_special_tag concern . off-balance sheet financing arrangements we have no obligations , assets or liabilities , which would be considered off-balance sheet arrangements as of december 31 , 2020. we do not participate in transactions that create relationships with unconsolidated entities or financial partnerships , often referred to as variable interest entities , which would have been established for the purpose of facilitating off-balance sheet arrangements . we have not entered into any off-balance sheet financing arrangements , established any special purpose entities , guaranteed any debt or commitments of other entities , or purchased any non-financial assets . contractual obligations we do not have any long-term debt , capital lease obligations , operating lease obligations or long-term liabilities , other than an agreement to pay an affiliate of the sponsor a monthly fee of $ 10,000 for office space , utilities and secretarial and administrative services . we began incurring these fees on may 20 , 2019 and will continue to incur these fees monthly until the earlier of the completion of a business combination and the company 's liquidation . in june 2019 , we entered into a consulting arrangement for services to help identify and introduce us to potential targets and provide assistance with the negotiations in connection with a business combination . the agreement provides for a monthly fee of $ 12,500. during the year ended december 31 , 2020 , we entered into an agreement with a service provider , pursuant to which the service provider will serve as the placement agent for us in connection with a proposed private placement ( the “ transaction ” ) of our equity or equity-linked securities ( the “ securities ” ) . we agreed to pay the service provider a cash fee equal to the greater of ( i ) $ 3 million ( the “ minimum fee ” ) and ( ii ) 3 % of the gross proceeds of the total securities sold in the transaction and 3 % of the gross proceeds of the total securities sold in the transaction . story_separator_special_tag management 's report on internal controls over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting . under the supervision and with the participation of our management , including our principal executive officer and principal financial officer , we conducted an evaluation of the effectiveness of our internal control over financial reporting as of december 31 , 2020 , based on the criteria established in internal control — integrated framework ( 2013 ) issued by the committee of sponsoring organizations of the treadway commission for newly public companies ( coso ) . based on this evaluation , our management concluded that our internal control over financial reporting was effective as of december 31 , 2020. changes in internal control over financial reporting there were no changes in our internal control over financial reporting ( as such term is defined in rules 13a-15 ( f ) and 15d-15 ( f ) of the exchange act ) during the most recent fiscal quarter that have materially affected , or are reasonably likely to materially affect , our internal control over financial reporting . item 9b . other information . none . 47 part iii item 10. directors , executive officers and corporate governance . directors and executive officers as of the date of this report , our directors and officers are as follows : name age position jay r. bloom 65 co-chairman and chief executive officer dean c. kehler 64 co-chairman and chief executive officer michael g. maselli 61 vice president of acquisitions andrea j. kellett 64 chief financial officer hillel weinberger 67 director marc mazur 61 director paul s. levy 73 director jay r. bloom , our co-chairman and chief executive officer since inception , is a managing partner of trimaran , which he co-founded in 1998 , and serves as a manager of trimaran fund ii , an existing private equity fund . trimaran and affiliated entities have managed , through trimaran fund management , l.l.c. , private equity funds , collateralized loan obligations , and hedge funds ( in the case of hedge funds , as sub-advisor ) . prior to trimaran , mr. bloom was a managing director and vice chairman of cibc , where he was responsible for cibc 's united states and european merchant banking activities , which were conducted through the cibc funds . in addition , mr. bloom was responsible for overseeing cibc 's united states and european leveraged finance businesses , which included financial sponsor coverage ; acquisition finance ; high yield origination , underwriting , sales and trading ; private placements ; and financial restructuring advisory services . prior to cibc , mr. bloom was a co-founder of argosy , a boutique investment bank that engaged in leveraged finance activities and principal investing . argosy was acquired by cibc in 1995. prior to argosy , mr. bloom was a managing director of drexel burnham lambert inc. , and before that he was an investment banker at lehman brothers . mr. bloom also practiced law at paul weiss rifkind wharton & garrison . within the last five years , mr. bloom has served on the board of directors of el pollo loco , inc. until its ipo ( restaurants ) , kcap financial inc. ( fixed income investments/asset management ; nasdaq : kcap ) , chancelight , inc. ( for-profit education ) , norcraft companies , inc. ( building products ) and brite media group llc ( specialty advertising ) . he has also in the past served as a director of accuride corporation ( heavy truck components ; nyse : acw ) , consolidated advisors , llc ( asset management ) , domino 's pizza , inc. ( restaurants ) , freightcar america , inc. ( rail cars ) , global crossing ltd. ( telecommunications ; nyse : gx ) , heating oil partners , l.p. ( energy ) , iasis healthcare corporation ( hospitals and insurance ) , millennium digital media holdings ( cable/telecom ) , morris materials handling , inc. ( capital equipment ) , nsp holdings llc ( safety products ) , primeco wireless communications llc ( communications ) , source financial corporation ( retail ) , standard steel , llc ( railcar components ) and transportation technologies , inc ( heavy truck components ) . he serves on the advisory board of the richman center for business , law and public policy at columbia university , has served as a member of the cornell university council and the cornell university undergraduate business program advisory council , and is an emeritus member of the advisory council of the johnson graduate school of management at cornell university . mr. bloom graduated summa cum laude from cornell university with a b.s degree , from the johnson graduate school with an m.b.a degree and from columbia university school of law with a j.d . degree , where he was a member of the board of editors of the columbia law review . mr. bloom is well qualified to serve as a director due to his extensive financial , investment , operation and private and public company experience . 48 dean c. kehler , our co-chairman and chief executive officer since inception , is a managing partner of trimaran , which he co-founded in 1998 , and serves as a manager of trimaran fund ii . prior to trimaran , mr. kehler was a managing director and vice chairman of cibc , where he was responsible for cibc 's united states and european merchant banking activities , which were conducted through the cibc funds . in addition , mr. kehler was responsible for overseeing cibc 's united states and european leveraged finance businesses , which included financial sponsor coverage ; acquisition finance ; high yield origination , underwriting , sales and trading ; private placements ; and financial restructuring advisory services . prior to cibc , mr. kehler was a co-founder of argosy . prior to argosy , mr. kehler was a managing director of drexel burnham lambert inc. , and before that he was an investment banker at lehman brothers .
| results of operations we have neither engaged in any operations nor generated any revenues to date . our only activities through december 31 , 2020 were organizational activities and those necessary to prepare for the initial public offering , described below , and , after our initial public offering , identifying a target company for a business combination . we do not expect to generate any operating revenues until after the completion of our business combination . we generate non-operating income in the form of interest income on marketable securities held in the trust account . we are incurring 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 year ended december 31 , 2020 , we had net loss of $ 2,630,297 , which consisted of operating costs of $ 4,219,960 and a provision for income taxes of $ 191,644 offset by interest income on marketable securities held in the trust account of $ 1,779,071 and an unrealized gain on marketable securities held in our trust account of $ 2,236. for the year ended december 31 , 2019 , we had net income of $ 2,512,971 , which consisted of interest income on marketable securities held in the trust account of $ 3,753,411 , offset by unrealized loss on marketable securities held in our trust account of $ 7,871 , operating costs of $ 564,339 and a provision for income taxes of $ 668,230. liquidity and capital resources on may 23 , 2019 , we consummated the initial public offering of 28,750,000 units , which includes the full exercise by the underwriter of the over-allotment option to purchase an additional 3,750,000 units , at $ 10.00 per unit , generating gross proceeds of $ 287,500,000. simultaneously with the closing of the initial public offering , we consummated the sale of 7,000,000 private placement warrants , at
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story_separator_special_tag s you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes beginning on page f-1 in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those set forth under “ risk factors ” in this annual report on form 10-k. our company we were incorporated in delaware under the delaware general corporation law in march 2009 , and are the successor to apex silver mines limited for purposes of reporting under the exchange act . during the year ended december 31 , 2016 , our only sources of income were revenues from the lease of our oxide plant , sales of non-core assets , and a tax refund received by a mexican subsidiary . we incurred net operating losses for the years ended december 31 , 2016 and 2015. we remain focused on evaluating and searching for mining opportunities in north america ( including mexico ) with near term prospects of mining , and particularly for properties within reasonable haulage distances of our velardeña properties . we are also reviewing strategic opportunities , focusing primarily on development or operating properties in north america , including mexico . story_separator_special_tag “ atm program ” ) or a maximum 10 million shares . the common stock will be distributed at the market prices prevailing at the time of sale . the atm agreement provides that wainwright will be entitled to compensation for its services at a commission rate of 2.0 % of the gross sales price per share of common stock sold . the company reimbursed certain legal expenses of wainwright totaling $ 50,000 and incurred additional accounting , legal , and regulatory costs of approximately $ 103,000 in connection with establishing the atm program . at december 31 , 2016 no offers or sales were made under the atm program . subsequent to december 31 , 2016 we sold an aggregate of approximately 640,000 common shares under the atm program at an average price of $ 0.74 per common share for gross proceeds of approximately $ 475,000 during the year to date period ended february 24 , 2017. we paid a 2 % cash commission on the gross proceeds in the amount of approximately $ 10,000 and incurred additional accounting , legal , and regulatory costs of approximately $ 2,000. santa maria at the santa maria mine west of hildalgo de parral , chihuahua , we have recently completed an underground drilling program of 2,200 meters in 24 drill holes . assay results are complete . during the first two quarters of 2016 we mined approximately 4,500 tonnes of material as a bulk sample with grades of approximately 235 gpt silver and 0.7 gpt gold . this material was substantially lower in grade than material mined in 2015 from the same vein . we processed the bulk sample through a toll milling facility , generating approximately 100 tonnes of concentrates containing approximately 22,000 ounces of silver and 44 ounces of gold . the concentrates were sold to a third party for approximately $ 300,000 during the first two quarters of 2016 consisting of approximately 21,000 payable ounces of silver and 40 payable ounces of gold , which offset exploration costs . the average grade of 7,500 tons mined and processed in bulk samples since 2015 is 338 gpt silver and 0.7 gpt gold . 50 we have the right to acquire the santa maria property under an option agreement . the option agreement requires an additional approximately $ 0.9 million to be paid to acquire 100 % of the santa maria property . minimum payments of $ 0.1 million are due every six months in april and october and the minimum payments for 2017 have already been paid to the property owner . in addition , until the total due under the option agreement has been paid , the property owners have the right to 50 % of any net profits from mining activities at the property , after reimbursement of all costs incurred by the company since april 2015 , to the extent that such net profit payments exceed the minimum payments . in february 2017 a pea was completed on our behalf by tetra tech based on an updated estimate of mineralized material . the pea presents a base case assessment of developing santa maria 's mineral deposit . the pea contemplates a 38-month underground mining operation at a mining rate of 200 tonnes per day using a combination of cut and fill and other mining techniques , and custom milling at a local third-party flotation mill . based on the assumptions in the pea , we believe there may be potential to develop a small mining operation at santa maria . in 2017 we plan to continue work related to optimizing mining plans for the project and obtaining permits for the potential mining operation as considered in the current pea . permit applications have been submitted and are pending comment and acceptance . we are also developing plans for additional exploration work to potentially expand the deposit . however , no development decision has been made with respect to the project . rodeo in june 2016 , we began a 2,080 meter core drilling program at the rodeo property , approximately 80 kilometers west of the velardeña properties in durango mexico at a cost of approximately $ 0.4 million . the results from the program show a gold and silver bearing epithermal vein and breccia system with encouraging gold and silver values over an approximate 50 to 70 meter true width . the system is exposed at the top of a northwesterly striking ridge and dips steeply to the northeast over about one kilometer of strike length . story_separator_special_tag other exploration on april 28 , 2016 , we entered into an option agreement under which santa cruz silver mining ltd. may acquire our interest in certain nonstrategic mineral claims located in the zacatecas mining district , zacatecas , mexico for a series of payments totaling $ 1.5 million . santa cruz paid the company $ 0.2 million on signing the agreement and an additional $ 0.2 million in october 2016. in order to maintain its option and acquire the zacatecas properties , santa cruz is required 52 to pay additional amounts of $ 0.3 million , $ 0.3 million and $ 0.5 million due 12 , 18 and 24 months after signing respectively . santa cruz has the right to terminate the option agreement at any time , and the agreement will terminate if santa cruz fails to make a payment when due . we commenced a $ 0.6 million exploration drilling program in the first quarter 2016 at the santa rosa vein in the san luis del cordero project in durango state , mexico . the 20 hole , 4,600 meter drilling program was completed in june 2016 , and we received drill results from that program in july . based on our evaluation of those july results , we concluded that further work on this project was not likely to meet our near-term objectives and we terminated the farm-in arrangement for the property in august 2016. results of operations for the results of operations discussed below , we compare the results of operations for the year ended december 31 , 2016 to the results of operations for the year ended december 31 , 2015. revenue from oxide plant lease . in july 2015 a third party leased our inactive velardeña oxide plant . we recorded revenue of $ 6.4 million and $ 0.6 million for the years ended december 31 , 2016 and 2015 respectively . oxide plant lease costs . during the year ended december 31 , 2016 we recorded $ 2.0 million of costs related to the oxide plant lease consisting primarily of reimbursable labor and utility costs which for accounting purposes were also included in revenue from the oxide plant lease . we recorded $ 0.2 million for such costs for the year ended december 31 , 2015. revenue from the sale of metals . we recorded no revenue for the year ended december 31 , 2016 due to the suspension of mining and processing at our velardeña properties beginning november 2015. we recorded $ 7.4 million in revenue for the year ended december 31 , 2015 , all from the sale of lead , zinc and pyrite concentrates from our velardeña properties in mexico . costs of metals sold . we recorded no cost of metals sold during the year ended december 31 , 2016 due to the suspension of mining and processing at our velardeña properties beginning november 2015. for the year ended december 31 , 2015 we recorded $ 9.9 million of costs of metals sold . exploration expense . our exploration expense , including drilling at the san luis del cordero , santa maria , and rodeo properties , totaled $ 3.7 million for the year ended december 31 , 2016. for the year ended december 31 , 2015 exploration expense totaled $ 3.6 million , including drilling at the velardeña properties . exploration expense for both years was incurred primarily in mexico and includes property holding costs , costs incurred by our local exploration offices , and allocated corporate administrative expenses . velardeña project expense . during the years ended december 31 , 2016 and 2015 we incurred nil and approximately $ 0.1 million of expenses . the 2015 expenses were primarily related to the restart of mining and processing activities in 2015 and the construction of the san mateo ramp and other mine construction and engineering work . in addition to amounts expensed , we incurred only a nominal amount of capital expenditures during both 2016 and 2015. velardeña shutdown and care and maintenance costs . we recorded $ 2.0 million and $ 1.2 million for the years ended december 31 , 2016 and 2015 , respectively , for expenses related to shut down and care and maintenance at our velardeña properties . we suspended mining and processing activities at the velardeña properties in november 2015. el quevar project expense . during the years ended december 31 , 2016 and 2015 we incurred $ 0.5 million and $ 1.0 million of expenses , respectively , primarily related to holding costs at our el quevar project in argentina . the decrease in expense for the 2016 period is primarily related to the reversal of an accrual for argentina equity tax originally 53 recorded in 2015 , resulting from an audit of certain prior years . for both years , additional nominal costs incurred in argentina and not related to the el quevar project are included in “ — exploration expense ” , discussed above . administrative expense . administrative expenses totaled $ 3.9 million for the year ended december 31 , 2016 compared to $ 4.2 million for the year ended december 31 , 2015. administrative expenses , including costs associated with being a public company , are incurred primarily by our corporate activities in support of the velardeña properties , el quevar project and our exploration portfolio . the $ 3.9 million of administrative expenses we incurred during 2016 is comprised of $ 1.4 million of employee compensation and directors ' fees , $ 1.3 million of professional fees and $ 1.2 million of insurance , travel expenses , rents , utilities and other office costs . the $ 4.2 million of administrative expenses we incurred during 2015 is comprised of $ 2.0 million of employee compensation and directors ' fees , $ 1.0 million of professional fees and $ 1.2 million of insurance , rents , travel expenses , utilities and other office costs . stock based compensation .
| 2016 highlights velardeña oxide plant lease agreement in july 2015 , we leased our velardeña oxide plant to a wholly-owned subsidiary of hecla mining company for an initial term of 18 months beginning july 1 , 2015. during the third quarter 2016 hecla exercised its right to extend the initial 18-month term for six additional months until june 30 , 2017 , as permitted under the original lease agreement . as contemplated by the original agreement , the company and hecla also reached agreement regarding an expansion of the tailings impoundment , at hecla 's cost , to accommodate hecla 's use of tailings capacity in excess of an agreed amount , while preserving flexibility for future tailings expansions . the agreed expansion is estimated to cost approximately $ 1.5 million , and hecla has obtained the necessary permits for such expansion . the parties agreed that hecla would either leave unused at the end of the lease term an agreed amount of capacity in the expanded tailings facility , or construct an additional expansion at its cost . in connection with their agreement regarding tailings impoundment expansions , the parties agreed that hecla has the right to extend the lease for an additional 18 months following june 30 , 2017 , or until december 31 , 2018. hecla is responsible for ongoing operation and maintenance of the oxide plant . during the year ended december 31 , 2016 , hecla processed approximately 136,000 tonnes of material through the oxide plant , resulting in total revenues to us of approximately $ 6.4 million , comprised of approximately $ 3.0 million for direct plant charges plus fixed fees and other net reimbursable costs totaling approximately $ 3.4 million .
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63 resources connection , inc. notes to consolidated financial statements ( continued ) 12. benefit plan the company has a defined contribution 401 ( k ) plan ( the plan ) which covers all employees in the u.s. who have completed 90 days of service and are age 21 or older . participants may contribute up to 50 % of their annual salary up to the maximum amount allowed by statute . as defined in the plan agreement , the company may make matching contributions in such amount , if any , up to a maximum of story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes . this discussion and analysis contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including , but not limited to , those discussed in part i item 1a . risk factors. and elsewhere in this annual report on form 10-k. overview resources global is a multinational professional services firm that provides clients with experienced professionals specializing in accounting , finance , risk management and internal audit , corporate advisory , strategic communications and restructuring , information management , human capital , supply chain management , healthcare solutions , actuarial , legal and regulatory services in support of client-led projects and consulting initiatives . we assist our clients with discrete projects requiring specialized expertise in : finance and accounting services , such as financial analyses ( e.g. , product costing and margin analyses ) , budgeting and forecasting , audit preparation , public-entity reporting , tax-related projects , mergers and acquisitions due diligence , initial public offering assistance and assistance in the preparation or restatement of financial statements ; information management services , such as financial system/enterprise resource planning implementation and post implementation optimization ; corporate advisory , strategic communications and restructuring services ; risk management and internal audit services ( provided via our subsidiary resources audit solutions ) , including compliance reviews , internal audit co-sourcing and assisting clients with their compliance efforts under the sarbanes-oxley act of 2002 ; supply chain management services , such as strategic sourcing efforts , contract negotiations and purchasing strategy ; actuarial services for pension and life insurance companies ; human capital services , such as change management and compensation program design and implementation ; legal and regulatory services , such as providing attorneys , paralegals and contract managers to assist clients ( including law firms ) with project-based or peak period needs ; and healthcare solutions and consulting services . we were founded in june 1996 by a team at deloitte , led by our chief executive officer , donald b. murray , who was then a senior partner with deloitte . our founders created resources connection to capitalize on the increasing demand for high quality outsourced professional services . we operated as a part of deloitte from our inception in june 1996 until april 1999. in april 1999 , we completed a management-led buyout in partnership with several investors . in december 2000 , we completed our initial public offering of common stock and began trading on the nasdaq stock market . we currently trade on the nasdaq global select market . in january 2005 , we announced the change of our operating entity name to resources global professionals to better reflect the company 's multinational capabilities . we operated solely in the united states until fiscal year 2000 , when we opened our first three international offices and began to expand geographically to meet the demand for project professional services across the world . as of may 26 , 2012 , we served clients from offices in 21 countries , including 27 international offices and 50 offices in the united states . we expect to continue opportunistic domestic and multinational expansion while also investing in complementary professional services lines that we believe will augment our service offerings . 32 we primarily charge our clients on an hourly basis for the professional services of our consultants . we recognize revenue once services have been rendered and invoice the majority of our clients on a weekly basis . our clients are contractually obligated to pay us for all hours billed . to a much lesser extent , we also earn revenue if a client hires one of our consultants . this type of contractually non-refundable revenue is recognized at the time our client completes the hiring process and represented 0.5 % of our revenue for each of the years ended may 26 , 2012 , may 28 , 2011 and may 29 , 2010. we periodically review our outstanding accounts receivable balance and determine an estimate of the amount of those receivables we believe may prove uncollectible . our provision for bad debts is included in our selling , general and administrative expenses . the costs to pay our professional consultants and all related benefit and incentive costs , including provisions for paid time off and other employee benefits , are included in direct cost of services . we pay most of our consultants on an hourly basis for all hours worked on client engagements and , therefore , direct cost of services tends to vary directly with the volume of revenue we earn . we expense the benefits we pay to our consultants as they are earned . these benefits include paid time off and holidays ; a discretionary bonus plan ; subsidized group health , dental and life insurance programs ; a matching 401 ( k ) retirement plan ; the ability to participate in the company 's espp ; and professional development and career training . in addition , we pay the related costs of employment , including state and federal payroll taxes , workers ' compensation insurance , unemployment insurance and other costs . typically , a consultant must work a threshold number of hours to be eligible for all of the benefits . story_separator_special_tag the estimate of the amount of the employee portion of contingent consideration requires very subjective assumptions to be made of future operating results . future revisions to these assumptions could materially change our estimate of the amount of the employee portion of contingent consideration and therefore materially affect the company 's future financial results and financial condition . as of may 26 , 2012 , the company believes it is more likely than not that there will not be an employee portion of contingent consideration payment due in november 2013 and , accordingly , there is no liability recorded at that date . allowance for doubtful accounts we maintain an allowance for doubtful accounts for estimated losses resulting from our clients failing to make required payments for services rendered . we estimate this allowance based upon our knowledge of the financial condition of our clients ( which may not include knowledge of all significant events ) , review of historical receivable and reserve trends and other pertinent information . while such losses have historically been within our expectations and the provisions established , we can not guarantee that we will continue to experience the same credit loss rates that we have in the past . a significant change in the liquidity or financial position of our clients could cause unfavorable trends in receivable collections and additional allowances may be required . these additional allowances could materially affect the company 's future financial results . income taxes in order to prepare our consolidated financial statements , we are required to make estimates of income taxes , if applicable , in each jurisdiction in which we operate . the process incorporates an assessment of any current tax exposure together with temporary differences resulting from different treatment of transactions for tax and financial statement purposes . these differences result in deferred tax assets and liabilities that are included in our consolidated balance sheets . the recovery of deferred tax assets from future taxable income must be assessed and , to the extent recovery is not likely , we will establish a valuation allowance . an increase in the valuation allowance results in recording additional tax expense and any such adjustment may materially affect the company 's future financial result . if the ultimate tax liability differs from the amount of tax expense we have reflected in the consolidated statements of operations , an adjustment of tax expense may need to be recorded and this adjustment may materially affect the company 's future financial results and financial condition . revenue recognition we primarily charge our clients on an hourly basis for the professional services of our consultants . we recognize revenue once services have been rendered and invoice the majority of our clients in the united states on a weekly basis . some of our clients served by our international operations are billed on a monthly basis . our clients are contractually obligated to pay us for all hours billed . to a much lesser extent , we also earn revenue if a client hires one of our consultants . this type of contractually non-refundable revenue is recognized at the time our client completes the hiring process . stock-based compensation under our 2004 performance incentive plan , officers , employees , and outside directors have received or may receive grants of restricted stock , stock units , options to purchase common stock or other stock or stock-based awards . under our espp , eligible officers and employees may purchase our common stock in accordance with the terms of the plan . 34 the company estimates a value for employee stock options on the date of grant using an option-pricing model . we have elected to use the black-scholes option-pricing model which takes into account assumptions regarding a number of highly complex and subjective variables . these variables include the expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors . additional variables to be considered are the expected term , expected dividends and the risk-free interest rate over the expected term of our employee stock options . in addition , because stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest , it is reduced for estimated forfeitures . forfeitures must be estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . forfeitures are estimated based on historical experience . if facts and circumstances change and we employ different assumptions in future periods , the compensation expense recorded may differ materially from the amount recorded in the current period . the company uses its historical volatility over the expected life of the stock option award to estimate the expected volatility of the price of its common stock . the risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options . on july 20 , 2010 , the company 's board of directors announced the commencement of a quarterly dividend of $ 0.04 per common share ( increased to $ 0.05 per common share in the first quarter of fiscal 2012 ) , subject to quarterly board of director approval . consequently , effective with option grants in the first quarter of fiscal 2011 , the impact of expected dividends is now incorporated in determining the estimated value per share of employee stock option grants . the company 's historical expected life of stock option grants is 5.2 years for non-officers and 7.2 years for officers . the company uses its historical volatility over the expected life of the stock option award to estimate the expected volatility of the price of its common stock . the company reviews the underlying assumptions related to stock-based compensation at least annually .
| quarterly results the following table sets forth our unaudited quarterly consolidated statements of operations data for each of the eight quarters in the two-year period ended may 26 , 2012. in the opinion of management , this data has been prepared on a basis substantially consistent with our audited consolidated financial statements appearing elsewhere in this document , and includes all adjustments , consisting of normal recurring adjustments , necessary for a fair presentation of the data . the quarterly data should be read together with our consolidated financial statements and related notes appearing elsewhere in this document . the operating results are not necessarily indicative of the results to be expected in any future period . replace_table_token_12_th 42 ( 1 ) the quarter ended november 26 , 2011 includes the reversal of $ 500,000 that was an estimate of contingent consideration potentially payable to employees related to the sitrick brincko group acquisition . ( 2 ) the quarters ended november 26 , 2011 , may 28 , 2011 and november 27 , 2010 include favorable adjustments of $ 33.4 million , $ 3.2 million and $ 23.7 million , respectively , related to revised estimates of the fair value of contingent consideration based upon updates to the probability weighted assessment of various projected ebitda scenarios associated with the acquisition of sitrick brincko group . the quarters ended february 26 , 2011 and august 28 , 2010 include ( $ 239,000 ) and $ 1.3 million , respectively , related to the recognition of the change in the fair value of the contingent consideration liability ( calculated from changes in the risk-free interest rate , used in determining the appropriate discount factor for time value of money purposes ) associated with the acquisition of sitrick brincko group . see note 3 contingent consideration to the consolidated financial statements .
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accordingly , the company has accreted $ 0.1 million and $ 0.2 million during the years ended december 31 , 2014 and 2013 , respectively . 8. stock-based compensation summary of plans the company 's board of story_separator_special_tag this annual report on form 10-k includes forward-looking statements within the meaning of the federal securities laws , particularly statements referencing our expectations relating to the productivity of our sales force , revenues , deferred revenues , cost of revenues , operating expenses , stock-based compensation , and provision for income taxes ; the growth of our customer base and customer demand for our products ; the sufficiency of our cash balances and cash flows for the next 12 months ; the impact of recent changes in accounting standards ; market risk sensitive instruments , contractual obligations ; and assumptions underlying any of the foregoing . in some cases , forward-looking statements can be identified by the use of terminology such as may , will , expects , intends , plans , anticipates , estimates , potential , or continue , or the negative thereof , or other comparable terminology . although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable , these expectations or any of the forward-looking statements could 77 prove to be incorrect , and actual results could differ materially from those projected or assumed in the forward-looking statements . our future financial condition and results of operations , as well as any forward-looking statements , are subject to risks and uncertainties , including but not limited to the factors set forth in this report under part i , item 1a . risk factors . all forward-looking statements and reasons why results may differ included in this report are made as of the date of the filing of this report , and we assume no obligation to update any such forward-looking statements or reasons why actual results may differ . the following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing in part ii , item 8 of this report . overview we are a medical device company that has developed and commercialized an innovative neuromodulation platform for the treatment of chronic pain . our senza system is the only spinal cord stimulation , or scs , system that delivers our proprietary hf10 therapy . our senza-rct u.s. pivotal study , a non-inferiority study , met its primary and secondary endpoints , and our post-hoc statistical analysis supports the superiority of hf10 therapy over traditional scs therapies for treating both leg and back pain . while scs therapy is indicated and reimbursed for treating back and leg pain , it has limited efficacy in back pain and is utilized primarily for treating leg pain , which has limited its market adoption . in our pivotal study , hf10 therapy was demonstrated to provide significant and sustained back pain relief in addition to leg pain relief . additionally , hf10 therapy was demonstrated to provide pain relief without paresthesia , a constant tingling sensation that is the basis of traditional scs therapy . by utilizing anatomical lead placement instead of relying on paresthesia , hf10 therapy is designed to reduce variability in the operating procedure , providing meaningful benefits to both patients and physicians . we believe we are positioned to transform and grow the approximately $ 1.5 billion existing global scs market under current reimbursement by treating back pain in addition to leg pain and by eliminating paresthesia . senza received a ce mark in 2010 , and full commercialization commenced in europe and australia in 2011 and is reimbursed under existing scs codes . we market our products to physicians and sell to hospitals and outpatient surgery centers through both a direct sales organization and distributors in australia , and europe . during 2011 , we established our international sales organizations to support our product launch outside of the united states . senza is not currently approved for sale in the united states and we have not generated any sales revenue within the united states . we submitted our pma to the fda in june 2014 , and , in january 2015 , we received a letter from the fda informing us of the approvability of our pma , subject to satisfaction of regulatory inspections and audits of manufacturing facilities , methods and controls for senza , as well as finalization of the products labeling with the fda . we are working to satisfy the conditions of approval and anticipate initial commercial availability in the u.s. by mid-2015 , if approved by the fda , but there can be no assurance we will receive fda approval within this timeframe or at all . since our inception , we have financed our operations primarily through equity financings and borrowings under our debt facility . our accumulated deficit as of december 31 , 2014 was $ 122.0 million . a significant amount of our capital resources has been used to support the development of senza and our hf10 therapy , including , our pivotal clinical trial , senza-rct , which we initiated in may 2012. we intend to make a significant investment building our u.s. commercial infrastructure and sales force and in recruiting and training our sales representatives for u.s. commercialization . we also intend to continue to make significant investments in research and development to develop senza to treat other chronic pain indications , including conducting clinical trials to support our future regulatory submissions . as a result of these and other factors , we expect to continue to incur net losses for the next several years and we expect to require substantial additional funding , which may include future equity and debt financings . we rely on third-party suppliers for all of the components of senza and for the assembly of the system . many of these suppliers are currently single source suppliers . story_separator_special_tag critical accounting policies , significant judgments and use of estimates our management 's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america , or us gaap . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an ongoing basis , we evaluate our critical accounting policies and estimates . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions and conditions . we believe that the estimates , judgments , and assumptions involved in the accounting for revenue recognition , inventory , stock-based compensation , income taxes , and allowance for doubtful accounts have the greatest potential impact on our consolidated financial statements , so we consider these to be our critical accounting policies . we discuss below the critical accounting estimates associated with these policies . historically , our estimates , judgments , and assumptions relative to our critical accounting policies have not differed materially from actual results . our significant accounting policies are more fully described in note 2 of notes to consolidated financial statements in part ii , item 8 of this report . revenue we recognize revenue when all of the following criteria are met : persuasive evidence of an arrangement exists ; the sales price is fixed or determinable ; collection of the relevant receivable is probable at the time of sale ; and delivery has occurred or services have been rendered . for a majority of sales , where our sales representative delivers our product at the point of implantation at hospitals or medical facilities , we recognize revenue upon completion of the procedure and authorization , which represents satisfaction of the required revenue recognition criteria . for the remaining sales , which are sent from 80 our distribution centers directly to hospitals and medical facilities , as well as distributor sales where product is ordered in advance of an implantation procedure and a valid purchase order has been received , we recognize revenue at the time of shipment of the product , which represents the point in time when the customer has taken ownership and assumed the risk of loss and the required revenue recognition criteria are satisfied . such customers are obligated to pay within specified terms regardless of when or if they ever they sell or use the products . we do not offer rights of return or price protection and we have no post-delivery obligations . inventory valuation we contract with third parties for the manufacturing and packaging of all of the components of senza . we plan the manufacture of our systems based on estimates of market demand . the nature of our business requires that we maintain sufficient inventory on hand to meet the requirements of our customers . inventories are stated at the lower of cost or market value . cost is determined using actual cost on a first-in , first-out basis . market value is determined as the lower of replacement cost or net realizable value . we regularly review inventory quantities in consideration of actual loss experiences , projected future demand , and remaining shelf life to record a provision for excess and obsolete inventory when appropriate . inventory write downs are recorded for excess and obsolete inventory . we periodically assesses the recoverability of all inventories to determine whether write downs for impairment are required . we evaluate projected future demand as compared to remaining shelf life and other obsolescence and excess criteria in assessing the recoverability of our inventory . in determining the adequacy of reserves , we analyze the following , among other things : current inventory quantities on hand ; product acceptance in the marketplace ; customer demand ; historical sales ; forecast sales ; product obsolescence ; technological innovations ; and character of the inventory as a distributed item , finished manufactured item or system components . any inventory write-downs are recorded in cost of goods sold within the statements of operations during the period in which such write-downs are determined necessary by management . stock-based compensation stock-based compensation costs related to stock options granted to employees are measured at the date of grant based on the estimated fair value of the award , net of estimated forfeitures . we estimate the grant date fair value , and the resulting stock-based compensation expense , using the black-scholes option-pricing model on a straight-line basis over the requisite service period of the award , which is generally the vesting term of four years . the black-scholes option-pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards . the assumptions used in our option-pricing model represent management 's best estimates . these estimates are complex , involve a number of variables , uncertainties and assumptions and the application of management 's judgment , so that they are inherently subjective . if factors change and different assumptions are used , our stock-based compensation expense could be materially different in the future . these assumptions are estimated as follows : 81 risk-free interest rate . we base the risk-free interest rate used in the black-scholes valuation model on the implied yield available on u.s. treasury zero-coupon issues with an equivalent remaining term of the options for each option group . expected term . the expected term represents the period that our stock-based awards are expected to be outstanding .
| summary of significant accounting policies of notes to consolidated financial statements in part ii , item 8 of this report . comparison of the years ended december 31 , 2014 and 2013 revenue , cost of revenue , gross profit and gross margin replace_table_token_5_th revenue . in 2014 , revenue increased to $ 32.6 million from $ 23.5 million in 2013 , an increase of $ 9.1 million , or 39 % , due to increased acceptance of senza in europe and australia . we established our international sales operations in 2011 , and materially expanded our sales forces in those countries during 2012 and 2013 to support our revenue growth . cost of revenue , gross profit and gross margin . cost of revenue increased $ 1.8 million , or 19 % , in 2014 as compared to 2013 due to higher personnel costs of $ 1.0 million , an increase in the costs for manufactured goods of $ 0.6 million related to the increased production of units due to the increase in sales volume , as well as an increase in our shipping costs of $ 0.2 million . gross profit increased $ 7.3 million , or 52 % , to $ 21.3 million , in the year ended 2014 as compared to 2013 due to higher sales volume , while our gross profit as a percentage of sales increased by 5 % . 85 operating expenses replace_table_token_6_th research and development expenses . r & d expenses decreased $ 0.5 million , or 3 % , in 2014 as compared to 2013. our clinical trial expenses declined by $ 2.8 million in 2014 to $ 1.1 million as compared to $ 3.9 million during 2013 due to the completion of the enrollment in our clinical trial in february 2013. our development costs were $ 4.5 million in both 2013 and 2014 due to our continued investment in preclinical activities for our products and our preparation of the pma submission for senza .
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on july 16 , 2018 , in accordance with the termination and settlement agreement , the company paid the brink group a breakup fee of approximately $ 5.5 million . during the year ended december 31 story_separator_special_tag the following discussion and analysis of our financial condition contains forward-looking statements regarding industry outlook and our expectations regarding the performance of our business . these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described under the heading “ forward-looking statements , ” at the beginning of this annual report on form 10-k. our actual results may differ materially from those contained in or implied by any forward-looking statements . the financial information discussed below and included in this annual report on form 10-k for periods prior to the separation may not necessarily reflect what horizon 's financial condition , results of operations or cash flows would have been had horizon been a stand-alone public entity during this period or what horizon 's financial condition , results of operations and cash flows may be in the future . you should read the following discussion together with item 8 , “ financial statements and supplementary data ” within this annual report on form 10-k. overview headquartered in troy , michigan , we are a leading designer , manufacturer and distributor of a wide variety of high-quality , custom-engineered towing , trailering , cargo management and other related accessory products on a global basis , primarily serving the automotive aftermarket , retail and oe channels , supporting our customers primarily through a regional service model . critical factors affecting our ability to succeed include : our ability to realize the expected economic benefits of the changes made to our manufacturing and distribution footprint and management team during 2017 and 2018 ; our ability to quickly and cost-effectively introduce new products ; our ability to continue to integrate acquired companies or products that have historically supplemented existing product lines , add new distribution channels and expand our geographic coverage and realize desired operating efficiencies ; our ability to manage our cost structure more efficiently via supply base management , internal sourcing and or purchasing of materials , selective outsourcing and or purchasing of support functions , working capital management , and leverage of our administrative functions . if we are unable to do any of the foregoing successfully , our financial condition and results of operations could be materially and adversely impacted . we report shipping and handling expenses associated with horizon americas ' distribution network as an element of selling , general and administrative expenses in our consolidated statements of operations . as such , gross margins for horizon americas may not be comparable to those of horizon europe‑africa and horizon asia‑pacific , which primarily rely on third-party distributors , for which all costs are included in cost of sales . 27 segment information and supplemental analysis the following table summarizes financial information for our three operating segments : replace_table_token_3_th 28 story_separator_special_tag $ 15.7 million of unfavorable input costs , including higher steel and other commodity costs and $ 6.2 million of higher freight out costs caused in part by reduced carrier capacity , all in advance of pricing actions . further contributing to a decline in gross profit margin was approximately $ 7.6 million of incremental fines and penalties due to poor delivery performance from our new kansas city distribution center . we also recorded $ 3.2 million of costs associated with closures of our solon , ohio and mosinee , wisconsin shared serviced and engineering facilities , as well as $ 0.7 million of other operational performance issues related to inefficiencies resulting from the horizon americas restructuring and footprint optimization . gross profit was also negatively impacted by $ 2.6 million of outside service provider and expedited freight costs were incurred related to the paintline upgrade in our mexico manufacturing facility completed in the fourth quarter of 2017 , for which certain oe customer acceptance is pending . these negative factors were slightly offset by a $ 3.1 million benefit from reduced headcount and manufacturing efficiencies . selling , general and administrative expenses increased approximately $ 2.7 million to $ 86.4 million , or 22.1 % of net sales , during the twelve months ended december 31 , 2018 , as compared to $ 83.7 million , or 19.0 % of net sales , during the twelve months ended december 31 , 2017 . the increase was primarily due to approximately $ 4.4 million of costs associated with a project to optimize our distribution footprint , $ 5.4 million of costs , including severance , associated with the facility closures and costs related to other organizational restructuring efforts . the increase in costs was partially offset from cost savings efforts previously noted , which resulted in a decrease in salaries and other compensation of $ 3.8 million . in addition , there was $ 3.0 million of lower amortization year-over-year as certain customer relationships have fully amortized . horizon americas ' operating profit ( loss ) decreased approximately $ 50.9 million to $ ( 6.9 ) million , or ( 1.8 ) % of net sales , during the twelve months ended december 31 , 2018 , from $ 44.1 million , or 10.0 % of net sales , during the twelve months ended december 31 , 2017 . operating profit and operating profit margin decreased primarily due to lower sales volumes and mix coupled with additional costs incurred for ongoing operational improvement , restructuring and footprint optimization , unfavorable commodity costs , increased fines , penalties and freight costs , and operational inefficiencies and performance issues related to the operational and footprint optimization projects throughout the year . horizon europe-africa . story_separator_special_tag the increase year over year is primarily attributable to approximately $ 10.7 million of expenses related to the termination of the brink group acquisition , which includes a net $ 5.5 million break fee . in addition , the company incurred $ 4.0 million of severance costs during the year associated with the restructuring of the executive management team . the additional costs incurred were partially offset by $ 2.6 million of costs incurred in 2017 , related to the integration of the westfalia group , which did not reoccur in 2018. in addition , the cost increases were offset by personnel costs savings primarily a result of $ 2.3 million of lower incentive compensation and $ 1.2 million of other compensation related costs . year ended december 31 , 2017 compared with year ended december 31 , 2016 overall , net sales increased approximately $ 243.8 million , or approximately 37.6 % , to $ 893.0 million in 2017 , as compared to $ 649.2 million in 2016 . net sales within our horizon europe‑africa operating segment increased $ 221.9 million primarily driven by our fourth quarter 2016 acquisition of the westfalia group , which added net sales of $ 208.5 million to horizon europe‑africa 's results in 2017 compared to 2016 . net sales within our horizon asia‑pacific operating segment increased by $ 25.4 million due to a regional bolt-on acquisition and net sales to a new customer . net sales within our horizon americas operating segment decreased $ 3.5 million driven by decreases in the retail and aftermarket channels , which were partially offset by an increase within the automotive oe , e-commerce , and industrial channels . 31 gross profit margin ( gross profit as a percentage of net sales ) approximated 23.2 % and 24.7 % in 2017 and 2016 , respectively . the overall decline in gross profit margin is the result of a shift in concentration of net sales from our higher margin horizon americas operating segment to our lower margin horizon europe‑africa operating segment . further , gross profit margin declined in our horizon americas operating segment as the negative impacts of unfavorable commodity prices more than offset the lower costs and cost savings realized in 2017 from the consolidation of our manufacturing facilities that occurred in 2016 . gross profit margin improved in our horizon asia‑pacific operating segment as a result of increased sales volumes and productivity initiatives . an increase in gross profit margin in our horizon europe‑africa operating segment is primarily due to the acquisition of the westfalia group . operating profit margin ( operating profit as a percentage of net sales ) approximated 3.9 % and 1.0 % in 2017 and 2016 , respectively . operating profit increased $ 28.5 million , or 451.7 % , to $ 34.8 million in 2017 as compared to $ 6.3 million in 2016 , as a result of an operating profit margin improvement across all of our operating segments . operating profit margin increased in our horizon europe‑africa operating segment driven by the westfalia group . operating profit margin was positively impacted by $ 8.4 million of lower expenses compared to 2016 related to the impairment of intangible assets in our horizon americas and horizon europe-africa operating segments . increased volumes and operational improvements in our horizon asia‑pacific operating segment also favorably impacted operating profit margin . further contributing to the increase in operating profit margin was a decrease in corporate expenses primarily due to lower costs associated with the westfalia group acquisition . interest expense increased approximately $ 2.3 million , to $ 22.4 million in 2017 , as compared to $ 20.1 million in 2016 , primarily due to additional interest and non-cash amortization of debt discount and issuance costs related our convertible notes ( as defined below ) issued in early 2017. other expense , net remained relatively flat at $ 2.7 million in 2017 compared to $ 2.6 million in 2016 . the effective income tax rate for 2017 and 2016 was 195.8 % and 22.8 % , respectively . the 2017 tax cuts and jobs act ( the “ act ” ) created an $ 11.9 million tax charge that was the main driver of change in effective tax rate . this amount largely reflects transition tax but also includes other provisions of the act applicable to the company . two other main factors influenced both the 2017 and 2016 effective tax rates . first , nondeductible transaction costs associated with foreign acquisitions resulted in additional tax expense of $ 1.6 million and $ 2.7 million during december 31 , 2017 and 2016 , respectively . second , income tax benefits associated with the release of certain unrecognized tax positions were recognized in 2017 and 2016 for approximately $ 4.0 million and $ 1.3 million , respectively . net loss decreased approximately $ 7.9 million to a net loss of $ 4.8 million in 2017 , from a net loss of $ 12.7 million in 2016 . the improvement was primarily the result of a $ 28.5 million increase in operating profit , partially offset by a $ 2.3 million increase in interest expense , a $ 4.6 million loss on extinguishment of debt due to a prepayment made on our term b loan ( as defined below ) , and by a $ 13.5 million increase in income tax expense . see below for a discussion of operating results by operating segment . horizon americas . net sales decreased approximately $ 3.5 million , or 0.8 % , to $ 439.7 million in 2017 , as compared to $ 443.2 million in 2016 .
| results of operations year ended december 31 , 2018 compared with year ended december 31 , 2017 overall , net sales decreased approximately $ 43.0 million , or approximately 4.8 % , to $ 850.0 million during the twelve months ended december 31 , 2018 , as compared to $ 893.0 million during the twelve months ended december 31 , 2017 , primarily driven by a decrease in net sales in horizon americas , as well as a decrease in horizon europe‑africa , which was partially offset by higher net sales in horizon asia‑pacific . the decrease in net sales within horizon americas of approximately $ 49.0 million was primarily driven by challenges transitioning to a new aftermarket and retail distribution center in kansas city , coupled with the decrease in sales related to the fourth quarter 2017 sale of the broom and brush product line . in addition , net sales decreased $ 2.7 million in horizon europe‑africa primarily attributable to sales decreases in the automotive oes and aftermarket channels , partially offset by favorable currency exchange impacts in the operating segment . the net sales decrease was partially offset by an increase of $ 8.7 million in horizon asia‑pacific , primarily attributable to a full year of sales in 2018 from a regional bolt-on acquisition completed in the third quarter of 2017 . gross profit margin ( gross profit as a percentage of net sales ) approximated 16.9 % and 23.2 % during the twelve months ended december 31 , 2018 and 2017 , respectively . gross profit margin was negatively impacted by higher customer fines and penalties related to lower fulfillment rates and unfavorable input costs , including higher commodity costs in advance of pricing actions , higher freight costs and higher labor costs .
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the company 's chief operating decision story_separator_special_tag introduction this md & a is provided as a supplement to , and should be read in conjunction with , the consolidated financial statements and the notes thereto included in item 8 to this report . unless the context otherwise requires , all references to “ we , ” “ us , ” “ our , ” “ ac group ” or the “ company ” refer collectively to associated capital group , inc. and its subsidiaries through which our operations are actually conducted . the spin-off on november 30 , 2015 , gamco distributed all the outstanding shares of each class of common stock of ac group on a pro rata one-for-one basis to the holders of each class of gamco 's common stock . prior to the distribution , gamco contributed the 93.9 % interest it held in gabelli & company investment advisers , inc. ( “ gcia ” f/k/a gabelli securities , inc. ) and certain cash and other assets to ac group . during the twelve months ended december 31 , 2016 , ac purchased the 6.1 % of gcia shares owned by third parties and certain employees in exchange for 163,428 shares of the company . gcia is now a wholly owned subsidiary of ac . in addition , the following transactions were also undertaken in connection with the spin-off : gamco issued a promissory note ( the `` gamco note '' ) to ac group in the original principal amount of $ 250.0 million used to partially capitalize the company in connection with the spin-off . the gamco note bears interest at 4.0 % per annum and has a maturity date of november 30 , 2020 with respect to the original principal amount of the gamco note . interest on the gamco note will accrue from the most recent date for which interest has been paid , or if no interest has been paid , from the effective date of the gamco note ; provided , however , that at the election of gamco , payment of interest on the gamco note may , in lieu of being paid in cash , be paid , in whole or in part , in kind on the then-outstanding principal amount ( a `` pik amount '' ) . gamco will repay all pik amounts added to the outstanding principal amount of the gamco note , in cash , on the fifth anniversary of the date on which each such pik amount was added to the outstanding principal amount of the gamco note . in no event may any interest be paid in kind subsequent to november 30 , 2019. gamco may prepay the gamco note prior to maturity without penalty . 27 during the year ended december 31 , 2016 , ac received principal repayments totaling $ 150 million on the gamco note . $ 50 million of the prepayment was applied against the principal amount due on november 30 , 2016 , $ 40 million against the principal amount due on november 30 , 2017 , $ 30 million against the principal amount due on november 30 , 2018 , and $ 30 million against the principal amount due on november 30 , 2019. of the $ 100 million principal amount outstanding as of december 31 , 2016 , $ 10 million is due on november 30 , 2017 , $ 20 million is due on november 30 , 2018 , $ 20 million is due on november 30 , 2019 , and $ 50 million is due on november 30 , 2020. on november 27 , 2015 gcia purchased from gamco 4,393,055 shares of gamco class a common stock at a price of $ 34.1448 per share , based on the average of the volume weighted average price for gamco class a stock on an “ ex-distribution ” basis from november 9 , 2015 through and including november 27 , 2015. gcia paid for the purchase by issuing a note to gamco in the principal amount of $ 150.0 million ( the “ gcia note ” ) . the gcia note was then contributed by gamco to ac and gcia became a majority-owned subsidiary of ac on november 30 , 2015 in connection with the completion of the spin-off . the gcia note is thus now an intercompany note within the ac group . factors affecting financial condition and results of operations except for the one month period subsequent to the spin-off , the company 's combined statements of income for the three months ended december 31 , 2015 and the company 's combined consolidated statements of income for the twelve months ended december 31 , 2015 were prepared on a standalone basis derived from the combined financial statements and accounting records of gamco as the company was not a standalone public company prior to the spin-off . the combined consolidated statement of income for the period ended december 31 , 2015 includes allocations for certain support functions that were provided on a centralized basis by gamco and not historically recorded at the business unit level . these expenses were allocated on the basis of direct usage when identifiable , with the remainder allocated on a pro-rata basis of headcount or other measures . management believes the assumptions underlying the combined consolidated financial statements , including the assumptions regarding allocating general corporate expenses , are reasonable . nevertheless , the combined consolidated financial statement may not include all of the actual expenses that would have been incurred by the company and may not reflect its combined results of operations , financial position and cash flows had it been a separate , standalone company during the periods presented . actual costs that would have been incurred if the company had been a separate , standalone company would depend on multiple factors , including organizational structure and strategic decisions made in various areas , including information technology and infrastructure . story_separator_special_tag total shareholders ' equity was $ 874 million or $ 36.04 per share on december 31 , 2016 compared to $ 752 million or $ 29.54 per share on december 31 , 2015. note that these shareholders ' equity per share calculations are a non-gaap measurement . the increase in equity from the end of 2015 was largely comprised of an increase in cash and cash equivalents of $ 108 million , an increase in investments in securities , net and affiliated and third party funds of $ 46 million , a reduction of $ 5 million in liabilities , partially offset by a reduction in receivables of $ 45 million . the company also reviews an analysis of adjusted economic book value ( “ aebv ” ) , and aebv per share , a non-gaap financial measure that management believes is useful for analyzing ac 's financial condition because it reflects the impact on book value if and when the gamco note is paid down . the gamco note that was issued as part of the spin-off transaction is not treated as an asset for gaap purposes , but as a reduction in equity , and will continue to be reflected as a reduction in equity in future periods in the amount of the principal then outstanding . as the gamco note pays down , the company 's total equity will increase , and once the gamco note is fully paid off by gamco , the company 's total equity and aebv will be the same . at december 31 , 2016 , aebv for the company was $ 974 million and the aebv per share was $ 40.16 per share . the reconciliation of gaap book value and gaap book value per share to aebv and aebv per share at december 31 , 2016 is shown below ( in thousands , except for per share data ) : reconciliation of total equity to adjusted economic book value total per share total equity as reported $ 874,022 $ 36.04 add : gamco note 100,000 4.12 adjusted economic book value $ 974,022 $ 40.16 our primary goal is to use our liquid resources to opportunistically and strategically grow book value and net income . while this goal is a priority , if opportunities are not present with what we consider a margin of safety , we will consider alternatives to return capital to our shareholders , including stock repurchases and dividends . story_separator_special_tag style= '' font-size : 10pt ; font-family : 'times new roman ' , times , serif '' > net gain from investments : net gain from investments is directly related to the performance of our proprietary capital accounts . for the three months ended december 31 , 2016 , net gains from investments declined to $ 7.1 million from the prior year 's $ 9.1 million . interest and dividend income : interest and dividend income increased to $ 2.9 million in the three months ended december 31 , 2016 from $ 2.4 million in the three months ended december 31 , 2015. interest expense : interest expense was $ 0.04 million in the quarter ended december 31 , 2016 and $ 0.4 million on the comparable quarter in 2015. income taxes the effective tax rate ( “ etr ” ) was 23.3 % and 27.4 % for the periods ended december 31 , 2016 and 2015 , respectively . the rates fluctuate below the standard corporate tax rate of 34 % primarily due to the benefits of the dividends received deduction in each period and donated appreciated securities in the 2016 period . the rate fluctuation is indicative of the significant amount of investments that the company holds relative to its income from operations . noncontrolling interests net income ( loss ) attributable to noncontrolling interests was a loss of $ 0.02 million in the 2016 period compared to a loss of $ 0.3 million in the 2015 period . 32 net income net income for the three months ended december 31 , 2016 was $ 3.6 million versus $ 4.2 million for the three months ended december 31 , 2015 driven primarily by the $ 5.4 million cost of ac 's initial shareholder designated charitable contribution program partially offset by a $ 5.1 million increase in incentive fees . operating results for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 revenues total revenues were $ 31.2 million for the year ended december 31 , 2016 , $ 8.4 million higher than total revenues of $ 22.8 million for the year ended december 31 , 2015. total revenues by revenue component were as follows ( dollars in thousands ) : replace_table_token_10_th investment advisory and incentive fees : investment advisory income is directly influenced by the level and mix of average aum . we earn advisory fees based on the level of average aum in our products . advisory fees were $ 8.9 million for 2016 compared to $ 8.4 million for 2015 , an increase of $ 0.5 million . this increase is a result of the increase in average aum to $ 1.19 billion in 2016 from $ 1.07 billion in 2015 , an increase of $ 12 million . incentive fees are directly related to the gains generated for our clients . we earn a percentage , usually 20 % , of the economic gains of our clients ' aum . incentive fees were $ 9.4 million in 2016 , up $ 5.1 million from $ 4.3 million in 2015 as market appreciation in our clients ' accounts were higher in 2016 as compared to 2015. institutional research services : institutional research services revenues in 2016 were $ 9.6 million , a $ 1.2 million , or 14 % , increase from $ 8.4 million in 2015 resulting from higher brokerage commissions derived from securities transactions executed on an agency basis and sales manager fees earned from at-the market offerings of certain gamco closed-end funds .
| assets under management highlights we reported assets under management as follows ( dollars in millions ) : replace_table_token_5_th ( a ) compound annual growth rate . ( b ) includes $ 158.9 million of proprietary capital . 30 our gross cash inflows by product line were as follows ( in millions ) : replace_table_token_6_th our gross cash outflows by product line were as follows ( in millions ) : replace_table_token_7_th our net appreciation and depreciation by product line were as follows ( in millions ) : replace_table_token_8_th the majority of these assets have calendar year-end measurement periods ; therefore , our incentive fees are primarily recognized in the fourth quarter when the uncertainty is removed at the end of the annual measurement period . operating results for the quarter ended december 31 , 2016 as compared to the quarter ended december 31 , 2015 revenues total revenues were $ 16.3 million for the three months ended december 31 , 2016 , $ 7.3 million higher than total revenues of $ 9.0 million for the three months ended december 31 , 2015. the increase was mainly attributable to incentive fees of $ 9.3 million in the current quarter versus $ 4.2 million in the comparable quarter in 2015. total revenues by revenue component were as follows ( dollars in thousands ) : replace_table_token_9_th investment advisory and incentive fees : investment advisory income is directly influenced by the level and mix of average aum . we earn advisory fees based on the level of average aum in our products . advisory fees were $ 2.4 million for the 2016 period compared to $ 2.1 million for the 2015 period , an increase of $ 0.3 million . this increase is correlated to the increase in aum to $ 1.27 billion at december 31 , 2016 versus $ 1.08 billion at december 31 , 2015 . 31 incentive fees are directly related to the gains generated for our clients .
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the noncontrolling interest in our subsidiaries and their equity balances are reported separately in the consolidated financial statements , and activities of these subsidiaries are included therein . contingencies – from time to story_separator_special_tag the following section discusses management 's view of the financial condition , results of operations and cash flows of diodes incorporated and its subsidiaries ( collectively , “ the company , ” “ our company , ” “ we , ” “ our , ” “ ours , ” or “ us ” ) and should be read together with the consolidated financial statements and the notes to consolidated financial statements included elsewhere in this form 10-k. the following discussion contains forward-looking statements and information relating to our company . we generally identify forward-looking statements by the use of terminology such as “ may , ” “ will , ” “ could , ” “ should , ” “ potential , ” “ continue , ” “ expect , ” “ intend , ” “ plan , ” “ estimate , ” “ anticipate , ” “ believe , ” “ project , ” or similar phrases or the negatives of such terms . we base these statements on our beliefs as well as assumptions we made using information currently available to us . such statements are subject to risks , uncertainties and assumptions , including those identified in part i , item 1a. “ risk factors , ” as well as other matters not yet known to us or not currently considered material by us . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those anticipated , estimated or projected . given these risks and uncertainties , prospective investors are cautioned not to place undue reliance on such forward-looking statements . forward-looking statements do not guarantee future performance and should not be considered as statements of fact . you should not unduly rely on these forward-looking statements , which speak only as of the date of this annual report on form 10-k. unless required by law , we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise . the private securities litigation reform act of 1995 ( the “ act ” ) provides certain “ safe harbor ” provisions for forward-looking statements . all forward-looking statements made in this annual report on form 10-k are made pursuant to the act . summary of the twelve months ended december 31 , 2018 revenue grew to a record $ 1.2 billion , an increase of 15.2 % over the $ 1.05 billion in 2017 ; gross profit was a record $ 435.3 million , a 22.0 % increase , compared to the $ 356.8 million in 2017 ; gross margin improved 210 basis points to 35.9 % from 33.8 percent in 2017 ; operating income increased to a record $ 154.5 , or 12.7 % of revenue , compared to 7.5 percent , in 2017 ; net income was a record $ 104.0 million , or $ 2.04 per diluted share , compared to a net loss of ( $ 1.8 ) million , or ( $ 0.04 ) per share , in 2017 ; and achieved $ 185.6 million cash flow from operations . we had $ 87.5 million of capital expenditures , or 7.2 % of revenue . net cash flow was a positive $ 36.6 million , which includes the net pay down of $ 56.8 million of long-term debt . summary of the twelve months ended december 31 , 2017 revenue grew to $ 1.1 billion , an increase of 12.0 % over the $ 942.2 million in 2016 due to continued market share gains ; gross profit was $ 356.8 million compared to $ 286.9 million in 2016 ; gross margin was 33.8 % compared to 30.5 % in 2016 , an increase of 330 basis points ; we had a net loss $ 1.8 million for the 12 months ended december 31 , 2017. included in this loss was total tax expense of $ 62.3 million , of which $ 45.9 million specifically related to the tax cuts and jobs act that was signed into law on december 22 , 2017 ; we completed the shutdown of wafer fabrication facility located in lee 's summit , mo . ( “ kfab ” ) and relocated the manufacturing capacity to other wafer fabrication facilities ; selling and administrative expenses were $ 167.6 million due to increases in wages and benefits ; cash flow from operations was approximately $ 181.1 million compared to $ 124.7 million in 2016 ; during 2017 we paid down approximately $ 159.9 million of our outstanding debt ; we repurchased approximately $ 8.7 million or 300,000 shares of our outstanding common stock ; and we received qualification of 200mm wafers at one of our wafer fabrication facilities located in shanghai . - 33 - kfab shutdown during 2017 we completed the shutdown of kfab and final expenses were paid during 2018. the company ceased production operations at kfab late in third-quarter 2017 and vacated the premises during november 2017. employees were provided retention and standard severance packages . total costs incurred for the shutdown were approximately $ 10.3 million and the company does not expect to incur any further expense associated with the shutdown . business outlook during 2018 we achieved a record high of $ 1.2 billion in annual revenue . we continue to pursue our previously announced goals of achieving revenue of $ 2.5 billion and gross margin of 40 % , representing gross profit of $ 1.0 billion , all by 2025. acquisitions will continue to be a key part of our growth strategy to reach our 2025 revenue goal . we have a solid pipeline of designs and expanded customer relationships across all regions and product lines . story_separator_special_tag impairment of fixed assets impairment of fixed assets consists of the impairment amount recognized as a result of the fair value of an asset being below its recorded value . restructuring restructuring are one-time charges that must be paid by the company due to reorganizing or restructuring a part of the business . interest income / expense interest income consists of interest earned on our cash and investment balances . interest expense consists of interest payable on our outstanding credit facilities and other debt instruments . gain ( loss ) on securities carried at fair value we may hold investments in the form of common stock or some other similar equivalent and have elected fair value accounting treatment . - 35 - foreign currency ( loss ) gain , net this income account is used to show the amount gained or lost as a result of foreign currency transactions . income tax provision our global presence requires us to pay income taxes in a number of jurisdictions . see note 11 of “ notes to consolidated financial statements ” for additional information . net income attributable to noncontrolling interest this represents the minority investors ' share of our subsidiaries ' earnings . net income attributable to common stockholders net income attributable to common stockholders is net income less net income attributable to noncontrolling interest . u.s. tax reform the tax act was enacted on december 22 , 2017. the tax act reduces the u.s. federal corporate tax rate from 35 % to 21 % , requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred , provides an exemption from u.s. federal tax for dividends received from foreign subsidiaries , and creates new taxes on certain foreign sourced earnings . as of the fourth quarter of 2018 , the company completed its accounting for the tax effects of the tax act and recorded a $ 2.8 million adjustment to the provisional tax expense recorded in the fourth quarter of 2017. see note 11 of “ notes to consolidated financial statements ” of this annual report for further discussion . the table below sets forth the significant components of the provisional amount recorded in the fourth quarter of 2017 , and the net $ 2.8 million adjustment to tax expense recorded in the fourth quarter of 2018. these amounts were recorded as a component of income tax expense from continuing operations : replace_table_token_4_th the company was able to use net operating loss carryforwards and tax credits to completely offset any cash tax obligations resulting from the transition tax . the other components shown above represent noncash adjustments to tax expense . remeasurement of u.s. deferred tax assets and liabilities we remeasured certain u.s. deferred tax assets and liabilities using the lower corporate income tax rate of 21 % . transition tax on foreign earnings the one-time transition tax is based on our total post-1986 earnings and profits ( “ e & p ” ) that we previously deferred from u.s. income taxes , and is net of indirect effects of unrecognized tax benefits . the $ 2.8 million adjustment referred to in the table above results from completing our analysis and calculation of post-1986 e & p , including amounts held in cash and other specified assets . no additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax , or any additional outside basis difference inherent in these entities . our undistributed foreign earnings , including those subject to the transition tax , continue to be indefinitely reinvested in foreign operations , with limited exceptions related to earnings of european and asian subsidiaries . determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities ( i.e. , basis difference in excess of that subject to the one-time transition tax ) is not practicable . - 36 - foreign tax credits used to offset transition tax the company is able to claim foreign tax credits against the incremental u.s. tax due on its previously deferred foreign earnings . the $ 4.6 million adjustment referred to in the table above results from completing our analysis of the total amount of foreign taxes previously paid or accrued by our foreign subsidiaries that are creditable against the transition tax . other adjustments we have completed our analysis of the direct and indirect implications of the tax act on the company 's tax attributes , such as tax credit carryforwards . as a result , we recorded a $ 0.8 million adjustment to finalize the accounting of the effect of our change in judgment regarding realizability of foreign tax credits and r & d credits . story_separator_special_tag > replace_table_token_7_th net sales net sales increased for the twelve months ended december 31 , 2017 , compared to the prior year due to continued market share gains and strength across all our geographies , growth in our automotive , industrial and communications end markets as well as growth from our pericom products . - 39 - cost of goods sold cost of goods sold increased approximately $ 42.2 million for the twelve months ended december 31 , 2017 , compared to the same period last year . cost of goods sold primarily increased as a result of our increased sales . a portion of the increase in cost of goods sold was $ 2.7 million of kfab inventory that was expensed , as it will not be used in the future , and other inventory that was scrapped . cost of goods was positively impacted in 2017 by receipt of $ 3.9 million of business interruption insurance and $ 0.6 million of inventory insurance recovery received related to a fire at kfab that occurred in 2016. as a percent of sales , cost of goods sold was 66.2 % for the twelve months ended december 31 , 2017 , compared to 69.5 % for the prior period .
| results of operations the following table sets forth , for the periods indicated , the percentage that certain items in the statements of income bear to net sales : replace_table_token_5_th the following discussion explains in greater detail our consolidated operating results and financial condition . this discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report ( in thousands ) . - 37 - 2018 compared to 2017 replace_table_token_6_th net sales net sales increased for the twelve months ended december 31 , 2018 , compared to the same period last year due to continued market share gains , growth in our automotive , industrial and communications end markets , as well as growth from our pericom products . cost of goods sold cost of goods sold increased approximately $ 81.3 million for the twelve months ended december 31 , 2018 compared to the same period last year , primarily as a result of our increased sales . during 2018 , cost of goods sold was positively impacted by the receipt of approximately $ 0.4 million of business interruption insurance proceeds and negatively impacted , when compared to 2017 , by receipt , in 2017 of $ 3.9 million of business interruption insurance and $ 0.6 million of inventory insurance recovery received related to a fire that occurred at kfab in 2016. as a percent of sales , cost of goods sold was 64.1 % for the twelve months ended december 31 , 2018 , compared to 66.2 % for the same period last year . average unit cost increased 13.6 % for the twelve months ended december 31 , 2018 , compared to the same period last year , due to the sale of higher margin products and increased production facility utilization . for the twelve months ended december 31 , 2018 , gross profit increased approximately 22.0 % when compared to the same period last year .
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income taxes the company recognizes income tax expense for financial reporting purposes following the asset and liability approach for computing deferred income taxes . under this method , the deferred tax assets and liabilities are determined based on the difference between financial reporting and tax bases of assets and liabilities based on enacted tax rates . 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 story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the information in our consolidated annual audited financial statements and the notes thereto , each of which are contained in item 8 entitled financial statements and supplementary data , and other financial information incorporated by reference herein . some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties . you should review the risk factors section as well as the section below entitled special note regarding forward-looking statements 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 . introduction and overview of operations we are an integrated facilities-based communications services provider offering a portfolio of international and domestic voice , wireless , internet , voice over internet protocol ( voip ) , data , colocation and data center services to customers located primarily in canada and the united states . our primary market is canada , where we have deployed significant network infrastructure . we classify our services into three categories : growth services , traditional services and international carrier services ( ics ) . we provide these services from our three business units : north america telecom , blackiron data ( previously known as data center ) and ics . our two primary reportable operational segments are north america telecom and blackiron data . our focus is on expanding our growth services in our north america telecom and blackiron data business units . within the north america telecom unit , growth services include our broadband , voip and on-net ethernet services . for our blackiron data unit , we are heavily focused on expansion of our collocation facilities , cloud computing and managed services . both units fulfill the demand for high quality , competitively priced communications and data center services . this demand is being driven , in part , by the explosion of data being generated on a daily basis , the globalization of the world 's economies , the global trend toward telecommunications deregulation and the migration of communications traffic to the internet . we manage our traditional services , which includes our domestic and international long-distance voice , local landline , wireless , prepaid cards , and dial-up internet services , for cash flow generation that we reinvest to develop and market our growth services , particularly in our primary market of canada . we also provide our ics voice termination services to other telecommunications carriers and resellers requiring ip or time-division multiplexing access . however , as discussed below under recent developmentspursuit of divestiture of ics business unit , the company is currently pursuing a sale or other disposition or disposal of its ics segment , which no longer is a separate reportable business segment and has been classified as a discontinued operation as a result of being held for sale . generally , we price our services competitively with the major carriers and service providers operating in our principal service regions . we seek to generate net revenue through sales and marketing efforts focused on customers with significant communications needs , including small and medium enterprises ( smes ) , multinational corporations , residential customers , and other telecommunications carriers and resellers . industry trends have shown that the overall market for domestic and international long-distance voice , prepaid cards and dial-up internet services has declined in favor of internet-based , wireless and broadband communications . our challenge concerning net revenue in recent years has been to overcome declines in long-distance voice minutes of use per customer as more customers are using wireless devices and the internet as alternatives to the use of wireline phones . also , product substitution ( e.g. , wireless/internet for fixed line voice ) has resulted in revenue declines in our long-distance voice services . additionally , we believe that because deregulatory influences have begun to affect telecommunications markets outside the united states , the deregulatory trend is resulting in greater competition from the existing wireline and wireless competitors and from more recent entrants , such as cable companies and voip companies , which could continue to affect 52 adversely our net revenue per minute , as well as minutes of use . more recently , adverse global economic conditions have resulted in a contraction of spending by business and residential customers generally which , we believe , has had an adverse effect on our net revenues . in order to manage our network transmission costs , we pursue a flexible approach with respect to the management of our network capacity . in most instances , we ( 1 ) optimize the cost of traffic by using the least expensive cost routing , ( 2 ) negotiate lower variable usage-based costs with domestic and foreign service providers , ( 3 ) negotiate additional and lower cost foreign carrier agreements with the foreign incumbent carriers and others , and ( 4 ) continue to expand or reduce the capacity of our network when traffic volumes justify such actions . story_separator_special_tag pthi also paid accrued but unpaid interest on the exchanged 10 % notes for the period from october 15 , 2012 to , but not including , november 14 , 2012. dividends during 2012 , ptgi 's board of directors declared and paid three special cash dividends ( referred to herein as the dividends ) with respect to ptgi 's issued and outstanding common stock , as discussed in greater detail in item 5 , market for registrant 's common equity , related stockholder matters and issuer purchases of equity securitiesdividends. pursuit of divestiture of ics business unit on june 28 , 2012 , ptgi 's board of directors committed to dispose of the company 's ics business unit . as a result of holding the ics business unit out for sale , such business unit has been classified as a discontinued operation . the company continues to actively solicit a sale or other disposition of its ics business unit . see note 18discontinued operations to the notes to our consolidated annual audited financial statements included elsewhere in this annual report on form 10-k. in addition to the possible sale or other disposition or disposal of ics , the special committee continues to explore and evaluate other strategic alternatives to enhance shareholder value , which may include ( but may not be limited to ) a sale , merger or other business combination , a recapitalization , a joint venture arrangement , the sale or spinoff of our assets or one or more of our business units , or the continued execution of our business plans . there is no set timetable for completion of the evaluation process , and we do not intend to provide updates or make any comments regarding the evaluation of strategic alternatives , unless our board of directors has approved a specific transaction or otherwise deems disclosure appropriate . divestiture of primus australia ptgi and primus telecommunications international , inc. , an indirect wholly owned subsidiary of ptgi ( ptii ) , entered into a definitive equity purchase agreement , dated april 15 , 2012 ( the purchase agreement ) , 54 with m2 telecommunications group ltd. ( m2 ) , an australian telecommunications company , pursuant to which ptii agreed to sell to m2 100 % of the outstanding equity of primus telecom holdings pty ltd. ( primus australia ) , a direct wholly owned subsidiary of ptii . on may 31 , 2012 , we completed this transaction . the purchase price before adjustment was approximately $ aud 192.4 million ( or approximately $ usd 195.7 million giving effect to a currency hedge that the company put in place in connection with the transaction ) . in connection with the closing of the transaction , approximately $ usd 9.8 million ( the retention amount ) was retained from the purchase price and placed in escrow for a period of twelve months following the closing date of the transaction for purposes of satisfying potential indemnification claims asserted by m2 for breaches of ptii 's warranties in the purchase agreement . subject to limited exceptions , ptii 's liability to m2 for indemnification for breaches of ptii 's warranties is subject to a survival period of twelve months after the closing date and is limited to the retention amount . the purchase agreement contains customary warranties and covenants for a transaction of this nature . ptgi also provided m2 with a guarantee of the performance of ptii 's obligations under the purchase agreement . the purchase price was also subject to a customary post-closing working capital adjustment . during the fourth quarter of 2012 , the company paid to m2 $ usd 4.4 million upon finalization of the working capital adjustment . see note 18discontinued operations , for further information . for additional detail regarding the impact of the divestiture of primus australia and related transactions on our liquidity and capital resources , see liquidity and capital resourcesimportant long-term liquidity and capital structure developmentsdivestiture of primus australia and subsequent asset sale tender offer. reclassification of blackiron data costs in order to conform to industry best practices , certain amounts in selling , general and administrative expense related to our blackiron data operating segment were reclassified to cost of revenue as part of the company 's new operating segment structure discussed in note 14operating segment and related information to the notes to our consolidated annual audited financial statements included elsewhere in this annual report on form 10-k. foreign currency foreign currency can have a major impact on our financial results . during the year ended december 31 , 2012 , approximately 86 % of our net revenue was derived from sales and operations outside the u.s. the reporting currency for our consolidated financial statements is the united states dollar . the local currency of each country is the functional currency for each of our respective entities operating in that country . in the future , we expect to continue to derive the majority of our net revenue and incur a significant portion of our operating costs from outside the u.s. , and therefore changes in exchange rates have had and may continue to have a significant , and potentially adverse , effect on our results of operations . our risk of loss regarding foreign currency exchange rates is caused primarily by fluctuations in the following exchange rates : us dollar ( usd ) /canadian dollar ( cad ) , usd/british pound sterling ( gbp ) , and usd/euro ( eur ) . due to the large percentage of our revenue derived outside of the u.s. , changes in the usd relative to one or more of the foregoing currencies could have an adverse impact on our future results of operations . in addition , prior to the sale of the company 's australia operations during the quarterly period ended june 30 , 2012 , we also experienced risk of loss regarding foreign currency exchange rates due to fluctuations in the usd/australian dollar ( aud ) exchange rate .
| results of operations the following information for the years ended december 31 , 2012 , 2011 and 2010 reflects all the items included in consolidated statements of operations as a percentage of net revenue : replace_table_token_11_th the following information reflects net revenue by product line for the years ended december 31 , 2012 , 2011 and 2010 ( in thousands , except percentages ) and is provided for informational purposes and should be read in conjunction with the consolidated financial statements and notes . replace_table_token_12_th 62 results of operations for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 net revenue : net revenue , exclusive of the currency effect , decreased $ 28.2 million , or 9.7 % , to $ 263.2 million for the year ended december 31 , 2012 from $ 291.4 million for the year ended december 31 , 2011. inclusive of the currency effect which accounted for a decrease of $ 2.6 million , net revenue decreased $ 30.8 million to $ 260.6 million for the year ended december 31 , 2012 from $ 291.4 million for the year ended december 31 , 2011. replace_table_token_13_th blackiron data : blackiron data net revenue , exclusive of the currency effect , increased $ 3.3 million , or 10.6 % , to $ 34.1 million for the year ended december 31 , 2012 from $ 30.8 million for the year ended december 31 , 2011. the net revenue increase is primarily due to continued growth in colocation , network connectivity and managed/cloud services .
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the company does not own any equity story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations should be read with our consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. in addition to historical information , the following discussion contains forward-looking statements that involve risks , uncertainties and assumptions . where possible , we have tried to identify these forward-looking statements by using words such as “ believe , ” “ contemplate , ” “ continue , ” “ due , ” “ goal , ” “ objective , ” “ plan , ” “ seek , ” “ target , ” “ expect , ” “ believe , ” “ anticipate , ” “ intend , ” “ may , ” “ will , ” “ would , ” “ could , ” “ should , ” “ potential , ” “ predict , ” “ project , ” or “ estimate , ” and similar expressions or variations . these statements are based on the beliefs and assumptions of our management based on information currently available to management . forward-looking statements involve known and unknown risks , uncertainties and other factors that may cause our actual results , performance or achievements to be materially different from any future results , performance or achievements expressed or implied by the forward-looking statements . except as may be required by law , we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements . these forward-looking statements are subject to numerous risks including , but not limited to , those set forth in the “ risk factors ” in part i , item 1a of this report . overview we are a clinical development-stage biotechnology company focused on leveraging nitric oxide 's naturally occurring anti-viral , anti-bacterial , anti-fungal and immunomodulatory mechanisms of action to treat a range of diseases with significant unmet needs . nitric oxide plays a vital role in the natural immune system response against microbial pathogens and is a critical regulator of inflammation . our ability to harness nitric oxide and its multiple mechanisms of action has enabled us to create a platform with the potential to generate differentiated product candidates . the two key components of our nitric oxide platform are our proprietary nitricil technology , which drives the creation of new chemical entities , or nces , and our formulation science , both of which we use to tune our product candidates for specific indications . our ability to deploy nitric oxide in a solid form , on demand and in localized formulations allows us the potential to improve patient outcomes in a variety of diseases . we have advanced strategic development programs in the field of dermatology , while also further expanding the platform into women 's health and gastroenterological , or gi , therapeutic areas . we have clinical-stage dermatology drug candidates with multi-factorial ( sb204 ) , anti-viral ( sb206 ) , anti-fungal ( sb208 ) and anti-inflammatory ( sb414 ) mechanisms of action . we have recently introduced sb207 as a possible product candidate for additional anti-viral programs . during 2019 , our clinical-stage development efforts were focused on our molluscum contagiosum ( sb206 ) and atopic dermatitis ( sb414 ) programs . we also conducted preclinical work on nces and formulations for the treatment of human papilloma virus , or hpv , related illnesses in the women 's health field ( wh504 and wh602 ) and inflammatory diseases in the gi field . during 2020 , we intend to focus our clinical-stage development efforts on our molluscum contagiosum ( sb206 ) program , subject to available capital and regulatory feedback . all other clinical-stage programs are currently on hold . further advancement of the molluscum contagiosum ( sb206 ) program , or any other program across our platform , is dependent upon our ability to access additional capital . additional capital may potentially include ( i ) non-dilutive sources , such as partnerships , collaborations , licensing , grants or other strategic relationships ; or ( ii ) equity or debt financings . any issuance of equity or debt that could be convertible into equity would result in significant dilution to our existing stockholders . we intend to pursue financing which may be dilutive , non-dilutive or both , in the near future . we intend to utilize one or more financial advisors to assist in the pursuit of optimal capital sourcing pathways , including those that are strategic in nature and center around our late-stage assets , and the broader dermatology platform and underlying nitricil technology , as well as exploring other potential sources of financing and strategic alternatives . as of december 31 , 2019 , we had a total cash and cash equivalents balance of $ 13.7 million and positive working capital of $ 2.8 million . we believe that our existing cash and cash equivalents balance will provide us with adequate liquidity to fund our planned operating needs into the early part of the second quarter of 2020 . this projected cash runway excludes ( i ) potential costs associated with an additional confirmatory phase 3 trial , which is subject to additional funding and feedback from a type c meeting with the fda scheduled for april 1 , 2020 , and ( ii ) any proceeds received subsequent to january 31 , 2020 from potential future sales of common stock under the aspire common stock purchase agreement , described below , if available . we will need substantial additional funding to continue our operating activities and make further advancements in our drug development programs , as described below in “ liquidity and capital resources ” . story_separator_special_tag the primary endpoint was the proportion of patients achieving complete clearance of all molluscum lesions at week 12. we announced top-line results from this phase 2 70 clinical trial in the fourth quarter of 2018. sb206 demonstrated statistically significant results in the clearance of all molluscum lesions at week 12 , with signs of efficacy evident as early as week 2 with the 12 % once-daily dose . the safety and tolerability profiles were favorable overall with no serious adverse events reported , including the most effective dose , sb206 12 % once-daily . with the full results from this phase 2 trial made available , we held an end-of-phase 2 ( type b ) meeting with the fda in early march 2019. based on this meeting and the written minutes received , we commenced the phase 3 development program for molluscum , primarily comprised of two pivotal clinical trials , in the second quarter of 2019 with sb206 12 % once-daily as the active treatment arm . the “ b-simple ” ( berdazimer sodium in molluscum patients with lesions ) phase 3 pivotal trials consisted of two ( b-simple1 and b-simple2 ) multi-center , randomized , double-blind , vehicle-controlled studies to evaluate the efficacy and safety of sb206 12 % once-daily in approximately 680 patients ( 2:1 active : vehicle randomization ) , ages 6 months and above , with molluscum . patients were treated once-daily with sb206 12 % or vehicle gel once daily for a minimum of 4 weeks and up to 12 weeks to all treatable lesions ( baseline and new ) . there were visits at screening/baseline , week 2 , week 4 , week 8 , week 12 and a safety follow-up at week 24. the primary endpoint was the proportion of patients achieving complete clearance of all molluscum lesions at week 12. both phase 3 pivotal trials began dosing patients in june 2019 and we completed patient recruitment in august 2019. top-line efficacy results from the phase 3 trials were announced in january 2020. sb206 did not achieve statistically significant results in the primary endpoint in both trials , which was the complete clearance of all molluscum lesions at week 12. in b-simple2 , sb206 was near statistical significance for the primary endpoint ( p=0.062 ) , and was statistically significant for the secondary endpoint , the complete clearance of all lesions at week 8 ( p=0.028 ) , and all other pre-specified sensitivity analyses . we believe this confirms the robustness of the data in the b-simple2 trial . while the b-simple1 trial was not statistically significant for the primary endpoint ( p=0.375 ) nor the secondary endpoint ( p=0.202 ) , all other pre-specified analyses trended in the same direction of improved treatment effect as the b-simple2 results . in addition , the results of a statistical test of heterogeneity support that the two pivotal trials are not different from each other . across both studies , the primary analysis odds ratio and standard error point estimates were similar and in a consistent direction with overlapping 95 % confidence intervals . these statistical results are supported by an integrated analysis of the two pivotal trials , which demonstrated statistically significant complete clearance rates at week 12 for sb206 ( p=0.049 ) . these additional analyses do not change the outcome of either b-simple trial , and the fda may disagree with our conclusions from these analyses . p-value is a conventional statistical method for measuring the statistical significance of clinical results . a p-value of less than 0.050 is generally considered to represent statistical significance , meaning that there is a less than five percent likelihood that the observed results occurred by chance . the last subject completed their final visit as part of the ongoing safety evaluation through week 24 in february 2020 and full efficacy and safety data , including data from the safety evaluation through week 24 , are targeted to be available in march 2020. based on the results of the phase 3 pivotal trials , discussed above , we target commencing an additional confirmatory phase 3 trial in the second quarter of 2020 , subject to additional funding and feedback from a type c meeting with the fda scheduled for april 1 , 2020. execution of remaining phase 3 pivotal development program activities for sb206 in molluscum continues into 2020 with receipt of pivotal trial safety data in the first quarter of 2020 and the completion of ancillary trials targeted prior to or during the second quarter of 2020. sb414 , a topical cream for the treatment of inflammatory skin diseases in 2018 , we completed two complementary phase 1b clinical trials with sb414 in patients with atopic dermatitis and psoriasis . the design of these complementary trials was to evaluate the safety , tolerability and pharmacokinetics of sb414 . the trials were also designed to assess overall and specific target engagement through a reduction of key inflammatory biomarkers , also known as pharmacodynamic assessment . atopic dermatitis we initiated a phase 1b trial with sb414 in adults with mild-to-moderate atopic dermatitis in december 2017. in the phase 1b trial , 48 adults with mild-to-moderate atopic dermatitis with up to 30 % body surface area at baseline , were randomized to receive one of 2 % sb414 cream , 6 % sb414 cream , or vehicle , twice daily for two weeks . in the complementary phase 1b trial for mild-to-moderate chronic plaque psoriasis , 36 adults received sb414 6 % cream or vehicle twice daily for four weeks . 71 we received and analyzed the preliminary top line results from the phase 1b clinical trials during the second and third quarters of 2018. in the atopic dermatitis trial , biomarkers from the th2 , th17 and th22 inflammatory pathways known to be highly relevant and indicative of atopic dermatitis , including interleukin-13 , or il-13 , il-4r , il-5 , il-17a and il-22 , were downregulated after two weeks of treatment with sb414 2 % .
| results of operations comparison of the years ended december 31 , 2019 and 2018 the following table sets forth our results of operations for the periods indicated : replace_table_token_2_th revenue license and collaboration revenue of $ 4.5 million and $ 6.0 million for the years ended december 31 , 2019 and 2018 , respectively , was associated with our performance during the period and the related amortization of the non-refundable upfront and expected milestone payments under the amended sato agreement . government research contracts and grants revenue of $ 0.4 million for the year ended december 31 , 2019 includes ( i ) $ 0.3 million of revenue recognized related to the $ 1.1 million grant we received in september 2019 from the dod 's cdmrp as part of its peer reviewed cancer research program and ( ii ) $ 0.1 million of revenue recognized related to the $ 0.2 million grant received in september from the national institutes of health . for additional information regarding our government research contracts and grants revenue , see “ note 5—revenue recognition ” to the accompanying consolidated financial statements included in this annual report on form 10-k. 80 research and development expenses research and development expenses were $ 25.2 million for the year ended december 31 , 2019 , compared to $ 23.0 million for the year ended december 31 , 2018 .
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for a reconciliation to accounting principles generally accepted in the united states ( us gaap ) , see note 24 to the consolidated financial statements . this management 's discussion and analysis of financial condition and results of operations includes information available to february 26 , 2008. our business we are a canadian federally incorporated international gold mining and exploration company producing gold in ghana , west africa . we also conduct gold exploration in west africa and in south america . golden star resources ltd. was established under the canada business corporations act on may 15 , 1992 as a result of the amalgamation of south american goldfields inc. , a corporation incorporated under the federal laws of canada , and golden star resources ltd. , a corporation originally incorporated under the provisions of the alberta business corporations act on march 7 , 1984 as southern star resources ltd. our principal office is located at 10901 west toller drive , suite 300 , littleton , colorado 80127 , and our registered and records offices are located at 66 wellington st. w , 42nd floor , box 20 , toronto dominion bank tower - toronto dominion centre , toronto , on m5k 1n6 . our fiscal year ends on december 31. through our subsidiaries we own a controlling interest in four significant gold properties in southern ghana , west africa : bogoso/prestea property , which is comprised of the adjoining bogoso and prestea surface mining leases ( bogoso/prestea ) , wassa property ( wassa ) , prestea underground property ( prestea underground ) , and hwini-butre and benso concessions ( hbb properties ) . in addition to these gold properties , we hold various other exploration rights and interests and are actively exploring in a variety of locations in west africa and south america . bogoso/prestea is owned by our 90 % owned subsidiary golden star ( bogoso/prestea ) limited ( gsbpl ) ( formerly bogoso gold limited ) which was acquired in 1999. bogoso/prestea produced and sold 120,216 ounces of gold in 2007 . 50 through another 90 % owned subsidiary , golden star ( wassa ) limited ( gswl ) ( formerly wexford goldfields limited ) , we own the wassa gold mine located some 35 kilometers east of bogoso/prestea . wassa produced and sold 126,062 ounces of gold in 2007. the prestea underground is located on the prestea property and consists of a currently inactive underground gold mine and associated support facilities . gsbpl owns a 90 % interest in the prestea underground . we are currently reconditioning certain shafts to allow better access to the underground workings . we are also conducting exploration and engineering studies to determine if the underground mine can be reactivated on a profitable basis . through our 100 % owned subsidiary , st. jude resources ltd. ( st . jude ) , we own the hbb properties in southwest ghana . the hbb properties consist of the hwini-butre and benso concessions , which together cover an area of 201 square kilometers . we hold a 90 % interest in these properties and the government of ghana holds a 10 % carried interest . in april 2007 , we completed a feasibility study for the development and mining of the properties for processing at wassa and development activities are currently underway . the hwini-butre and benso concessions are located approximately 70 and 40 kilometers south of wassa , respectively . we hold interests in several gold exploration projects in ghana and elsewhere in west africa including sierra leone , burkina faso , niger and cote d'ivoire . we also hold and manage exploration properties in suriname and french guiana in south america . we hold indirect interests in gold exploration properties in peru , argentina and chile through an equity investment in minera irl ( formerly known as goldmin consolidated holdings ) . in november 2005 , we entered into a joint venture with a subsidiary of newmont mining corporation pursuant to which newmont may earn up to a 51 % participating interest in our saramacca property in suriname by spending $ 6 million by the fifth anniversary of the agreement ( november 2011 ) . our administrative offices are located in littleton , colorado , usa and we maintain a regional corporate office in accra , ghana . all of our operations , with the exception of certain exploration projects , transact business in us dollars and keep financial records in us dollars . our accounting records are kept in accordance with canadian gaap . we are a reporting issuer or the equivalent in all provinces of canada and in the united states and file disclosure documents with the canadian securities regulatory authorities and the united states securities and exchange commission . non-gaap financial measures in this form 10-k , we use the terms total operating cost per ounce , total cash cost per ounce and cash operating cost per ounce. total operating cost per ounce is equal to mine operating costs for the period , as found on our consolidated statements of operations , divided by the ounces of gold sold in the period . mine operating costs include all mine-site operating costs , including the costs of mining , processing , maintenance , work-in-process inventory changes , mine-site overhead , production taxes and royalties , mine site depreciation , depletion , amortization , asset retirement obligations and by-product credits but does not include exploration costs , corporate general and administrative expenses , impairment charges , corporate business development costs , gains and losses on asset sales , interest expense , gains and losses on derivatives , foreign currency gains and losses , gains and losses on investments and income tax . total cash cost per ounce for a period is equal to mining operations costs for the period , as found on our consolidated statements of operations , divided by the number of ounces of gold sold during the period . story_separator_special_tag see subsequent events below for the impact of a fire at the plant in early 2008. in future periods of rationing , if any , the four consortium companies will have the right to take 80 megawatts from the national grid in excess of limits set by any future vra rationing programs . our share is expected to be approximately 20 megawatts , which will be sufficient to provide up to 50 % of our total ghana power requirements . separately , in august 2007 we entered into a take-or-pay agreement to purchase a minimum of 10 megawatts of power from a power provider who will construct operate and maintain a 20 megawatt power station at the bogoso plant site as discussed in more detail below . it is expected that construction will begin on this power station in first quarter of 2008 with completion scheduled for mid-2008 . the plant can be fueled with diesel , residual fuel oil or heavy fuel oil . while there is currently no power rationing in ghana , if rationing was to re-occur in the future , we expect that power from the new consortium plant , from our on-site diesel generators at wassa , from the new plant to be constructed at bogoso and our rationed share of the national grid power would be adequate to meet our total future power requirements . 53 gold prices gold prices have generally trended upward during the last five years , from a low of just under $ 260 per ounce in early 2001 to a high of over $ 950 per ounce in early 2008. much of the price increase during this period appears to be related to the fall in the value of the us dollar against other major foreign currencies . we realized an average gold price of $ 713 per ounce for our shipments during 2007 , up from $ 607 per ounce in 2006. pampe and prestea south while the pampe pit delivered approximately 56,700 tonnes of oxide ore to the bogoso oxide processing plant following initiation of mining in february 2007 , during the fourth quarter mining was scaled back to accommodate a pit high-wall pushback . the pampe pit will continue to ship limited amounts of oxide ore to an oxide stockpile at bogoso during 2008. during 2008 we expect to obtain permits for several oxide open pits , collectively known as the prestea south project , on the southern portion of the prestea property . an environmental impact statement ( eis ) has been submitted to the epa and public consultations have been completed . subject to the receipt of comments on the eis from the epa , ongoing public consultation and the timely receipt of all permits , we expect to commence development of prestea south in late 2008 with mining to commence in 2009. the prestea south oxide ore will be transported to bogoso , blended with pampe oxide ore and processed through the bogoso oxide processing plant . the prestea south sulfide ore will be processed through the bogoso sulfide processing plant . equity offering on march 1 , 2007 , we sold 21 million common shares at a price of $ 3.60 per share resulting in $ 75.6 million in gross proceeds . net proceeds were $ 72.2 million after deducting underwriting commissions but before deducting offering expenses . on march 9 , 2007 , the underwriters exercised their option to purchase an additional 3.15 million common shares for additional gross proceeds of $ 11.3 million . after deducting the underwriter 's commission , net proceeds from the additional shares were $ 10.8 million . proceeds were used to complete the purchase and installation of a 25 % interest in an electric power station in ghana , for completion and start-up of the bogoso sulfide expansion project , for development of the hbb properties , and for general corporate and working capital purposes . warrants on february 14 , 2007 , 8.4 million share purchase warrants expired unexercised . these warrants were originally issued in 2003 in conjunction with an equity offering at a strike price of cdn $ 4.60. management changes peter bradford , president and chief executive officer of golden star , resigned from his position as an officer effective december 31 , 2007 and from his board position at the end of january 2008. on january 1 , 2008 mr. thomas mair , our senior vice president and chief financial officer assumed the position of interim president and chief executive officer and mr. roger palmer , our vice president finance and controller , assumed the position of interim chief financial officer . mr. nigel tamlyn assumed responsibility as general manager at bogoso/prestea in december 2007. mr. mitch wasel , formerly our exploration manager africa , was promoted to serve as vice president of exploration , effective september 1 , 2007 replacing mr. douglas jones who resigned as vice president of exploration on august 31 , 2007. paul isnard in december 2004 we reached agreement with euro ressources , s.a. ( euro ) to acquire rights to euro 's paul isnard property in french guiana . the december 2004 agreement was amended in march 2007. the agreement , as amended , required us to , among other things , prepare a feasibility study on the paul isnard property and spend at least 1.2 million , inclusive of expenditures made previously , on the property by november 21 , 2007 as required by the french government authorities which granted the paul isnard prospecting permit to euro . the feasibility study is now underway and we plan to spend approximately $ 3.7 million at paul isnard over the next 24 months on geophysics , geology , drilling and engineering studies to fulfill our commitment to complete the feasibility study . in addition , we have agreed to pay a royalty to euro on all future gold production , if any , from the paul isnard property up to 5.0 million ounces .
| consolidated results our consolidated net loss totaled $ 36.4 million or $ 0.159 per share for 2007 , as compared to net income of $ 64.7 million or $ 0.312 per share in 2006. the major factor contributing to the better results in 2006 was the sale of non-core assets , including all of our moto goldmines limited shares and most of our euro shares . a $ 30.2 million pre-tax gain was recognized in 2006 on the sale the moto shares and a $ 50.9 million pre-tax gain was recorded for the sale of 22.3 million euro shares . in comparison , during 2007 , sales of assets added only $ 12.4 million to pre-tax income . replace_table_token_24_th mine operating margin losses totaled $ 14.3 million in 2007 , down from a $ 7.6 million positive operating margin in 2006. overall bogoso/prestea 's ounces sold and average gold prices increased over 2006 levels , but bogoso operating margins were adversely affected in the second half of the year when the new bogoso sulfide processing plant was placed in service . the new plant 's operating costs were recognized in the second half following its july 1 in-service date , but gold recovery difficulties resulted in lower than expected revenues which resulted in a negative operating margin . increases in the costs of labor , reagents , fuel , power and depreciation in 2007 also contributed to the lower margin versus 2006. general and administrative costs increased by $ 3.0 million to $ 13.9 million in 2007. the increase is primarily attributable to additions to the management team in 2007 , legal fees on financing activities and stock based compensation expenses . derivative losses decreased by $ 9.4 to $ 0.2 million in 2007. most of the derivative losses incurred during 2006 were related to gold hedges held by our former subsidiary , euro .
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the foreign operations of ameriprise financial , inc. are conducted primarily through threadneedle asset management holdings story_separator_special_tag the following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the “ forward-looking statements , ” our consolidated financial statements and notes that follow and the “ consolidated five-year summary of selected financial data ” and the “ risk factors ” included in our annual report on form 10-k. references to “ ameriprise financial , ” “ ameriprise , ” the “ company , ” “ we , ” “ us , ” and “ our ” refer to ameriprise financial , inc. exclusively , to our entire family of companies , or to one or more of our subsidiaries . overview ameriprise financial is a diversified financial services company with a more than 120 year history of providing financial solutions . we are america 's leader in financial planning and a leading global financial institution with $ 897.0 billion in assets under management and administration as of december 31 , 2017 . we offer a broad range of products and services designed to achieve the financial objectives of individual and institutional clients . for additional discussion of our businesses , see part i , item 1 of this annual report on form 10-k. the products and services we provide retail clients and , to a lesser extent , institutional clients , are the primary source of our revenues and net income . revenues and net income are significantly affected by investment performance and the total value and composition of assets we manage and administer for our retail and institutional clients as well as the distribution fees we receive from other companies . these factors , in turn , are largely determined by overall investment market performance and the depth and breadth of our individual client relationships . financial markets and macroeconomic conditions have had and will continue to have a significant impact on our operating and performance results . in addition , the business and regulatory environment in which we operate remains subject to elevated uncertainty and change . to succeed , we expect to continue focusing on our key strategic objectives . the success of these and other strategies may be affected by the factors discussed in item 1a of this annual report on form 10-k — “ risk factors. ” equity price , credit market and interest rate fluctuations can have a significant impact on our results of operations , primarily due to the effects they have on the asset management and other asset-based fees we earn , the “ spread ” income generated on our fixed deferred annuities , fixed insurance , deposit products and the fixed portion of variable annuities and variable insurance contracts , the value of deferred acquisition costs ( “ dac ” ) and deferred sales inducement costs ( “ dsic ” ) assets , the values of liabilities for guaranteed benefits associated with our variable annuities and the values of derivatives held to hedge these benefits . earnings , as well as operating earnings , will be negatively impacted by the ongoing low interest rate environment should it continue . in addition to continuing spread compression in our interest sensitive product lines , a sustained low interest rate environment may result in increases to our reserves and changes in various rate assumptions we use to amortize dac and dsic , which may negatively impact our operating earnings . for additional discussion on our interest rate risk , see item 7a . “ quantitative and qualitative disclosures about market risk. ” in the third quarter of the year , we updated our market-related inputs and implemented model changes related to our living benefit valuation . in addition , we conducted our annual review of life insurance and annuity valuation assumptions relative to current experience and management expectations including modeling changes . these aforementioned changes are collectively referred to as unlocking . see our consolidated and segment results of operations sections for the pretax impacts on our revenues and expenses attributable to unlocking and discussion of the drivers of the unlocking impact . we consolidate certain variable interest entities for which we provide asset management services . these entities are defined as consolidated investment entities ( “ cies ” ) . while the consolidation of the cies impacts our balance sheet and income statement , our exposure to these entities is unchanged and there is no impact to the underlying business results . for further information on cies , see note 4 to our consolidated financial statements . the results of operations of the cies are reflected in the corporate & other segment . on a consolidated basis , the management fees we earn for the services we provide to the cies and the related general and administrative expenses are eliminated and the changes in the fair value of assets and liabilities related to the cies , primarily syndicated loans and debt , are reflected in net investment income . we continue to include the fees from these entities in the management and financial advice fees line within our asset management segment . while our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) , management believes that operating measures , which exclude net realized investment gains or losses , net of the related dsic and dac amortization , unearned revenue amortization and the reinsurance accrual ; the market impact on variable annuity guaranteed benefits , net of hedges and the related dsic and dac amortization ; the market impact on indexed universal life ( “ iul ” ) benefits , net of hedges and the related dac amortization , unearned revenue amortization and the reinsurance accrual ; the market impact on fixed index annuity benefits , net of hedges and the related dac amortization ; the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments ; integration and restructuring charges ; and the impact of consolidating cies , best reflect the story_separator_special_tag when assumptions are changed , the percentage of egps used to amortize dac might also change . a change in the required amortization percentage is applied retrospectively ; an increase in amortization percentage will result in a decrease in the dac balance and an increase in dac amortization expense , while a decrease in amortization percentage will result in an increase in the dac balance and a decrease in dac amortization expense . the effect on the dac balance that would result from the realization of unrealized gains ( losses ) is recognized with an offset to accumulated other comprehensive income on the consolidated balance sheet . the client asset value growth rates are the rates at which variable annuity and vul insurance contract values invested in separate accounts are assumed to appreciate in the future . the rates used vary by equity and fixed income investments . the long-term client asset value growth rates are based on assumed gross annual returns of 9 % for equity funds and 6.8 % for fixed income funds . we typically use a five-year mean reversion process as a guideline in setting near-term equity fund growth rates based on a long-term view of financial market performance as well as recent actual performance . the suggested near-term equity fund growth rate is reviewed quarterly to ensure consistency with management 's assessment of anticipated equity market performance . a decrease of 100 basis points in separate account fund growth rate assumptions is likely to result in an increase in dac amortization and an increase in benefits and claims expense for variable annuity and vul insurance contracts . the following table presents the estimated impact to current period pretax income : estimated impact to pretax income ( 1 ) dac amortization benefits and claims expense total ( in millions ) decrease in future near- and long-term fixed income fund growth returns by 100 basis points $ ( 24 ) $ ( 61 ) $ ( 85 ) decrease in future near-term equity fund growth returns by 100 basis points $ ( 23 ) $ ( 39 ) $ ( 62 ) decrease in future long-term equity fund growth returns by 100 basis points ( 16 ) ( 30 ) ( 46 ) decrease in future near- and long-term equity fund growth returns by 100 basis points $ ( 39 ) $ ( 69 ) $ ( 108 ) ( 1 ) an increase in the above assumptions by 100 basis points would result in an increase to pretax income for approximately the same amount . an assessment of sensitivity associated with changes in any single assumption would not necessarily be an indicator of future results . traditional long-duration products for our traditional long-duration products ( including traditional life and disability income ( “ di ” ) insurance products ) , our dac balance at any reporting date is based on projections that show management expects there to be adequate premiums after the date to amortize the remaining balance . these projections are inherently uncertain because they require management to make assumptions over periods extending well into the future . these assumptions include interest rates , persistency rates and mortality and morbidity rates and are not modified ( unlocked ) unless recoverability testing deems to be inadequate . projection periods used for our traditional life insurance are up to 30 years . projection periods for our di products can be up to 45 years . we may experience accelerated amortization of dac if policies terminate earlier than projected or a slower rate of amortization of dac if policies persist longer than projected . for traditional life and di insurance products , the assumptions provide for adverse deviations in experience and are revised only if management concludes experience will be so adverse that dac are not recoverable . if management concludes that dac are not recoverable , dac are reduced to the amount that is recoverable based on best estimate assumptions . future policy benefits and claims we establish reserves to cover the risks associated with non-traditional and traditional long-duration products and short-duration products . reserves for non-traditional long-duration products include the liabilities related to guaranteed benefit provisions added to variable annuity contracts , a portion of our ul and vul policies and the embedded derivatives related to variable annuity contracts , indexed annuities and indexed universal life ( “ iul ” ) insurance . reserves for traditional long-duration products are established to provide adequately for future benefits and expenses for term life , whole life , di and long term care ( “ ltc ” ) insurance products . reserves for short-duration products are established to provide adequately for incurred losses primarily related to auto and home policies . the establishment of reserves is an estimation process using a variety of methods , assumptions and data elements . if actual experience is better than or equal to the results of the estimation process , then reserves should be adequate to provide for future benefits and expenses . if actual experience is worse than the results of the estimation process , additional reserves may be required . 49 non-traditional long-duration products a portion of our ul and vul policies have product features that result in profits followed by losses from the insurance component of the contract . these profits followed by losses can be generated by the cost structure of the product or secondary guarantees in the contract . the secondary guarantee ensures that , subject to specified conditions , the policy will not terminate and will continue to provide a death benefit even if there is insufficient policy value to cover the monthly deductions and charges . the liability for these future losses is determined using actuarial models to estimate the death benefits in excess of account value and the expected assessments ( e.g . cost of insurance charges , contractual administrative charges , similar fees and investment margin ) .
| results of operations by segment year ended december 31 , 2017 compared to year ended december 31 , 2016 operating earnings is the measure of segment profit or loss management uses to evaluate segment performance . operating earnings should not be viewed as a substitute for gaap pretax income . we believe the presentation of segment operating earnings as we measure it for management purposes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitating a more meaningful trend analysis . see note 25 to the consolidated financial statements for further information on the presentation of segment results and our definition of operating earnings . beginning in the first quarter of 2017 , the long term care business , which had been reported as part of the protection segment , is reflected in the corporate & other segment . we discontinued underwriting long term care insurance in 2002 and the transfer of this closed block to the corporate & other segment allows investors to better understand the performance of our on-going protection businesses . prior periods presented have been restated to reflect the change . 57 the following table presents summary financial information by segment : replace_table_token_8_th the following table presents the segment pretax operating impacts on our revenues and expenses attributable to unlocking : replace_table_token_9_th 58 advice & wealth management the following table presents the changes in wrap account assets and average balances for the years ended december 31 : replace_table_token_10_th ( 1 ) inflows associated with acquisition that closed during the period . ( 2 ) advisory wrap account assets represent those assets for which clients receive advisory services and are the primary driver of revenue earned on wrap accounts . clients may hold non-advisory investments in their wrap accounts that do not incur an advisory fee . ( 3 ) average ending balances are calculated using an average of the prior period 's ending balance and all months in the current period .
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67 apollo medical holdings , inc. notes to consolidated financial statements · use a portfolio approach for the fee-for-service ( ffs ) revenue stream to group contracts with similar characteristics and analyze historical cash collections trends . · no adjustment is made for the effects of a significant financing component as the period between the time of service and time of payment is typically one year or less . nature story_separator_special_tag the following discussion and analysis should be read in conjunction with the audited consolidated financial statements and the notes thereto included in part ii , item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k. the following discussion and analysis contain forward-looking statements that reflect our plans , estimates , and beliefs , including those discussed in the “ note about forward-looking statements ” at the beginning of this report . our actual results could differ materially from those plans , estimates , and beliefs . factors that could cause or contribute to these differences include those described below and elsewhere in this annual report on form 10-k , particularly in part i , item 1a , “ risk factors. ” overview we together with our affiliated physician groups and consolidated entities are a physician-centric integrated population health management company working to provide coordinated , outcomes-based medical care in a cost-effective manner and serving patients in california , the majority of whom are covered by private or public insurance such as medicare , medicaid and health maintenance organizations ( “ hmos ” ) , with a small portion of our revenue coming from non-insured patients . we provide care coordination services to each major constituent of the healthcare delivery system , including patients , families , primary care physicians , specialists , acute care hospitals , alternative sites of inpatient care , physician groups and health plans . our physician network consists of primary care physicians , specialist physicians and hospitalists . we operate primarily through the following subsidiaries of apollo medical holdings , inc. ( “ apollomed ” ) : network medical management ( “ nmm ” ) , apollo medical management , inc. ( “ amm ” ) , apa aco , inc. ( “ apaaco ” ) and apollo care connect , inc. ( “ apollo care connect ” ) , and their consolidated entities . through our next generation accountable organization ( “ ngaco ” ) model and a network of independent practice associations ( “ ipas ” ) with more than 6,000 contracted physicians , which physical groups have agreements with various health plans , hospitals and other hmos , we are currently responsible for coordinating the care for over 800,000 patients in california . these covered patients are comprised of managed care members whose health coverage is provided through their employers or who have acquired health coverage directly from a health plan or as a result of their eligibility for medicaid or medicare benefits . our managed patients benefit from an integrated approach that places physicians at the center of patient care and utilizes sophisticated risk management techniques and clinical protocols to provide high-quality , cost effective care . to implement a patient-centered , physician-centric experience , we also have other integrated and synergistic operations , including ( i ) msos that provide management and other services to our affiliated ipas , ( ii ) outpatient clinics and ( iii ) hospitalists . on december 8 , 2017 , apollomed completed its business combination with nmm ( the “ merger ” ) . the combination of apollomed and nmm brought together two complementary healthcare organizations to form one of the nation 's largest integrated population health management companies . as a result of the merger , nmm became a wholly-owned subsidiary of apollomed and the former nmm shareholders received a majority of the issued and outstanding common stock of apollomed . for accounting purposes , the merger was treated as a “ reverse acquisition ” and nmm was considered the accounting acquirer . accordingly , as of the closing of the merger , nmm 's historical results of operations replaced apollomed 's historical results of operations for periods prior to the merger , and the results of operations of both companies are included in the accompanying consolidated financial statements for periods following the merger . recent developments the following describes certain developments from 2017 to date that are important to understanding our overall results of operations and financial condition . shareholder settlement on december 18 , 2018 the company entered into a settlement agreement and mutual release with former apcn shareholders to repurchase all the equity interests in apollomed and apc previously held by these shareholders pursuant to the stipulation . apollomed and apc paid approximately $ 4.2 million and $ 1.7 million , respectively , to repurchase 168,493 and 1,662,571 shares of common stock of each company , respectively . the company recorded approximately $ 0.8 million of legal settlement expense based on the settlement amount which exceeded the fair value of the repurchased apollomed and apc shares of common stock and warrants . key financial measures and indicators operating revenues our revenue primarily consists of capitation revenue , risk pool settlements and incentives , ngaco all-inclusive population-based payments ( “ aipbp ” ) revenue , management fee income , mssp surplus revenue and fee-for-services ( “ ffs ” ) revenue . revenue is recorded in the period in which services are rendered . the form of billing and related risk of collection for such services may vary by type of revenue and the customer . operating expenses our largest expense is the cost of patient care paid to contracted physicians , cost of information technology equipment and software , cost of hiring staff to provide management and administrative support services to our affiliated physician groups , as further described below . these services include payroll , benefits , human resource services , physician practice billing , revenue cycle services , physician practice management , administrative oversight , coding services , and other consulting services . 41 story_separator_special_tag justify ; text-indent : 0.5in story_separator_special_tag cash used in investing activities during the year ended december 31 , 2018 was $ 25.2 million , as compared to cash provided by investing activities of $ 26.7 million during the year ended december 31 , 2017. this decrease was primarily attributable to investments made in our equity method investments and investments in privately held entities of $ 17.1 million , advances on loans receivable of $ 7.5 million and purchases of property and equipment of $ 1.2 million , offset with dividends received of $ 0.6 million during the year ended december 31 , 2018. cash used in financing activities during the year ended december 31 , 2018 was $ 11.2 million , as compared to $ 15.0 million during the year ended december 31 , 2017. the decrease was primarily attributable to dividend payments of $ 17.8 million , repayments of bank loans of $ 0.5 million and repurchase of shares of common stock of $ 5.0 million and repayment of capital lease obligations of $ 0.1 million , offset by proceeds from borrowings on line of credit of $ 8.0 million , proceeds from exercise of stock options and warrants of $ 4.0 million and proceeds of $ 0.2 million from sale of common stock during the year ended december 31 , 2018. credit facilities lines of credit nmm has a credit facility with preferred bank to borrow up to $ 20.0 million that matures on june 22 , 2020. the credit facility was amended on september 1 , 2018 to temporarily increase the loan availability from $ 20.0 million to $ 27.0 million for the period from september 1 , 2018 through january 31 , 2019 , further extended to october 31 , 2019 , pursuant to an amendment entered into on march 5 , 2019 to facilitate the issuance of an additional standby letter of credit for the benefit of cms . the amount outstanding as of december 31 , 2018 and december 31 , 2017 was $ 13.0 million and $ 5.0 million , respectively , and is classified as long-term and current liabilities in the accompanying consolidated balance sheets , respectively . the interest rate is based on the wall street journal “ prime rate ” plus 0.125 % , or 5.625 % and 4.625 % , as of december 31 , 2018 and december 31 , 2017 , respectively . as of december 31 , 2017 , nmm was not in compliance with certain financial debt covenant requirements contained in the loan agreement . however , as of december 31 , 2018 , nmm was in compliance with such financial debt covenant requirements . as of december 31 , 2018 availability under this line of credit was $ 0.7 million . nmm has a non-revolving line of credit facility with preferred bank , which provides for loan availability of up to $ 20.0 million with a maturity date of september 5 , 2019. the interest rate is based on the wall street journal “ prime rate ” plus 0.125 % , or 5.625 % as of december 31 , 2018. the line of credit was obtained to finance potential acquisitions , with each drawdown to be converted into a five-year term loan with monthly principal payments plus interest based on a five-year amortization schedule , the availability of the line of credit is reduced accordingly based on the aggregate amount drawn . as of december 31 , 2018 , availability under this line of credit was $ 20.0 million . apc has a credit facility with preferred bank to borrow up to $ 10.0 million that matures on june 22 , 2020. no amounts have been drawn on this facility . the interest rate is based on the wall street journal “ prime rate ” plus 0.125 % , or 5.625 % and 4.625 % , as of december 31 , 2018 and december 31 , 2017 , respectively . as of december 31 , 2017 , apc was not in compliance with certain financial debt covenant requirements contained in the loan agreement . however , as of december 31 , 2018 , apc was in compliance with such financial debt covenant requirements . as of december 31 , 2018 , availability under this line of credit was $ 9.7 million . because apc is a vie of nmm , loans obtained by apc can only be used to fund the operations of that company , and , accordingly , we are not liable for the repayment of any of apc 's borrowings under the preferred bank credit facility . in addition , this credit facility is not available to support nmm 's liquidity needs , and can only be used for apc . in december 2010 , icc borrowed $ 4.6 million from a financial institution . the interest rate is based on the wall street journal “ prime rate , ” but can not be less than 4.5 % per annum . the loan matured on december 31 , 2018 and is currently due on demand . as of december 31 , 2018 and 2017 , the balance outstanding was $ 40,257 and $ 0.5 million , respectively . 44 intercompany loans each of amh , mmg , bay area hospitalist associates ( “ baha ” ) , acc , akm and schc has entered into an intercompany loan agreement with amm under which amm has agreed to provide a revolving loan commitment to each such affiliated entities in an amount set forth in each intercompany loan agreement . each intercompany loan agreement provides that amm 's obligation to make any advances automatically terminates concurrently with the termination of the management agreement with the applicable affiliated entity . in addition , each intercompany loan agreement provides that ( i ) any material breach by dr. hosseinion of the applicable physician shareholder agreement or ( ii ) the termination of the management agreement with the applicable affiliated entity constitutes an event of default under the intercompany loan agreement . all the intercompany loans have been eliminated in consolidation .
| results of operations as noted above , although apollomed was the legal acquirer in the merger , for accounting purposes , the merger is treated as a “ reverse acquisition , ” and nmm is considered the accounting acquirer and apollomed is the accounting acquiree . accordingly , ( i ) the financial statements included in this annual report , and the description of our results of operations set forth below for the period in 2017 prior to the merger reflect the operations of nmm and its consolidated entities and vies , and ( ii ) the financial statements and the description of our results of operations for 2018 reflect the combined operations of apollomed , nmm and their consolidated vies . because the financial results for 2017 exclude the results of apollomed , the following results of operations in 2018 are not directly comparable to our results of operations in the 2017 periods . our consolidated operating results for the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017 were as follows : apollo medical holdings , inc. consolidated statements of income replace_table_token_1_th net income our net income in 2018 was $ 60.3 million , as compared to $ 45.8 million in 2017 , an increase of $ 14.5 million or 32 % . physician groups and patients as of december 31 , 2018 and 2017 , the total number of affiliated physician groups managed by us was 11 groups , and the total number of patients for whom we managed the delivery of healthcare services was 992,100 and 795,960 , respectively . revenue our revenue in 2018 was $ 519.9 million , as compared to $ 356.4 million in 2017 , an increase of $ 163.5 million or 46 % .
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to date , there has been no clear indication of how such legislation may be effected by brexit , but a change to such legislation could be adverse . if , as a result of the clarification of any of these uncertainties , the estimates , assumptions and inputs utilized in our annual impairment test for goodwill and intangible franchise rights change or fail to materialize , story_separator_special_tag you should read the following discussion in conjunction with part i , including the matters set forth in “ item 1a . risk factors , ” and our consolidated financial statements and notes thereto included elsewhere in this form 10-k. in preparation of our financial statements and reporting of our operating results in accordance with united states generally accepted accounting principles ( `` u.s. gaap '' ) , certain non-core business items are required to be presented . 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 these 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 . in addition , our results , which are reported in u.s. dollars , are impacted by fluctuations in exchange rates relating to our u.k. and brazil segments . 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 , 2016 , the british pound sterling weakened against the u.s. dollar as the average exchange rate decreased 13.2 % compared to the same period in 2015 from 0.65 to 0.74. the brazilian real also weakened against the u.s. dollar as the average exchange rate declined 4.9 % as compared to the same period in 2015 from 3.32 to 3.49. for the twelve months ended december 31 , 2015 , the british pound weakened against the u.s. dollar as the average rate decreased 7.7 % , as compared to the same period in 2014. the brazilian real also weakened against the u.s. dollar as compared to the same period in 2014 as the average rate declined 41.6 % . 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 insurance contracts ; provide automotive maintenance and repair services ; and sell vehicle parts . our operations are aligned into four geographic regions : the east and west regions in the u.s. , the u.k. region , and the brazil region . our u.s. regional vice presidents report directly to our chief executive officer and are responsible for the overall performance of their regions , as well as for overseeing the dealership operations management that report to them . further , the east and west regions of the u.s. are economically similar in that they deliver the same products and services to a common customer group , their customers are generally individuals , they follow the same procedures and methods in managing their operations , and they operate in similar regulatory environments . as a result , we aggregate the east and west regions of the u.s. into one reportable segment . the operations of our international regions are structured similarly to the u.s. regions , 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 , 2016 , we owned and operated 210 franchises , representing 31 brands of automobiles , at 159 dealership locations and 38 collision centers worldwide . we own 146 franchises at 111 dealerships and 29 collision centers in the u.s. , 41 franchises at 30 dealerships and eight collision centers in the u.k. , and 23 franchises at 18 dealerships and one collision center in brazil . story_separator_special_tag industry 's new vehicle sales experienced more volatility than normal following the brexit vote . we expect industry sales to remain volatile in the near future and potentially down about 10 % in 2017. in addition , the announcement of brexit initially caused significant exchange rate fluctuations that resulted in the weakening of the british pound sterling , in which we conduct business in the u.k. , against the u.s. dollar and other global currencies . the weakening of the british pound sterling has and may continue to adversely affect our results of operations , as well as have a negative impact on the pricing and affordability of the vehicles in the u.k. volatility in exchange rates is expected to continue in the short term . the brazilian economy represents the ninth largest economy in the world . at present , the brazilian economy is in recession and is facing many challenges . new vehicle registrations in brazil declined 19.8 % during 2016 as compared to the same period a year ago to 2.0 million . we expect macro-economic conditions in brazil to remain challenged in the near term and automobile industry sales in 2017 to be about equal to 2016 levels . longer term , we expect improvements in industry sales volumes and are utilizing a strategy of aligning with growing brands . in conjunction with this strategy , we added four franchises in brazil during the twelve months ended december 31 , 2016 . these franchises are expected to generate approximately $ 20 million in annual revenues . in addition , since december 31 , 2015 , we have disposed of four franchises in brazil . these four 39 franchises combined to generate roughly $ 35.0 million in trailing twelve month revenues . we expect a positive net impact to our profitability from this adjustment to our portfolio . on a consolidated basis for the year ended december 31 , 2016 , our total revenues increased 2.4 % from 2015 to $ 10.9 billion and gross profit improved 4.0 % to $ 1.6 billion . for the years ended december 31 , 2015 and 2014 , total revenues were $ 10.6 billion and $ 9.9 billion , respectively . for the years ended december 31 , 2015 and 2014 , gross profits were $ 1.5 billion and $ 1.4 billion , respectively . we generated net income of $ 147.1 million , or $ 6.67 per diluted common share for the year ended december 31 , 2016 , compared to $ 94.0 million , or $ 3.90 per diluted share for the year ended december 31 , 2015 and $ 93.0 million , or $ 3.60 per diluted share for the year ended december 31 , 2014 . in addition to the matters described above , the following factors impacted our financial condition and results of operations in 2016 , 2015 , and 2014 : 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 .
| 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 2015 , the results from this dealership will appear in our same store comparison beginning in 2016 for the period july 2016 through december 2016 , when comparing to july 2015 through december 2015 results . depending on the periods being compared , the dealerships included in same store will vary . for this reason , the 2015 same store results that are compared to 2016 differ from those used in the comparison to 2014 . same store results also include theactivities of our corporate headquarters .
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in 2018 and 2019 , the company incurred and paid aggregate restructuring charges of $ 7.4 million related to clinical trial closing costs , contract cancellations , closing of its office in san bruno , california , severance payments and other employee-related costs . during the second quarter of 2019 , the company revised its original estimate of aggregate restructuring charges lower by $ 2.0 million based upon updated information from its vendors related to a completed project . there were no amounts accrued as of december 31 , 2020 or december 31 , 2019. on november 6 , 2018 , the company 's board of directors approved an additional restructuring plan to further reduce operating costs . the company incurred and paid aggregate restructuring charges of $ 1.6 million related to severance payments and other employee-related costs . there were no amounts accrued as of december 31 , 2020. for the year ended december 31 , 2020 , the company incurred and paid an immaterial amount of restructuring charges . for the year ended december 31 , 2019 , restructuring recoveries of $ 1.9 million were recorded in research and development expenses and restructuring costs of $ 0.7 million were recorded in general and administrative expenses . 76 10. other income , net other income is presented for all periods ( in thousands ) : replace_table_token_23_th 11. net loss per common stock the company excluded the following potentially dilutive shares from diluted net loss per share as the effect would have been anti-dilutive for all periods presented : replace_table_token_24_th 12. income taxes income tax recovery varies from the amounts that would be computed by applying the expected u.s. federal income tax rate ( 21 % ) as shown in the following table : replace_table_token_25_th replace_table_token_26_th 77 deferred income tax assets and liabilities result from the temporary differences between the amount of assets and liabilities recognized for financial statement and income tax purposes . the significant components of the deferred income tax assets are as follows ( in thousands ) : replace_table_token_27_th on july 31 , 2020 , the company sold all issued and outstanding capital stock of its canadian subsidiary , aquinox canada , to an unrelated third party for cash consideration . as of the date of sale , aquinox canada 's remaining assets included intellectual property and other assets developed through past research and development activities , all of which had no book value . the transaction resulted in a net gain on sale of $ 7.8 million . the sale of aquinox canada triggered a significant capital loss carryforward for tax purposes . however , most of the capital loss carryforward is limited by the prior ownership change under section 382. the remaining unlimited portion of the capital loss carryforward will be subject to a full valuation allowance as the company has determined that it is more likely than not that the benefit of the loss will not be realized . after the sale , aquinox canada 's tax attributes of $ 51.7 million including the net operating losses , scientific research and experimental development expenditures and investment tax credits are no longer reflected in the deferred tax assets and valuation allowance . at december 31 , 2020 and december 31 , 2019 , the company had u.s. federal net operating losses ( `` nol `` ) carryforwards for tax purposes of approximately $ 58.1 million and $ 25.5 million , respectively , which were available to reduce taxable income . of the $ 58.1 million of federal nol carryforwards , $ 1.7 million will expire between the years 2028 and 2037 and the remaining $ 56.4 million are indefinite . the company also has u.s. federal research & development tax credits of $ 1.0 million and $ 0.2 million as of december 31 , 2020 and december 31 , 2019 , respectively , that begin to expire in 2039. the company completed a formal study under irc section 382 through 2019 to determine the u.s. tax attributes available for use . the u.s. attributes disclosed reflect the conclusion of that study . however , subsequent ownership changes may further affect the limitation in future years . the company maintains a full valuation allowance on its net u.s. deferred tax assets . the assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable . in making this assessment , significant weight is given to evidence that can be objectively verified . in its evaluation , the company considered its cumulative losses and its forecasted losses in the near-term as significant negative evidence . therefore , the company determined that the negative evidence outweighed the positive evidence and a full valuation allowance on its assets will be maintained . the company will continue to assess the realizability of its assets going forward and will adjust the valuation allowance as needed . the valuation allowance decreased by $ 42.9 million for the year ended december 31 , 2020. the decrease is primarily due to the sale of aquinox canada and the write-off of the related tax attributes , and partially offset by an increase in us net operating losses and research and development tax credits . the valuation allowance increased by $ 0.6 million for the year ended december 31 , 2019. the increase is primarily related to an increase in deferred tax assets . the company applies judgment in the determination of the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return . story_separator_special_tag contractual obligations and commitments the following is a summary of our long-term contractual cash obligations as of december 31 , 2020 ( in thousands ) : replace_table_token_4_th 1. operating lease obligations reflect remaining minimum commitments for our office and laboratory spaces in seattle , washington . please see note 7 , leases in the notes to consolidated financial statements included in part ii item 8 of this annual report on form 10-k for additional information pertaining to operating lease commitments . 2. in december 2020 , the company entered into a non-cancelable contract to purchase laboratory equipment for $ 0.8 million . the equipment is expected to be delivered in the first half of 2021 and will be paid for out of existing cash reserves . 58 we enter into contracts in the normal course of business with cros for clinical and preclinical research studies , external manufacturers for product for use in our clinical trials , and other research supplies and other services as part of our operations . these contracts generally provide for termination on notice , and therefore are cancelable contracts and not included in the table of contractual obligations and commitments . milestone , royalty-based and other commitments we have an exclusive license agreement with the university of washington , or uw , under which uw ( on behalf of itself and stanford university ) granted us an exclusive worldwide license under certain patent rights , to make , have made , use , offer to sell , sell , offer to lease or lease , import , export or otherwise offer to dispose of licensed products in all fields of use , and a nonexclusive worldwide license to use certain know-how . the foregoing licenses are sublicensable without uw 's consent , subject to certain limited conditions . as consideration for the licensed rights , we issued shares of common stock to uw , which upon the merger were exchanged for 188,974 shares of our common stock and 4,197 shares of our non-voting convertible preferred stock . furthermore , we are required to pay ; ( i ) an annual maintenance fee starting in january 2022 ( but excluding any year in which minimum annual royalties are paid ) ; ( ii ) up to $ 0.9 million in combined development and regulatory milestone payments with respect to each distinct class of licensed product ; ( iii ) up to $ 10.0 million in combined commercial milestone payments based on cumulative net sales of licensed products within each distinct class of licensed products , beginning when cumulative net sales of the class of licensed products equals or exceeds $ 100.0 million , with the majority payable when cumulative net sales of the class of licensed products equals or exceeds $ 1.0 billion ; ( iv ) a low single-digit royalty on net sales of licensed products sold by us and our sublicensees , which may be subject to reductions , and subject to minimum annual royalty payments following the first commercial sale of a licensed product ; ( v ) a certain percentage of any sublicense consideration ( other than royalties ) we receive from sublicensees , based on the stage of development at the time the sublicense is executed ; and ( vi ) a certain percentage of consideration we receive from an acquisition of us or our assets based on the stage of development at the relevant time . we are obligated to pay royalties on a country-by-country basis until the expiration of the last valid claim within the licensed patent rights in such country . critical accounting policies and significant judgments and estimates the preparation of these consolidated financial statements in accordance with u.s. gaap 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 . we evaluate those estimates and judgments 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 . while our significant accounting policies are described in the notes to our consolidated financial statements appearing elsewhere in this annual report , we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements . research and development expenses research and development costs are charged to expense as incurred and include , but are not limited to , employee-related expenses , including salaries , benefits and stock based compensation , expenses incurred under agreements with cros that conduct clinical trials and preclinical studies , the cost of acquiring , developing and manufacturing clinical trial materials , costs incurred in relation to purchase of technology licenses and patent rights , facilities and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , and other supplies and costs associated with clinical trials , preclinical activities , and regulatory operations . restructuring costs associated with the termination of research and development programs and related employees are included in research and development costs . development costs are expensed in the period incurred unless we believe a development project meets generally accepted accounting criteria for deferral and amortization . no product development expenditures have been deferred to date . we record costs for certain development activities based on our evaluation of the progress to completion of specific tasks or information provided to us by our vendors on their actual costs incurred . payments for these activities are based on the terms of the individual arrangements , which may differ from the pattern of costs incurred , and are
| results of operations operating loss the following table summarizes our operating expenses for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_1_th research and development expenses research and development expenses consists primarily of costs incurred under arrangements with third parties , such as cros , manufacturing organizations , and consultants , personnel related costs ( including stock-based compensation and travel expenses ) , facility-related costs and lab supplies . research and development expenses for the year ended december 31 , 2020 were $ 24.3 million compared to $ 4.4 million for the year ended december 31 , 2019. the increase in research and development expenses during the year ended december 31 , 2020 was due to increased expenses incurred from ind-enabling activities related to our lead product candidate , nl-201 , and in connection with the advancement of other neoleukin technologies . lower research and development costs during the year ended december 31 , 2019 reflect the fact that prior to the merger between aquinox and former neoleukin in august 2019 , all research and development activities with rosiptor had been suspended since june 2018. acquired in-process research and development the acquired in-process research and development expense arose from the merger between aquinox and former neoleukin in august 2019 and was expensed immediately as management determined that the asset has no alternative future use . general and administrative expenses general and administrative expenses consist primarily of personnel related costs ( including severance , stock-based compensation and travel expenses ) , facility-related costs , insurance , and professional fees for consulting , legal and accounting services .
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unless expressly stated otherwise , the comparisons presented in this md & a refer to the prior fiscal year . statements that are not historical are forward-looking and involve risks and uncertainties , including those discussed in part i , item 1a , `` risk factors '' and elsewhere in this report . these risks could cause our actual results to differ materially from any future performance suggested below . overview the toro company is in the business of designing , manufacturing , and marketing professional turf maintenance equipment and services , turf irrigation systems , landscaping equipment and lighting products , snow and ice management products , agricultural micro-irrigation systems , rental and specialty construction equipment , and residential yard and snow thrower products . we sell our products worldwide through a network of distributors , dealers , hardware retailers , home centers , mass retailers , and online . our businesses are organized into three reportable business segments : professional , residential , and distribution . our distribution segment , which consists of our company-owned domestic distributorship , has been combined with our corporate activities and is shown as `` other . '' we strive to provide innovative , well-built , and dependable products supported by an extensive 27 service network . a significant portion of our net sales has historically been , and we expect will continue to be , attributable to new and enhanced products . we define new products as those introduced in the current and previous two fiscal years . shares and per share data have been adjusted for all periods presented to reflect the impact of our two-for-one stock split effective september 16 , 2016. story_separator_special_tag our effective tax rate . however , these improvements were partially offset by a decline in our gross margin rate and an increase in interest expense . our net earnings per diluted share were also benefited by $ 0.03 per share in fiscal 2015 compared to fiscal 2014 as a result of reduced shares outstanding from repurchases of our common stock . the following table summarizes our results of operations as a percentage of our consolidated net sales . replace_table_token_6_th fiscal 2016 compared with fiscal 2015 net sales . worldwide net sales in fiscal 2016 were $ 2,392.2 million compared to $ 2,390.9 million in fiscal 2015 , an increase of 0.1 percent . this net sales change was attributable to the following factors : increased sales of professional segment products were driven by higher shipments and demand of golf , landscape contractor , and rental and specialty equipment products primarily due to continued market growth and increased demand for our innovative product offerings and the successful introduction of new products . micro-irrigation and irrigation product sales also increased mainly due to improved product placement and higher project sales . however , sales of snow and ice management products were down primarily due to decreased pre-season demand . decreased sales of residential segment products were mainly driven by lower sales and pre-season retail demand of snow thrower products , decreased shipments of zero-turn radius riding mowers , and unfavorable weather conditions in many of our markets . however , sales of our walk power mowers increased mainly due to strong shipments driven by our innovative product offerings and favorable growing season weather in key markets . our overall net sales in international markets decreased by 5.1 percent in fiscal 2016 compared to fiscal 2015 due to unfavorable foreign currency exchange rate fluctuations that reduced our total net sales by approximately $ 30.6 million in fiscal 2016. gross margin . gross margin represents gross profit ( net sales less cost of sales ) as a percentage of net sales . see note 1 of the notes to consolidated financial statements , in the section entitled `` cost of sales , '' for a description of expenses included in cost of sales . gross margin increased by 160 basis points to 36.6 percent in fiscal 2016 from 35.0 percent in fiscal 2015. this increase was mainly the result of the following factors : lower costs to purchase commodities , primarily steel and resin , and productivity improvements . segment mix from a higher mix of professional segment product sales . somewhat offsetting those positive factors were unfavorable foreign currency exchange rate fluctuations . selling , general , and administrative expense . sg & a expense increased $ 3.4 million , or 0.6 percent , in fiscal 2016 compared to fiscal 2015. see note 1 of the notes to consolidated financial statements , in the section entitled `` selling , general , and administrative expense , '' for a description of expenses included in sg & a expense . sg & a expense rate represents sg & a expense as a percentage of net sales . sg & a expense rate in fiscal 2016 increased 10 basis points to 22.6 percent compared to 22.5 percent in fiscal 2015. the increase in sg & a expense was driven primarily by the following factors : continued investments in engineering and new product development that resulted in higher expense of $ 3.8 million . increased warranty expense of $ 3.1 million driven by higher claims experience for the year . higher direct marketing expense of $ 2.2 million mainly due to increased media spend and paid commissions . 29 somewhat offsetting those increases were : decreased administrative expense of $ 3.4 million . decreased incentive expense of $ 3.3 million due to actual performance against specified goals . interest expense . interest expense for fiscal 2016 increased $ 0.6 million compared to fiscal 2015. other income , net . other income , net consists mainly of our proportionate share of income or losses from equity investments ( affiliates ) , currency exchange rate gains and losses , litigation settlements and recoveries , interest income , and retail financing revenue . other income for fiscal 2016 was $ 15.4 million compared to $ 10.7 million in fiscal 2015 , an increase of $ 4.7 million . story_separator_special_tag increased sales driven by strong demand and market growth for rental and specialty construction equipment , as well as positive customer response for new products . somewhat offsetting those positive factors were : unfavorable foreign currency exchange rate fluctuations . a decline in sales of snow and ice management products which was driven mainly from decreased pre-season demand . our domestic field inventory levels of our professional segment products were higher as of the end of fiscal 2016 compared to the end of fiscal 2015 due , primarily to anticipated strong shipments of new product introductions and higher retail demand . worldwide net sales for the professional segment in fiscal 2015 were up by 11.0 percent compared to fiscal 2014 primarily as a result of the following factors : incremental sales from the acquisition of the boss business of $ 128.5 million . higher shipments of landscape contractor equipment , including new and enhanced products , as contractors continued to invest in turf maintenance equipment . increased sales driven by strong demand and market growth for rental and specialty construction equipment , as well as positive customer response for new products we introduced in that market . somewhat offsetting those positive factors were : unfavorable foreign currency exchange rate fluctuations . a decline in sales of irrigation products due to unfavorable weather conditions in key markets . lower sales of micro-irrigation products due to unfavorable foreign currency exchange rate fluctuations and continued adverse political and economic conditions in key international markets . operating earnings . operating earnings for the professional segment in fiscal 2016 increased 14.3 percent compared to fiscal 2015 , primarily due to higher sales volumes , higher gross margin , and lower sg & a expense . expressed as a percentage of net sales , professional segment operating margins increased by 180 basis points to 20.6 percent in fiscal 2016 compared to 18.8 percent in fiscal 2015. the following factors impacted professional segment operating earnings as a percentage of net sales for fiscal 2016 : higher gross margin in fiscal 2016 compared to fiscal 2015 mainly due to lower commodity costs and productivity improvements , as well as favorable product mix , partially offset by unfavorable foreign currency exchange rate fluctuations . a decline in sg & a expense rate in fiscal 2016 compared to fiscal 2015 due to lower administration costs . operating earnings for the professional segment in fiscal 2015 increased 11.5 percent compared to fiscal 2014 primarily due to higher sales volumes . expressed as a percentage of net sales , professional segment operating margins slightly increased by 10 basis points to 18.8 percent in fiscal 2015 compared to 18.7 percent in fiscal 2014. the following factors impacted professional segment operating earnings as a percentage of net sales for fiscal 2015 : lower gross margin in fiscal 2015 compared to fiscal 2014 mainly due to unfavorable foreign currency exchange rate movements and the purchase accounting impact for the acquisition of the boss business , as previously discussed . a decline in sg & a expense rate in fiscal 2015 compared to fiscal 2014 due to further leveraging fixed sg & a costs over higher sales volumes . 31 residential segment residential segment net sales represented 28 percent of consolidated net sales for fiscal 2016 , 30 percent for fiscal 2015 , and 31 percent for fiscal 2014. the following table shows the residential segment net sales , operating earnings , and operating earnings as a percent of net sales . replace_table_token_8_th net sales . worldwide net sales for the residential segment in fiscal 2016 were down by 7.8 percent compared to fiscal 2015 primarily as a result of the following factors : decreased shipments and lower retail demand of snow products due to low snowfall totals in the 2015/2016 season . lower sales of zero-turn radius riding mowers primarily driven by variable weather conditions throughout the year and a slight reduction in retail placement . unfavorable weather conditions in many of our markets . somewhat offsetting the decrease in residential segment net sales were higher sales of walk power mowers driven by increased demand for our product offerings and strong customer response for our innovative models , including our smartstow® and all-wheel drive models . our domestic field inventory levels of our residential segment products were lower as of the end of fiscal 2016 compared to the end of fiscal 2015 primarily due to decreased pre-season snow thrower product channel demand for the 2016-2017 winter season and inventory sell-through of walk power mowers from a strong fall growing season . worldwide net sales for the residential segment in fiscal 2015 were up by 7.9 percent compared to fiscal 2014 primarily as a result of the following factors : increased shipments driven by strong retail demand and additional product placement for our new platform of zero-turn radius riding mowers . higher sales of walk power mowers due to enhanced product placement and increased demand for our product offerings , including our new all-wheel drive model . somewhat offsetting the increase in residential segment net sales was a decline in sales in australia from unfavorable foreign currency exchange rate fluctuations . operating earnings . operating earnings for the residential segment in fiscal 2016 decreased 13.3 percent compared to fiscal 2015. expressed as a percentage of net sales , residential segment operating margins decreased 70 basis points to 11.0 percent in fiscal 2016 compared to 11.7 percent in fiscal 2015. the following factors impacted residential segment operating earnings : higher gross margin in fiscal 2016 compared to fiscal 2015 mainly due to lower commodity costs and freight expense , partially offset by unfavorable foreign currency exchange rate fluctuations . increased sg & a expense rate attributable to lower sales as well as increased engineering , marketing and warehousing expenses .
| summary of fiscal 2016 results in fiscal 2016 , we achieved net sales of $ 2,392.2 million and net earnings growth of 14.6 percent . our fiscal 2016 results included the following items of significance : net sales for fiscal 2016 increased by 0.1 percent compared to fiscal 2015 to $ 2,392.2 million . foreign currency exchange rate fluctuations negatively impacted our net sales growth by 1.3 percent . the sales increase was primarily attributable to strong demand of our professional segment products including the successful introduction of new innovative products , primarily offset by lower residential segment sales driven mainly by decreased pre-season snow products demand . professional segment net sales grew 4.0 percent in fiscal 2016 compared to fiscal 2015. sales increased primarily from strong demand for our golf and landscape contractor equipment , increased product placement of our micro-irrigation products , along with continued growth in our rental and specialty construction businesses . residential segment net sales decreased 7.8 percent in fiscal 2016 compared to fiscal 2015 , primarily due to lower sales of snow products and decreased shipments of zero-turn radius riding mowers , partially offset by increased shipments of walk power mowers . international net sales for fiscal 2016 decreased by 5.1 percent compared to fiscal 2015 mainly due to changes in foreign currency exchange rates that reduced our total net sales by approximately $ 30.6 million in fiscal 2016. international net sales comprised 24.2 percent of our total consolidated net sales in fiscal 2016 compared to 25.5 percent in fiscal 2015 and 28.7 percent in fiscal 2014. these declines were primarily the result of foreign currency exchange rate changes . fiscal 2016 net earnings of $ 231.0 million increased 14.6 percent compared to fiscal 2015 , and diluted net earnings per share increased 15.7 percent to $ 2.06 in fiscal 2016 compared to $ 1.78 in fiscal 2015. gross margin was 36.6
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this asu is effective for annual and interim reporting periods beginning after december 15 , 2019 , with early adoption permitted . entities story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere within this report . this discussion includes both historical information and forward-looking information that involves risks , uncertainties and assumptions . our actual results may differ materially from management 's expectations as a result of various factors , including but not limited to those discussed in the sections entitled `` risk factors '' and `` cautionary statement regarding forward-looking information . '' company overview lendingtree , inc. is the parent of lendingtree , llc and several companies owned by lendingtree , llc . lendingtree operates what we believe to be the leading online consumer platform that connects consumers with the choices they need to be confident in their financial decisions . our online consumer platform provides consumers with access to product offerings from our network partners , including mortgage loans , home equity loans and lines of credit , reverse mortgage loans , auto loans , credit cards , deposit accounts , personal loans , student loans , small business loans , insurance quotes and other related offerings . in addition , we offer tools and resources , including free credit scores , that facilitate comparison shopping for loans , deposit products , insurance and other offerings . we seek to match consumers with multiple providers , who can offer them competing quotes for the product , or products , they are seeking . we also serve as a valued partner to lenders and other providers seeking an efficient , scalable and flexible source of customer acquisition with directly measurable benefits , by matching the consumer inquiries we generate with these partners . our my lendingtree platform offers a personalized loan comparison-shopping experience by providing free credit scores and credit score analysis . this platform enables us to observe consumers ' credit profiles and then identify and alert them to loans and other offerings on our marketplace that may be more favorable than the terms they may have at a given point in time . this is designed to provide consumers with measurable savings opportunities over their lifetimes . we are focused on developing new product offerings and enhancements to improve the experiences that consumers and network partners have as they interact with us . by expanding our portfolio of financial services offerings , we are growing and diversifying our business and sources of revenue . we intend to capitalize on our expertise in performance marketing , product development and technology , and to leverage the widespread recognition of the lendingtree brand to effect this strategy . we believe the consumer and small business financial services industry is still in the early stages of a fundamental shift to online product offerings , similar to the shift that started in retail and travel many years ago and is now well established . we believe that like retail and travel , as consumers continue to move towards online shopping and transactions for financial services , suppliers will increasingly shift their product offerings and advertising budgets toward the online channel . we believe the strength of our brands and of our partner network place us in a strong position to continue to benefit from this market shift . the lendingtree loans business is presented as discontinued operations in the accompanying consolidated balance sheets , consolidated statements of operations and comprehensive income and consolidated cash flows for all periods presented . except for the discussion under the heading `` discontinued operations , '' the analysis within management 's discussion and analysis of financial condition and results of operations reflects our continuing operations . recent business acquisitions on january 10 , 2019 , we acquired valuepenguin , a personal finance website that offers consumers objective analysis on a variety of financial topics from insurance to credit cards , for $ 105.0 million in cash at the closing of the transaction , subject to adjustments for working capital . we believe that combining valuepenguin 's high-quality content and search engine optimization capability with recently acquired proprietary technology and insurance carrier network from quotewizard enables us to provide immense value to carriers and agents . this strategic acquisition positions us to achieve further scale in the insurance space as well as the broader financial services industry . on october 31 , 2018 , we acquired quotewizard , one of the largest insurance comparison marketplaces in the growing online insurance advertising market , for $ 299.9 million in cash at the closing of the transaction , subject to post-closing adjustments to working capital and potential contingent consideration payments of up to $ 70.2 million through october 2021 , subject to achieving specific targets . quotewizard services clients by driving consumers to insurance companies ' websites , providing leads to agents and carriers , as well as phone transfers of consumers into carrier call centers . we believe this acquisition will establish lendingtree as a leading player in the online insurance advertising industry , while continuing our ongoing diversification within the financial services category . 33 on july 23 , 2018 , we acquired student loan hero for $ 62.7 million in cash , of which $ 2.3 million was recognized as severance expense in our consolidated statements of operations and comprehensive income . student loan hero , a personal finance website dedicated to helping student loan borrowers manage their student debt , offers current and former students in-depth financial comparison tools , educational resources , and unbiased , personalized advice . this strategic transaction allows us to scale our student loan business and provide consumers with the tools and resources to better understand their personal finances and make smarter financial decisions . story_separator_special_tag during 2017 , 30-year mortgage interest rates then declined to a monthly average of 3.81 % in september 2017 , before increasing to 3.95 % at the end of 2017. during 2018 , 30-year mortgage interest rates generally increased to a monthly average of 4.87 % in november 2018 , but declined to 4.64 % at the end of 2018. on a full-year basis , 30-year mortgage interest rates increased to an average 4.54 % in 2018 , as compared to 3.99 % and 3.65 % in 2017 and 2016 , respectively . typically , as mortgage interest rates rise , there are fewer consumers in the marketplace seeking refinancings and , accordingly , the mix of mortgage origination dollars will move towards purchase mortgages . according to mortgage bankers association ( `` mba '' ) data , total purchase origination dollars increased from 52 % of total 2016 mortgage origination dollars to 65 % in 2017 and 72 % in 2018 , as a result of the general increase in average mortgage interest rates . looking forward , mba is projecting 30-year mortgage interest rates to climb in 2019 , to an average 4.8 % on 30-year fixed rate mortgages . according to mba projections , as interest rates climb , the mix of mortgage origination dollars will continue to move towards purchase mortgages with the refinance share representing just 24 % for 2019. the u.s. real estate market the health of the u.s. real estate market and interest rate levels are the primary drivers of consumer demand for new mortgages . consumer demand , in turn , affects lender demand for purchase mortgage leads from third-party sources . typically , a strong real estate market will lead to reduced lender demand for leads , as there are more consumers in the marketplace seeking financing and , accordingly , lenders receive more organic lead volume . conversely , a weaker real estate market will typically lead to an increase in lender demand , as there are fewer consumers in the marketplace seeking mortgages . according to the national association of realtors ( `` nar '' ) , nationwide existing home sales in 2016 increased approximately 3 % over 2015. growth in 2017 was approximately 2 % over 2016 due to limited inventory of homes for sale in 2017. in addition to continued low inventory , rising interest rates contributed to declining home sales in 2018 , resulting in nationwide existing home 35 sales in 2018 contracting approximately 3 % from 2017. the nar expects an increase in home sales in early 2019 as interest rates decrease from the high in late 2018 , but expect an overall annual decrease of 2 % compared to 2018. convertible senior notes and hedge and warrant transactions on may 31 , 2017 , we issued $ 300.0 million aggregate principal amount of our 0.625 % convertible senior notes due june 1 , 2022 and , in connection therewith , entered into convertible note hedge and warrant transactions with respect to our common stock . for more information , see note 13 —debt , in the notes to the consolidated financial statements included elsewhere in this report . north carolina office properties in december 2016 , we completed the acquisition of two office buildings in charlotte , north carolina , for $ 23.5 million in cash . the buildings were acquired with the intent to use such buildings as our corporate headquarters and rent any unused space . in november 2018 , the office buildings were classified as held for sale . in february 2019 , we agreed to sell these buildings to an unrelated third party . for additional information , see note 7 —assets held for sale and note 22 —subsequent events in the notes to the consolidated financial statements included elsewhere in this report . with our expansion in north carolina , in december 2016 , we received a grant from the state that provides up to $ 4.9 million in reimbursements over 12 years beginning in 2017 for investing in real estate and infrastructure in addition to increasing jobs in north carolina at specific targeted levels through 2020 , and maintaining the jobs thereafter . additionally , the city of charlotte and the county of mecklenburg provided a grant that will be paid over five years and is based on a percentage of new property tax we pay on the development of a corporate headquarters . in december 2018 , we received an additional grant from the state that provides up to $ 8.4 million in reimbursements over 12 years beginning in 2020 for increasing jobs in north carolina at specific targeted levels through 2023 , and maintaining the jobs thereafter . 36 story_separator_special_tag earned per consumer . additionally , the number of consumers completing request forms for mortgage products increased in 2017 from 2016 , due to an increase in lender demand and a corresponding increase in selling and marketing efforts . cost of revenue cost of revenue consists primarily of costs associated with compensation and other employee-related costs ( including stock-based compensation ) relating to internally-operated customer call centers , third-party customer call center fees , costs for online advertising resold to third parties , credit scoring fees , credit card fees , website network hosting and server fees . 38 cost of revenue increased in 2018 from 2017 , primarily due to increases of $ 8.8 million for the cost of resold advertising space , $ 6.3 million in compensation and benefits as a result of increases in headcount , $ 2.1 million in credit scoring fees and $ 1.2 million in website network hosting and server fees . cost of revenue as a percentage of revenue increased to 5 % in 2018 compared to 3 % in 2017 due to the items above .
| results of operations for the years ended december 31 , 2018 , 2017 and 2016 replace_table_token_4_th revenue revenue increased in 2018 compared to 2017 due to increases in our non-mortgage products of $ 180.9 million , partially offset by a decrease in our mortgage products of $ 33.7 million . our non-mortgage products include the following non-mortgage lending products : credit cards , personal loans , home equity loans and lines of credit , small business loans , student loans , reverse mortgage loans and auto loans . our non-mortgage products also include insurance quotes , deposit accounts , home improvement referrals and other credit products such as credit repair and debt settlement . revenue earned through resale of online advertising space to third parties is also included in non-mortgage products . many of our non-mortgage products are not individually significant to revenue . the increase in revenue from our non-mortgage products in 2018 compared to 2017 is primarily due to an increase in our products for personal loans , insurance , credit cards , home equity , small business loans and student loans . revenue from our personal loan product increased $ 46.0 million to $ 134.2 million in 2018 from $ 88.2 million in 2017 , or 52 % . revenue from our personal loan product increased in 2018 due to increased revenue earned per consumer . additionally , the number of consumers completing request forms increased as a result of increased lender demand and corresponding increases in selling and marketing efforts . revenue from our credit card product increased $ 18.8 million to $ 165.8 million in 2018 from $ 147.0 million in 2017 , or 13 % . revenue from our credit card product increased in 2018 primarily due to increases in click traffic sent to issuers , and increased revenue earned per approval .
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core portfolio generated 4.4 % growth in net operating income ( `` noi '' ) for the full year . 2017 normalized funds from operations ( `` normalized ffo '' ) per share was $ 3.60 , 8.8 % higher than in 2016 . invested $ 174.6 million , including the acquisition of two flagship rv resorts for $ 134.4 million and a jv investment in a portfolio of 11 marinas in florida for $ 30.0 million . raised our annual dividend to $ 1.95 per share in 2017 , an increase of 14.7 % compared to $ 1.70 per share in 2016 . sold 1,380,017 shares of common stock for gross proceeds of $ 120.7 million through our atm equity offering program at a weighted average share price of approximately $ 87.46 . closed on approximately $ 350.4 million of refinancing proceeds on eight properties and paid debt maturing in 2017 and 2018 of approximately $ 230.2 million . after closing on these loans , our current secured debt balance has a weighted average maturity of 13.0 years and approximately 29.9 % of our outstanding secured debt is fully amortizing . refinanced the term loan and line of credit , which extended the maturity dates and increased the additional borrowing capacity on the line of credit to $ 200.0 million from $ 100.0 million . overview and outlook we are a self-administered , self-managed , real estate investment trust ( “ reit ” ) with headquarters in chicago , illinois . we are a fully integrated owner and operator of lifestyle-oriented properties ( “ properties ” ) consisting primarily of manufactured home ( `` mh '' ) communities and recreational vehicle ( `` rv '' ) resorts and campgrounds . as of december 31 , 2017 , we owned or had an ownership interest in a portfolio of 406 properties located throughout the united states and canada containing 151,323 sites . these properties are located in 32 states and british columbia , with more than 90 properties with lake , river or ocean frontage and more than 100 properties within 10 miles of the coastal united states . we invest in properties in sought-after locations near retirement and vacation destinations and urban areas across the united states with a focus on increasing operating cash flows . we seek growth in earnings , funds from operations ( `` ffo '' ) and cash flows by enhancing the profitability and operation of our properties and investments . we seek to accomplish this by attracting high quality customers to our properties and retaining these customers who take pride in the property and in their homes and efficiently managing our properties to increase operating margins by increasing occupancy , maintaining competitive market rents and controlling expenses . we believe that demand from baby boomers for manufactured housing and rv resorts will continue to outpace supply for several years . the entitlement process to develop new mh and rv communities is extremely restrictive . as a result , there have been few , if any , new communities developed in our target geographic markets . it is currently estimated that approximately 10,000 baby boomers will turn 65 daily through 2030. additionally the population of people age 55 and older is expected to grow 22 % from 2018 to 2032. we believe these individuals will continue to drive the market for second home sales as vacation properties , investment opportunities , or retirement retreats . we believe it is likely that over the next decade we will continue to see high levels of second home sales and that resort homes and cottages in our properties will continue to provide a viable second-home alternative to site-built homes . we also believe that our properties and our business model provide an opportunity for increased cash flows and appreciation in value . these may be achieved through increases in rental and occupancy rates , as well as expense controls , expansion of existing properties and opportunistic acquisitions . we actively seek to acquire and are currently engaged in various stages of negotiations relating to the possible acquisition of additional properties , which may include contracts outstanding to acquire such properties that are subject to the satisfactory completion of our due diligence review . we generate the majority of our revenues from customers renting our sites , or entering into right-to-use contracts ( also referred to as membership products ) , which provide our customers access to specific properties for limited stays . our mh community sites and annual rv resort sites are leased on an annual basis . seasonal sites are leased to customers generally for one to six months . transient sites are leased to customers on a short-term basis . the revenue from seasonal and transient sites is 33 management 's discussion ( continued ) generally higher during the first and third quarters . we consider the transient revenue stream to be our most volatile as it is subject to weather conditions and other factors affecting the marginal rv customer 's vacation and travel preferences . approximately one third of our rental agreements on mh community sites have rent increases that are directly or indirectly connected to published cpi statistics that are issued from june through september of the year prior to the increase effective date . approximately one half of those rental agreements have a cpi floor of approximately 3.0 % . state and local rent control regulations affect 23 wholly owned properties , including 15 of our 48 california properties , all of our seven delaware properties and one of our five massachusetts properties . the impact of the rent control regulations is to limit our ability to implement rent increases based on prevailing market conditions . the regulations generally permit us to increase rates by a percentage of the increase in the cpi , which may be national , regional or local , depending on the rent control ordinance . the limit on rent increases may range from 60.0 % to 100.0 % of cpi with certain maximum limits depending on the jurisdiction . story_separator_special_tag for the year ended december 31 , 2017 , ffo available for common stock and op unit holders increased $ 28.9 million , or $ 0.28 per common share , to $ 331.7 million or $ 3.55 per common share , compared to $ 302.8 million million , or $ 3.27 per common share , for the same period in 2016 . for the year ended december 31 , 2017 , normalized ffo available for common stock and op unit holders increased $ 29.4 million , or $ 0.29 per common share , to $ 335.9 million , or $ 3.60 per common share , compared to $ 306.5 million , or $ 3.31 per common share , for the same period in 2016 . our core portfolio ( `` core portfolio '' ) consists of our properties owned and operated during the entire period . the core portfolio may change from time-to-time depending on acquisitions , dispositions and significant transactions or unique situations . since operations at our two florida keys rv resorts were interrupted during the quarter and year ended december 31 , 2017 , we designated these two resorts as non-core properties . this change is reflected throughout the results overview . for the year ended december 31 , 2017 , property operating revenues in our core portfolio , excluding deferrals , increased 5.8 % and property operating expenses in our core portfolio , excluding deferrals and property management , increased 6.8 % , from the year ended december 31 , 2016 , resulting in an increase in our income from property operations excluding deferrals and property management of 5.0 % from the year ended december 31 , 2016 . we continue to focus on the quality of occupancy growth by increasing the number of manufactured homeowners in our core portfolio . our core portfolio average occupancy consists of occupied home sites in our mh communities ( both homeowners and renters ) and was 94.6 % for the year ended december 31 , 2017 , compared to 93.9 % for the year ended december 31 , 2016 . as of december 31 , 2017 , our core portfolio occupancy increased by 475 sites with an increase in homeowner occupancy of 809 sites compared to occupancy at december 31 , 2016 . on september 10 , 2017 hurricane irma made landfall in the state of florida . our properties were affected by flooding , wind , wind-blown debris , and fallen trees and tree branches . overall , homes in our communities held up well with most of the structural damage limited to carports , screen rooms and awnings . structural damage to common areas was also limited . our florida mainland properties resumed normal operations shortly after hurricane irma . fiesta key rv resort , one of our rv resorts in the florida keys , has reopened . we expect sunshine key rv resort to reopen as utility services are restored . we expect our restoration efforts to be substantially complete in early 2018. during the year ended december 31 , 2017 , we recorded expense of $ 8.0 million related to debris removal and cleanup following hurricane irma . in addition , during the year ended december 31 , 2017 , we recorded insurance recovery revenue of $ 9.0 million which includes insurance proceeds received as a result of our first claim submission . we continue to build on our successful multi-channel marketing campaigns , incorporating social media and advanced marketing analytics . our marketing campaigns encourage the customer to book online , and we have seen a 42 % increase in revenue coming through online reservations as compared to 2016. we continue to experience growth in revenues in our core rv portfolio as a result of our ability to increase rental rates and occupancy . rv revenues in our core portfolio for the year ended december 31 , 2017 were 5.9 % higher than the year ended december 31 , 2016 . annual , seasonal and transient revenues for the year ended december 31 , 2017 increased 5.6 % , 9.0 % and 4.5 % , respectively , from the year ended december 31 , 2016 . 35 management 's discussion ( continued ) for the year ended december 31 , 2017 , we sold approximately 14,128 ttcs and activated approximately 17,490 rv dealer ttcs . the table below provides additional details regarding our ttcs for the past five years : replace_table_token_16_th we see high demand for our homes and communities . we closed 597 new home sales during the year ended december 31 , 2017 compared to 658 new home sales during the year ended december 31 , 2016. the new home sales during the year ended december 31 , 2017 were primarily in our florida and colorado communities . as of december 31 , 2017 , we had 4,417 occupied rental homes in our mh communities . for the years ended december 31 , 2017 and 2016 , home rental program net operating income was approximately $ 31.9 million and $ 32.2 million , respectively , net of rental asset depreciation expense of approximately $ 10.4 million for the year ended december 31 , 2017 and $ 10.7 million for the year ended december 31 , 2016 . approximately $ 34.6 million and $ 35.7 million of home rental operations revenue was included in community base rental income for the years ended december 31 , 2017 and 2016 , respectively . our gross investment in real estate has increased approximately $ 230.5 million to $ 4,915.8 million as of december 31 , 2017 from $ 4,685.3 million as of december 31 , 2016 , primarily due to increased capital expenditures , as well as the acquisition of three properties : paradise park-largo , bethpage camp resort and grey 's point camp . property acquisitions and joint ventures the following chart lists the properties or portfolios acquired or invested in during the period january 1 , 2016 through december 31 , 2017 and sites added through expansion opportunities at our existing properties .
| results of operations comparison of year ended december 31 , 2017 to year ended december 31 , 2016 income from property operations the following table summarizes certain financial and statistical data for our core portfolio and the total portfolio for the years ended december 31 , 2017 and 2016 ( amounts in thousands ) . the core portfolio may change from time-to-time depending on acquisitions , dispositions and significant transactions or unique situations . the core portfolio in this comparison of the years ended december 31 , 2017 and december 31 , 2016 includes all properties acquired prior to december 31 , 2015 and which we have owned and operated continuously since january 1 , 2016 . during the year ended december 31 , 2017 , operations at our florida keys rv resorts were interrupted and have been designated as non-core properties . this change is reflected in the results of operations for the comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016. core portfolio growth percentages exclude the impact of u.s. gaap deferrals of upfront payments from right-to-use contracts and related commissions . 40 management 's discussion ( continued ) replace_table_token_21_th ( 1 ) non-gaap measure , see the results overview section of the management discussion and analysis for non-gaap financial measure definitions and reconciliations of these non-gaap measures to net income available to common shareholders . total portfolio income from property operations , which includes core and non-core portfolios , for the year ended december 31 , 2017 increased $ 23.8 million , or 5.5 % from the year ended december 31 , 2016 , driven by an increase of $ 18.7 million or 4.4 % , in our core portfolio income from property operations and a $ 5.1 million increase in our non-core income from property operations .
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56 the stock warrants have a dilutive effect only in those q uarterly periods in which our average stock price exceeds the exercise price of $ 26.68 per warrant ( under the treasury stock method ) , and are not subject to performance vesting conditions ( see note 11 ) . potentially dilutive common shares related to unvested restricted stock and stock warrants excluded from the computation of diluted eps , as the effect was antidilutive , were not material in any period presented . equity method investment . on july 30 , 2018 , we made a $ 2.0 million investment for a 4 % noncontrolling financial interest in a payment technology and services company that enables omni-channel digital payments in latin america . we are accounting story_separator_special_tag forward-looking statements this report contains a number of forward-looking statements relative to our future plans and our expectations concerning our business and the industries we serve . these forward-looking statements are based on assumptions about a number of important factors , and involve risks and uncertainties that could cause actual results to differ materially from estimates contained in the forward-looking statements . some of the risks that are foreseen by management are outlined above within item 1a. , “ risk factors ” . item 1a . constitutes an integral part of this report , and readers are strongly encouraged to review this section closely in conjunction with md & a . acquisition activity business ink , co. on february 28 , 2018 we acquired business ink , a multi-channel communications company based in austin , texas , for approximately $ 70 million , excluding acquisition-related expenses . business ink provides outsourced , customized business communications services to the telecommunications , healthcare , financial services , utilities , and government sectors across statements , email , mobile messaging , and more . the acquisition extends the scale of our operations and platform capabilities , expands our customer base into new verticals , and further solidifies our customer communications footprint . for 2018 , business ink contributed $ 49.2 million of cloud and related solutions revenues and was neutral to our operating income when factoring in acquired amortization and acquisition-related costs . see note 6 to our financial statements for further discussion of this acquisition . forte payment systems , inc. on october 1 , 2018 , we acquired forte , a leading provider of advanced payment solutions headquartered in allen , texas . the acquisition of forte accelerates our ability to offer a comprehensive suite of next generation payment solutions that enables service providers to provide a differentiated customer experience , while also strengthening our position in the revenue management and payments sector and allowing us to grow our footprint into new verticals . we acquired 100 % of the equity of forte for a purchase price of approximately $ 85 million ( excluding cash acquired ) , and held back approximately $ 13 million in cash subject to certain tax filings . in addition , the stock purchase agreement includes provisions for $ 18.8 million of potential future earn-out payments over a four-year measurement period . for 2018 , forte generated $ 24.9 million of cloud and related solutions revenues and was dilutive to our operating income due to acquisition amortization and acquisition-related costs . see note 6 our financial statements for further discussion of this acquisition . key impact of u.s. tax cuts and jobs act on december 22 , 2017 , the u.s. tax cuts and jobs act ( the “ tax reform act ” ) was passed into legislation . the tax reform act amends the internal revenue code , reducing the corporate income tax rate , changing or eliminating certain income tax deductions and credits , and provides sweeping change to how u.s. companies are taxed on their international operations . the tax reform act was generally effective for tax years beginning after december 31 , 2017 ; however , certain provisions of the tax reform act had effective dates beginning in 2017. the tax reform act reduces the u.s. maximum rate of income taxation from 35 % to 21 % applicable to taxable years beginning after december 31 , 2017. our effective income tax rate for the full year 2018 was 24 % . see note 8 to our financial statements for additional impacts of the tax reform act . impact of new revenue accounting pronouncement in january 2018 we adopted asc 606 , a single comprehensive model which supersedes nearly all existing revenue recognition guidance under u.s. gaap , utilizing the cumulative effect approach . under the new guidance , revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services . 23 in conjunction with the adoption of asc 606 , we recorded a cumulative adjustment increasing beginning retained earnings ( net of tax ) by approximately $ 7 million , primarily related to contracts that we were required to defer revenue as we did not have vendo r specific objective evidence ( “ vsoe ” ) for certain undelivered elements . the adoption of asc 606 did not have a material impact on our revenues in 2018 , and we do not anticipate it to have a material impact going forward , as the new revenue accounting ru les under asc 606 are fairly consistent with our policies and guidelines based on the nature of our client contracts . as a result of adopting asc 606 , beginning in 2018 , the following key reclassifications have occurred : certain deferred contract costs that had been included in our client contracts and other current and non-current assets on our balance sheet were reclassified and presented separately as a non-current client contract asset , net of related amortization . certain revenues and related costs previously recorded as software and services or maintenance on our income statement are now being classified as cloud and related solutions . story_separator_special_tag critical accounting policies the preparation of our financial statements in conformity with accounting principles generally accepted in the u.s. requires us to select appropriate accounting policies , and to make judgments and estimates affecting the application of those accounting policies . in applying our accounting policies , different business conditions or the use of different assumptions may result in materially different amounts reported in our financial statements . we have identified the most critical accounting policies that affect our financial position and the results of our operations . these critical accounting policies were determined by considering our accounting policies that involve the most complex or subjective decisions or assessments . the most critical accounting policies identified relate to : ( i ) revenue recognition ; ( ii ) impairment assessments of long-lived assets ; ( iii ) income taxes ; and ( iv ) loss contingencies . these critical accounting policies , as well as our other significant accounting policies , are disclosed in the notes to our financial statements . revenue recognition . we adopted asc 606 in january 2018 using the cumulative effect method and applied asc 606 to all contracts with clients that had not been completed as of the date of initial application . revenue under asc 606 is recognized upon conclusion that a contract with a client exists . such conclusion is made by us when the contract is legally enforceable and certain criteria , including collectability , are met . in making our determination of collectability , we consider a number of factors depending upon the specific aspects of an arrangement , which may include , but is not limited to , the following items : ( i ) an assessment of the client 's specific credit worthiness , evidenced by its current financial position and or recent operating results , credit ratings , and or a bankruptcy filing status ( as applicable ) ; ( ii ) the client 's current accounts receivable status and or its historical payment patterns with us ( as applicable ) ; ( iii ) the economic condition of the industry in which the client conducts the majority of its business ; and or ( iv ) the economic conditions and or political stability of the country or region in which the client is domiciled and or conducts the majority of its business . the evaluation of these factors , and the ultimate determination of collectability , requires significant judgments to be made by us . the judgments made in this area could have a significant effect to the amount and timing of revenue recognized in any period . our contracts with clients include cloud-based solution arrangements , managed services solution arrangements , payment processing transaction services , software license and service arrangements , professional services arrangements , and bundled service arrangements . the revenue recognition policies that involve the most complex and subjective decisions or assessments that may have a material impact on our operations relate to the accounting for cloud-based solution arrangements , software license and service arrangements and bundled service arrangements . our cloud-based solution arrangements are complex agreements that typically include multiple performance obligations . key factors considered in accounting for cloud-based solution arrangements include the following criteria : ( i ) identification of performance obligations within the contract ; ( ii ) determination of the transaction price given the variable nature of the consideration and significance of the consideration ; ( iii ) allocation of value between the performance obligations ; and ( iv ) calculation of revenue recognized in each period . the evaluation of these factors and ultimate revenue recognition decision requires significant judgements to be made by us . depending on the significance of variable consideration , number of products/services , complex pricing structures and long-term nature of these types of contracts , the judgements and estimates made in this area could have a significant effect on the amount and timing of revenue recognized in any period . in addition , certain products and arrangements require us to make an assessment of whether we are a principal to the transaction ( gross revenue ) or an agent to the transaction ( net revenue ) . such assessments can have a significant effect on the amount of revenue recognized . our software license and services arrangements and bundled service arrangements include multiple performance obligations and can be complex and require considerable judgement . key factors considered in accounting for our software license and related service arrangements include the following criteria : ( i ) identification of performance obligations within the contract ; ( ii ) assessment of 26 whether services included in the arrangement represent significant production , modification or customization of the software ( as a pplicable ) , such that the delivery of the software license and related services required to implement the software represent one combined performance obligation ; ( iii ) determination of the transaction price for the contract as these types of arrangements m ay include both fixed and variable consideration ; ( iv ) determination of stand-alone selling price for each performance obligation ; allocation of value between performance obligations ; and ( v ) estimates to measure progress for delivery . the evaluation of th ese factors and ultimate revenue recognition decision requires significant judgements to be made by us . we generally determine stand-alone selling prices using pricing calculations ( which include regional market factors ) for our software license fees and maintenance , and cost-plus margins for services . the pricing calculations can be complex and require estimates based on volumes and regional market factors . additionally , our use of an hours-based method of accounting for software license and other profess ional services performance obligations that are satisfied over time requires estimates of total project revenues and costs , along with the expected hours necessary to complete a project .
| detailed discussion of results of operations total revenues . total revenues for : ( i ) 2018 were $ 875.1 million , an 11 % increase from $ 789.6 million for 2017 ; and ( ii ) 2017 were $ 789.6 million , a 4 % increase from $ 761.0 million for 2016. the 11 % year-over-year increase in total revenues between 2018 and 2017 can be mainly attributed to the acquisitions of business ink and forte , discussed above , which generated approximately $ 74 million of combined revenues during the year . the 4 % year-over-year increase in total revenues between 2017 and 2016 can be mainly attributed to the 7 % increase in our cloud and related solutions revenues , driven largely by the conversion of new customer accounts onto acp during the year ( primarily from comcast ) , and increases in revenues from recurring managed services arrangements , with these increases reduced by lower software and services revenues . the components of total revenues , discussed in more detail below , are as follows : replace_table_token_8_th cloud and related solutions revenues . cloud and related solutions revenues for : ( i ) 2018 increased 18 % to $ 766.4 million , from $ 651.0 million for 2017 ; and ( ii ) 2017 increased 7 % to $ 651.0 million , from $ 606.9 million for 2016. the year-over-year increase in cloud and related solutions revenues between 2018 and 2017 can be primarily attributed to : ( i ) the revenues generated from the acquired business ink and forte businesses of $ 74.1 million ; ( ii ) the application of asc 606 , which resulted in revenues of $ 26.0 million , previously classified as software and services and maintenance revenues , now being classified as cloud and related solutions revenues ; and ( iii ) the execution of and performance under additional managed services and ascendon arrangements .
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forward-looking statements speak only as of the date they are made , and we assume no duty to and do not undertake to update forward-looking statements . actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance . in addition to factors previously disclosed in our sec reports and those identified elsewhere in this report , including the “ risk factors ” section , the following factors , among others , could cause actual results to differ materially from forward-looking statements or historical performance : our future operating results ; our business prospects and the prospects of our portfolio companies ; the impact of investments that we expect to make ; our contractual arrangements and relationships with third parties ; the dependence of our future success on the general economy and its impact on the industries in which we invest ; the financial condition of and ability of our current and prospective portfolio companies to achieve their objectives ; our expected financings and investments ; the adequacy of our cash resources and working capital , including our ability to obtain continued financing on favorable terms ; the timing of cash flows , if any , from the operations of our portfolio companies ; the impact of increased competition ; the ability of the advisor to locate suitable investments for us and to monitor and administer our investments ; changes in law and policy accompanying the new administration and uncertainty pending any such changes ; increased geopolitical unrest , terrorist attacks or acts of war , which may adversely affect the general economy , domestic and local financial and capital markets , or the specific industries of our portfolio companies ; changes and volatility in political , economic or industry conditions , the interest rate environment , foreign exchange rates or financial and capital markets ; the unfavorable resolution of legal proceedings ; and the impact of changes to tax legislation and , generally , our tax position . overview we were incorporated in delaware on april 13 , 2005 and commenced operations with private funding on july 25 , 2005 and completed our initial public offering on july 2 , 2007. our investment objective is to generate both current income and capital appreciation through debt and equity investments . we invest primarily in middle-market companies in the form of senior and junior secured and unsecured debt securities and loans , each of which may include an equity component , and by making direct preferred , common and other equity investments in such companies . 49 we are externally managed and have elected to be regulated as a bdc und er the 1940 act . as a bdc , we are required to comply with certain regulatory requirements . for instance , we generally have to invest at least 70 % of our total assets in “ qualifying assets , ” including securities of private or thinly traded public u.s. compa nies , cash , cash equivalents , u.s. government securities and high-quality debt investments that mature in one year or less . certain items previously reported may have been reclassified to conform to the current year presentation . investments our level of investment activity can and does vary substantially from period to period depending on many factors , including the amount of debt and equity capital available to middle-market companies , the level of merger and acquisition activity , the general economic environment and the competitive environment for the types of investments we make . as a bdc , we generally do not acquire any assets other than “ qualifying assets ” specified in the 1940 act unless , at the time the acquisition is made , at least 70 % of our total assets are qualifying assets ( with certain limited exceptions ) . qualifying assets include investments in “ eligible portfolio companies. ” under the relevant sec rules , the term “ eligible portfolio company ” includes most private companies , companies whose securities are not listed on a national securities exchange , and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $ 250 million . these rules also permit us to include as qualifying assets certain follow-on investments in companies that were eligible portfolio companies at the time of initial investment but that no longer meet the definition . as of december 31 , 2019 , approximately 20.2 % of the total assets of the company were not qualifying assets under section 55 ( a ) of the 1940 act . revenues we generate revenues primarily in the form of interest on the debt we hold , dividends on our equity interests and capital gains on the sale of warrants and other debt or equity interests that we acquire in portfolio companies . our investments in fixed income instruments generally have an expected maturity of three to ten years , although we have no lower or upper constraint on maturity , and typically bear interest at a fixed or floating rate . interest on our debt securities is generally payable quarterly or semi-annually . in some cases , our debt instruments and preferred stock investments may defer payments of cash interest or dividends or pay interest or dividends in-kind . any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date . in addition , we may generate revenue in the form of prepayment fees , commitment , origination , capital structuring fees , and fees for providing significant managerial assistance . expenses our primary operating expenses include the payment of a base management fee and , depending on our operating results , an incentive management fee , interest and credit facility fees , expenses reimbursable under the management agreement , professional fees , administration fees and the allocable portion of overhead under the administration agreement . the base management fee and incentive management fee compensate the advisor for work in identifying , evaluating , negotiating , closing and monitoring our investments . story_separator_special_tag the decrease in total assets was primarily resulting from valuation depreciation in 2019 and net sales , repayments and valuation deprecation in the fourth quarter of 2018. the decrease of $ 2.3 million , or 13.7 % , in base management fees for the year ended december 31 , 2018 from comparable period in 2017 , was primarily due to a decline in the total assets on which management fees are calculated ( in arrears ) . the decrease in total assets was primarily resulting from net sales , repayments and other exits throughout 2018. as previously disclosed , the advisor , in consultation with the company 's board of directors , had agreed to waive incentive fees based on income from march 7 , 2017 through june 30 , 2019. the advisor voluntarily waived a portion of its incentive fees based on income from july 1 , 2019 through december 31 , 2019. for the year ended december 31 , 2019 , the company incurred net incentive management fees of $ 1.8 million after a waiver of $ 6.9 million ( see note 3 to the consolidated financial statements ) , as compared to net incentive management fees of zero for the year ended december 31 , 2018 . for the years ended december 31 , 2019 and 2018 , no incentive management fees based on gains were incurred ( see note 3 to the consolidated financial statements ) . interest and credit facility fees decreased $ 3.0 million , or 16.4 % , for the year ended december 31 , 2018 compared to 2017 , primarily due to the maturity of the 2018 convertible notes ( see note 7 to the consolidated financial statements ) . net investment income net investment income was $ 41.9 million , $ 47.4 million and $ 55.1 million , respectively , for the years ended december 31 , 2019 , 2018 and 2017. for the year ended december 31 , 2019 , net investment income decreased $ 5.5 million , or 11.6 % , compared to 2018 , due to a decrease in total investment income of $ 5.7 million , partially offset by a decrease in total expenses of $ 0.2 million . for the year ended december 31 , 2018 , net investment income decreased $ 7.7 million , or 13.9 % , compared to 2017 , due to a decrease in total investment income of $ 13.5 million , partially offset by a decrease in total expenses of $ 5.8 million . 54 net realized gain or loss net realized gain ( loss ) on investments was $ ( 24.9 ) million , $ ( 45.9 ) million and $ ( 52.4 ) million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . net realized gain ( loss ) of $ ( 24.9 ) million for the year ended december 31 , 2019 was primarily due to i ) the restructure of westmoreland resource partners , lp , ii ) the partial sale of u.s. well services , inc. , class a common stock , iii ) the exit of our second lien debt and equity investments in vertellus holdings , llc and v global , llc ( collectively , “ vertellus ” ) , as well as the partial sales of our first lien debt investment in vertellus and preferred equity investment in advantage insurance inc. substantially all of the net realized losses were reflected in unrealized depreciation in prior periods . net realized gain ( loss ) of $ ( 45.9 ) million for the year ended december 31 , 2018 primarily resulted from i ) restructurings or write offs of $ ( 76.6 ) million in our debt investment in mbs group holdings inc. ( “ mbs ” ) and svp worldwide ltd. ( “ svp ” ) , and ii ) partially offset by realized gains of $ 31.9 million from restructuring and exit of our equity investment in u.s. well services , llc and eci cayman holdings lp. , respectively . substantially all of the net realized losses were reflected in unrealized depreciation in prior periods . of the net realized losses for the year ended december 31 , 2017 , there were realized losses of $ ( 61.4 ) million , which were primarily a result of restructurings , amendments or write-offs associated with our debt investments in advanced lighting technologies , inc , ( “ advanced lighting ” ) , debt and equity investments in u.s. well , and debt investment in shoreline energy llc ( “ shoreline ” ) . these realized losses were partially offset by realized gains of $ 9.0 million , primarily associated with the disposition of equity investment in usi senior holdings , inc. and equity investments in bankruptcy management solutions , inc. net change in unrealized appreciation or depreciation for the years ended december 31 , 2019 , 2018 and 2017 , the change in net unrealized appreciation or ( depreciation ) on investments and foreign currency translation was an increase in net unrealized depreciation of $ ( 23.9 ) million , an increase in net unrealized depreciation of $ ( 10.7 ) million , and a decrease in net unrealized depreciation of $ 19.6 million , respectively . the increase in net unrealized depreciation for the year ended december 31 , 2019 , was primarily due to i ) $ ( 35.0 ) million increase in valuation depreciation in our investments in agy holding corp. and u.s. well services inc. , ii ) $ ( 4.2 ) million increase in valuation depreciation in our equity investments in bcic senior loan partners , llc and first boston construction holdings , llc , partially offset by iii ) $ 19.2 million reversal of previously recognized net unrealized depreciation upon restructuring of our debt investment in westmoreland resource partners , lp , the exit of our second lien debt and equity investments in vertellus .
| financial and operating highlights at december 31 , 2019 : investment portfolio , at fair value : $ 749.9 million net assets : $ 435.6 million indebtedness , excluding deferred financing costs : $ 315.9 million net asset value per share : $ 6.33 portfolio activity for the year ended december 31 , 2019 : cost of investments during period , including pik : $ 303.5 million sales , repayments and other exits during period : $ 176.7 million number of portfolio companies at end of period : 47 operating results for the year ended december 31 , 2019 : net investment income per share : $ 0.61 distributions declared per share : $ 0.64 basic earnings/ ( losses ) per share : $ ( 0.10 ) net investment income : $ 41.9 million net realized and unrealized gain/ ( loss ) : $ ( 48.8 ) million net increase/ ( decrease ) in net assets from operations : $ ( 6.9 ) million net investment income per share , as adjusted 1 : $ 0.61 basic earnings per share , as adjusted 1 : $ ( 0.10 ) net investment income , as adjusted 1 : $ 41.9 million net increase in net assets from operations , as adjusted 1 : $ ( 6.9 ) million as adjusted 1 : amounts are adjusted to remove the incentive management fee expense based on gains , as required by gaap , and to include only the incremental incentive management fee expense based on income . until march 6 , 2017 , the incremental incentive management fee was calculated based on the current quarter 's incremental earnings and without any reduction for incentive management fees paid during the prior calendar quarters . after march 6 , 2017 , incentive management fee expense based on income is calculated for each calendar quarter and may be paid on a quarterly basis if certain thresholds are met . amounts reflect the company 's ongoing operating results and reflect the company 's financial performance over time .
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our clients typically operate in complex and regulated environments and outsource their recovery needs in order to reduce losses on billions of dollars of defaulted student loans , improper healthcare payments and delinquent state tax and federal treasury and other receivables . we generally provide our services on an outsourced basis , where we handle many or all aspects of our clients ' recovery processes . our revenue model is generally success-based as we earn fees on the aggregate amount of funds that we enable our clients to recover . our services do not require any significant upfront investments by our clients and offer our clients the opportunity to recover significant funds otherwise lost . because our model is based upon the success of our efforts and the dollars we enable our clients to recover , our business objectives are aligned with those of our clients and we are generally not reliant on their spending budgets . furthermore , our business model does not require significant capital expenditures and we do not purchase loans or obligations . 34 sources of revenues we derive our revenues from services for clients in a variety of different markets . these markets include our two largest markets , student lending and healthcare , as well as our other markets which include but are not limited to delinquent state taxes and federal treasury and other receivables . replace_table_token_5_th student lending we derive the majority of our revenues from the recovery of student loans . these revenues are contract-based and consist primarily of contingency fees based on a specified percentage of the amount we enable our clients to recover . our contingency fee percentage for a particular recovery depends on the type of recovery facilitated . we also receive incremental performance incentives based upon our performance as compared to other contractors with the department of education , which are comprised of additional inventory allocation volumes and incentive fees . based on data compiled from over two decades of experience with the recovery of defaulted student loans , at the time we receive a placement of student loans , we are able to make a reasonably accurate estimate of the recovery outcomes likely to be derived from such placement and the revenues we are likely able to generate based on the anticipated recovery outcomes . there are five potential outcomes to the student loan recovery process from which we generate revenues . these outcomes include : full repayment , recurring payments , rehabilitation , loan restructuring and wage garnishment . of these five potential outcomes , our ability to rehabilitate defaulted student loans is the most significant component of our revenues in this market . generally , a loan is considered successfully rehabilitated after the student loan borrower has made nine consecutive qualifying monthly payments and our client has notified us that it is recalling the loan . once we have structured and implemented a repayment program for a defaulted borrower , we ( i ) earn a percentage of each periodic payment collected up to and including the final periodic payment prior to the loan being considered rehabilitated by our clients , and ( ii ) if the loan is rehabilitated , then we are paid a one-time percentage of the total amount of the remaining unpaid balance . the fees we are paid vary by recovery outcome as well as by contract . for non-government-supported student loans we are generally only paid contingency fees on two outcomes : full repayment or recurring repayments . the table below describes our typical fee structure for each of these five outcomes . 35 student loan recovery outcomes full repayment recurring payments rehabilitation loan restructuring wage garnishment repayment in full of the loan regular structured payments , typically according to a renegotiated payment plan after a defaulted borrower has made nine consecutive recurring payments , the loan is eligible for rehabilitation restructure and consolidate a number of outstanding loans into a single loan , typically with one monthly payment and an extended maturity if we are unable to obtain voluntary repayment , payments may be obtained through wage garnishment after certain administrative requirements are met we are paid a percentage of the full payment that is made we are paid a percentage of each payment we are paid based on a percentage of the overall value of the rehabilitated loan we are paid based on a percentage of overall value of the restructured loan we are paid a percentage of each payment for certain guaranty agency , or ga , clients , we have entered into master service agreements , or msas . under these agreements , clients provide their entire inventory of outsourced loans or receivables to us for recovery on an exclusive basis , rather than just a portion , as with traditional contracts that are split among various service providers . in certain circumstances , we engage subcontractors to assist in the recovery of a portion of the client 's portfolio . we also receive success fees for the recovery of loans under msas and our revenues under msa arrangements include fees earned by the activities of our subcontractors . as of december 31 , 2012 , we had three msa clients in the student loan market . healthcare we derive revenues from the healthcare market primarily from our rac contract , under which we are the prime contractor responsible for detecting improperly paid part a and part b medicare claims in 12 states in the northeastern united states . revenues earned under the rac contract are driven by the identification of improperly paid medicare claims through both automated and manual review of such claims . we are paid contingency fees by cms based on a percentage of the dollar amount of claims recovered by cms as a result of our efforts . we recognize revenue when the provider pays cms or incurs an offset against future medicare claims . story_separator_special_tag while these costs may initially increase as a percentage of our revenues , we expect that in the future these expenses will increase at a slower rate than our overall business volume , and that they will eventually represent a smaller percentage of our revenues . factors affecting our operating results our results of operations are influenced by a number of factors , including allocation of placement volume , claim recovery volume , contingency fees , regulatory matters , effects of client concentration and macroeconomic factors . allocation of placement volume our clients have the right to unilaterally set and increase or reduce the volume of defaulted student loans or other receivables that we service at any given time . in addition , many of our recovery contracts for student loans and other receivables are not exclusive , with our clients retaining multiple service providers to service portions of their portfolios . accordingly , the number of delinquent student loans or other receivables that are placed with us may vary from time to time , which may have a significant effect on the amount and timing of our revenues . we believe the major factors that influence the number of placements we receive from our clients in the student loan market include our performance under our existing contracts and our ability to perform well against competitors for a particular client . to the extent that we perform well under our existing contracts and differentiate our services from those of our competitors , we may receive a relatively greater number of placements under these existing contracts and may improve our ability to obtain future contracts from these clients and other potential clients . further , delays in placement volume , as well as acceleration of placement volume , from any of our large clients may cause our revenues and operating results to vary from quarter to quarter . typically we are able to anticipate with reasonable accuracy the timing and volume of placements of defaulted student loans and other receivables based on historical patterns and regular communication with our clients . occasionally , however , placements are delayed due to factors outside of our control . for example , a technology system upgrade at the department of education significantly decreased the volume of student loan placements by the department of education to all recovery vendors , including us . while we and the other recovery vendors have recently received substantially larger placement volume in the fourth quarter of 2012 as a result of the completion of this technology system upgrade , the majority of the revenues from these placements will be delayed until the third quarter of 2013 because we do not begin to earn rehabilitation revenues from a given placement until at least nine months after receipt of a placement . in addition , for approximately twelve months beginning in september 2011 , the department of education was not able to process a portion of 38 rehabilitated student loans and accordingly we were not able to recognize certain revenues associated with rehabilitation of loans for this client . however , the department of education continued to pay us based on invoices submitted and we recorded these cash receipts as deferred revenues on our balance sheet . the amount of placement volume that we receive is also dependent on the client relationships that we maintain . we analyze the profitability of each of our student lending clients , and sometimes determine that our resources servicing a specific client should be allocated elsewhere . as a result of this process , we decided to terminate an unprofitable contract with a commercial bank , which we do not expect will have a significant effect on revenues or net income in future periods . our decision to terminate this contract , as discussed above , accounts for a substantial portion of the 7.6 % decrease in placement volume in the year ended december 31 , 2012 , compared to the prior year period . claim recovery volume while we are entitled to review medicare records for all part a and part b claims in our region , we are not permitted to identify an improper claim unless that particular type of claim has been pre-approved by cms to ensure compliance with applicable medicare payment policies , as well as national and local coverage determinations . the growth of our revenues is determined primarily by the aggregate volume of medicare claims in our region and our ability to identify improper payments within these claims . however , the long-term growth of these revenues will also be affected by the scope of the issues pre-approved by cms . further , our claim recovery volume is currently impacted by a system adjustment that is being implemented by cms for its pip providers . pip providers are reimbursed for medicare claims through different processes than other healthcare providers , and cms is in the process of making certain system adjustments in order to allow these claims to be processed . prior to april 2012 , we were not permitted to audit medicare claims for these pip providers , which we estimate to account for approximately 20 % of medicare claims in our region . the improper payments to pip providers that we have identified were not processed by cms from april 2012 until january 2013 , when a small portion of such payments began to be processed manually . as a result , we will not recognize any revenues from identified improper payments to pip providers as of december 31 , 2012 , but we have incurred expenses related to these claims . we estimate that this delayed our recognition of approximately $ 6 million in revenues in 2012 , although we began to recognize a portion of these revenues starting in the first quarter of 2013. cms remains in the process of implementing the necessary changes to its systems that would allow these claims to be processed automatically and allow us to recognize these revenues .
| results of operations year ended december 31 , 2012 compared to the year ended december 31 , 2011 the following table represents our historical operating results for the periods presented : replace_table_token_7_th 42 revenues total revenues were $ 210.1 million for the year ended december 31 , 2012 , an increase of $ 47.1 million or 28.9 % , compared to total revenues of $ 163.0 million for the year ended december 31 , 2011. this increase in revenues is primarily due to an increase of $ 33.2 million in revenues received from cms under our rac contract as a result of higher claim recovery volume and an increase of $ 4.8 million generated from a new default-aversion service contract that commenced in may 2012 , for a new service offering we provide in other markets we serve . revenues from student lending increased by 8.3 % in 2012 to $ 132.4 million from $ 122.2 million in the prior year period . salaries and benefits salaries and benefits expense was $ 83.0 million for the year ended december 31 , 2012 , an increase of $ 15.9 million , or 23.7 % , compared to salaries and benefits expense of $ 67.1 million for the year ended december 31 , 2011. this increase is primarily due to hiring of new employees to provide services under our rac contract with cms , an increase in expenses associated with the engagement of additional software engineers to assist in the integration of a recently acquired software license and an increase in expenses associated with the hiring of additional administrative employees .
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the design of any system of controls is based in part upon certain assumptions about the likelihood of future events , and there can be no assurance that any design will achieve its stated objectives under all future conditions . this annual report on form 10-k does not include an attestation report of the company 's independent public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by the company 's independent public accounting firm pursuant to rules of the securities and exchange commission that permit the company to provide only management 's report in this annual report on form 10-k. changes in internal control over financial reporting there were no changes in internal controls over financial reporting during the fourth quarter ended december 31 , 2016 that have materially , or are reasonably likely to materially affect , the company 's internal control over financial reporting . item 9b . other information none . 64 part iii item 10. directors , executive officers , and corporate governance the information required by items 401 , 405 , 406 , 407 ( c ) ( 3 ) , ( d ) ( 4 ) and ( d ) ( 5 ) of regulation s-k will be included in the company 's proxy statement for its 2017 annual meeting of shareholders to be filed with the sec within 120 days after december 31 , 2016 ( the “ 2017 proxy statement ” ) , and is incorporated by reference in this annual report on form 10-k. the company 's code of business conduct and ethics is available on the company 's website at www.ithmines.com . item 11. executive compensation the information required by item 402 and paragraph ( e ) ( 4 ) and ( e ) ( 5 ) of item 407 of regulation s-k will be contained in the company 's 2017 proxy statement , and is incorporated by reference in this annual report on form 10-k. item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by item 201 ( d ) and item 403 of regulation s-k will be contained in the company 's 2017 proxy statement , and is incorporated by reference in this annual report on form 10-k. item 13. certain relationships and related transactions , and director independence the information required by item 404 and item 407 ( a ) of regulation s-k will be contained in the company 's 2017 proxy statement , and is incorporated by reference in this annual report on form 10-k. item 14. principal accounting fees and services the information required by item 9 ( e ) of schedule 14a will be filed in the company 's 2017 proxy statement , and is incorporated by reference in this annual report on form 10-k. 65 part iv item 15. exhibits and financial statement schedules ( a ) documents filed as part of this report ( 1 ) all financial statements the consolidated statements of operations and comprehensive loss , cash flows , and changes in shareholders ' equity , and the consolidated balance sheets are included as part of part ii , item 8 , financial statements and supplementary data . ( 2 ) financial statement schedules all financial statement schedules have been omitted , since the information is either not applicable or required , or because the information required is included in the consolidated financial statements and notes thereto included in this form 10-k. ( 3 ) exhibits required by item 601 of regulation s-k the information required by section ( a ) ( 3 ) of item 15 is set forth on the exhibit index that follows the signatures page of this form 10-k. item 16. form 10-k summary not applicable . 66 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . international tower hill mines ltd. by : karl l. hanneman karl l. hanneman chief executive officer date : march 15 , 2017 power of attorney know all persons by these presents , that each person whose signature appears below constitutes and appoints karl . l. hanneman as his attorney-in-fact , with the power of substitution , for him in any and all capacities , to sign any amendments to this annual report on form 10-k , and to file the same , with exhibits thereto and other documents in connection therewith , with the securities and exchange commission , hereby ratifying and confirming all that said attorney-in-fact , or his substitute or substitutes , may do or cause to be done by virtue hereof . pursuant to the requirements of the securities exchange story_separator_special_tag current business activities general livengood gold project developments during the year ended december 31 , 2016 and to the date of this annual report on form 10-k , the company progressed on a number of opportunities for optimization and reducing the costs of building and operating a mine at the project . outside consultants were retained to conduct additional metallurgical tests and engineering , including confirmation of the flow sheet and optimizing the operating costs . these inputs were used to prepare the october 2016 study , which evaluated several scenarios , ultimately selecting a project that will process 52,600 tons per day and produce 6.8 million ounces of gold over 23 years . story_separator_special_tag the cost is expected to be recognized over a weighted-average remaining period of approximately 0.82 years . share based payment charges were allocated as follows : replace_table_token_10_th excluding share-based payment charges of $ 400,095 and $ 1,125,878 , respectively , wages and benefits decreased to $ 2,159,515 for the year ended december 31 , 2015 from $ 2,820,873 for the year ended december 31 , 2014. a decrease in severance expense of approximately $ 285,000 from 2014 to 2015 along with decreased personnel as a result of the resignation of the company 's chief financial officer effective december 31 , 2014 and the closure of the colorado office during 2015 contributed to lower wages and benefits expenses . all other operating expense categories showed moderate decreases period over period reflecting the company 's efforts to reduce spending . other items amounted to other income of $ 1,637,352 during the year ended december 31 , 2015 compared to other income of $ 606,192 in the year ended december 31 , 2014. total other income in 2015 resulted from the unrealized gain on the revaluation of the derivative liability of $ 800,000. this unrealized gain was caused by the further decrease in the price per ounce of gold during 2015 and is compared to an unrealized gain of $ 100,000 during 2014 which resulted from a lesser decrease in the price of gold during 2014. in addition to the unrealized gain on the derivative liability , the company had a foreign exchange gain of $ 990,690 during the year ended december 31 , 2015 compared to a gain of $ 453,161 during the year ended december 31 , 2014 as a result of the impact of exchange rates on certain of the company 's u.s. dollar cash balances . the average exchange rate during the year ended december 31 , 2015 was c $ 1 to us $ 0.7820 compared to c $ 1 to us $ 0.9054 for the year ended december 31 , 2014 . 43 the increase in other income was partially offset by a loss of $ 219,402 related to the other than temporary impairment of certain available-for-sale securities during the year ended december 31 , 2015. the available-for-sale securities were deemed to be other than temporarily impaired based on the fair market value of the securities combined with a continued lack of liquidity . liquidity and capital resources the company has no revenue generating operations from which it can internally generate funds . to date , the company 's ongoing operations have been predominantly financed through sale of its equity securities by way of private placements and the subsequent exercise of share purchase and broker warrants and options issued in connection with such private placements . however , the exercise of warrants/options is dependent primarily on the market price and overall market liquidity of the company 's securities at or near the expiry date of such warrants/options ( over which the company has no control ) and therefore there can be no guarantee that any existing warrants/options will be exercised . there are currently no warrants outstanding . as at december 31 , 2016 , the company reported cash and cash equivalents of $ 22,466,493 compared to $ 6,493,486 at december 31 , 2015. net proceeds from financing of approximately $ 21.9 million partially offset by expenditures on the livengood gold project of approximately $ 6.5 million and a negative foreign currency translation impact of approximately $ 0.5 million resulted in an increase in cash and cash equivalents of approximately $ 16.0 million . the company continues to utilize its cash resources to pursue opportunities identified in the october 2016 study , to fund environmental activities required for preservation of baseline database and future permitting as well as to complete corporate administrative requirements . the company had no cash flows from investing activities during the years ended december 31 , 2016 and december 31 , 2015. financing activities during the year ended december 31 , 2016 provided proceeds of $ 21,853,265 from the closing of a non-brokered private placement of common shares in december 2016. total common shares issued in the financing were 45,833,334 at a price of $ 0.48 for gross proceeds of $ 22.0 million . total share issuance costs were $ 146,735. the company had no cash flows from financing activities during the year ended december 31 , 2015. as at december 31 , 2016 , the company had working capital of $ 7,588,867 compared to working capital of $ 6,169,233 at december 31 , 2015. the company expects that it will operate at a loss for the foreseeable future , but believes the current cash and cash equivalents will be sufficient for it to complete its anticipated 2017 work plan at the livengood gold project and satisfy its currently anticipated general and administrative costs through the 2017 fiscal year . to advance the livengood gold project towards permitting and development , the company anticipates maintaining certain essential development activities for the fiscal year ending december 31 , 2017. these essential activities include maintaining environmental baseline data that in its absence could materially delay future permitting of the livengood gold project . the company will require significant additional financing to continue its operations ( including general and administrative expenses ) in connection with advancing activities at the livengood gold project and the development of any mine that may be determined to be built at the livengood gold project , and there is no assurance that the company will be able to obtain the additional financing required on acceptable terms , if at all .
| summary of quarterly results replace_table_token_6_th replace_table_token_7_th significant fluctuations in the company 's quarterly net loss have mainly been the result of changes in operating costs and the valuation of the company 's derivative liability . the fluctuation in the derivative liability was caused by changes in the price of gold during the period along with the expected price of gold through the term of the derivative liability , which was paid in january 2017. the following table presents the unrealized gain or loss on the valuation of the derivative for each quarterly period during the years ended december 31 , 2016 and 2015 : replace_table_token_8_th 41 year ended december 31 , 2016 compared to year ended december 31 , 2015 the company had cash and cash equivalents of $ 22,466,493 at december 31 , 2016 compared to $ 6,493,486 at december 31 , 2015. the company incurred a net loss of $ 7,190,628 for the year ended december 31 , 2016 , compared to a net loss of $ 4,812,824 for the year ended december 31 , 2015. the following discussion highlights certain selected financial information and changes in operations between the year ended december 31 , 2016 and the year ended december 31 , 2015. mineral property expenditures were $ 2,648,631 for the year ended december 31 , 2016 compared to $ 2,381,868 for the year ended december 31 , 2015. the increase of $ 266,763 is due to increased expenditures for metallurgical studies and engineering partially offset by the company limiting field activities to the continuation of critical environmental baseline work while moving forward with a multi-phase metallurgical test work program .
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the permits are story_separator_special_tag the following discussion and analysis of our financial condition and results of our operations should be read in conjunction with item 6 , `` selected financial and operating data '' and item 8 , `` financial statements and supplementary data , '' of 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 such forward-looking statements . factors that could cause or contribute to those differences include , but are not limited to , those identified below and those discussed in the section titled `` cautionary note regarding forward-looking statements '' and in item 1a , `` risk factors '' in this annual report on form 10-k. unless otherwise specified , all dollar amounts in this section are referred to in thousands . overview and background we are a leading provider of mission critical water treatment solutions , offering services , systems and technologies to support our customers ' full water lifecycle needs . with over 200,000 installations worldwide , we hold leading positions in the industrial , commercial and municipal water treatment markets in north america . we offer a comprehensive portfolio of differentiated , proprietary technology solutions sold under a number of market-leading and well-established brands . we deliver and maintain these mission critical solutions through the largest service network in north america assuring our customers continuous uptime with 86 branches which are located no further than a two-hour drive from more than 90 % of our customers ' sites . we believe that the customer intimacy created through our service network is a significant competitive advantage . our solutions are designed to provide `` worry-free water '' by ensuring that our customers have access to an uninterrupted quantity and level of quality of water that meets their unique product , process and recycle or reuse specifications . we enable our customers to achieve lower costs through greater uptime , throughput and efficiency in their operations and support their regulatory compliance and environmental sustainability . we have worked to protect water , the environment and our employees for over 100 years . as a result , we have earned a reputation for quality , safety and reliability and are sought out by our customers to solve the full range of their water treatment needs , and maintaining our reputation is critical to the success of our business and solution set . our vision `` to be the world 's first choice in water solutions '' and our values of `` integrity , customers and performance '' foster a corporate culture that is focused on employee enablement , empowerment and accountability , which creates a highly entrepreneurial and dynamic work environment . our purpose is `` transforming water . enriching life . '' we draw from a long legacy of water treatment innovations and industry firsts , supported by more than 1,250 granted or pending patents , which in aggregate are important to our business . our core technologies are primarily focused on removing impurities from water , rather than neutralizing them through the addition of chemicals , and we are able to achieve purification levels which are 1,000 times greater than typical drinking water . business segments our business is organized by customer base and offerings into three reportable segments that each draw from the same reservoir of leading technologies , shared manufacturing infrastructure , common business processes and corporate philosophies . our reportable segments consist of : ( i ) our industrial segment , ( ii ) our municipal segment and ( iii ) our products segment . the key factors used to identify these reportable segments are the organization and alignment of our internal operations , the nature of the products and services and customer type . within the industrial segment , we primarily provide tailored solutions in collaboration with our customers backed by life-cycle services including on-demand water , build-own-operated ( `` boo '' ) , recycle and reuse and emergency response service alternatives to improve operational reliability , performance and environmental compliance . 56 within the municipal segment , we primarily deliver solutions , equipment and services to engineering firms , oems and municipalities to treat wastewater and purify drinking water , and to control odor and corrosion . within the products segment , we provide a highly differentiated and scalable range of products and technologies specified by global water treatment designers , oems , engineering firms and integrators . we evaluate our business segments ' operating results based on income from operations and ebitda on a segment basis . corporate activities include general corporate expenses , elimination of intersegment transactions , interest income and expense and other unallocated charges , which have not been allocated to business segments . as such , the segment results provided herein may not be comparable to other companies . for the fiscal years ended september 30 , 2015 , 2016 and 2017 , our industrial segment accounted for 53.6 % , 53.1 % and 51.6 % of our revenues , respectively ; our municipal segment accounted for 25.8 % , 24.4 % and 22.3 % of our revenues , respectively ; and our products segment accounted for 20.6 % , 22.5 % and 26.1 % of revenues , respectively . organic growth drivers market growth we maintain a leading position among customers in growing industries that utilize water as a critical part of their operations or production processes , including pharmaceuticals and health sciences , microelectronics , food and beverage , hydrocarbon and chemical processing , power , general manufacturing , municipal drinking and wastewater , marine and aquatics . water treatment is an essential , non-discretionary market that is growing in importance as access to clean water has become an international priority . underpinning this growth are a number of global , long-term trends that have resulted in increasingly stringent effluent regulations , along with a growing demand for cleaner and sustainable waste streams for reuse . story_separator_special_tag magneto is included in the results of our products segment . neptune-benson on april 15 , 2016 , we completed the acquisition of 100 % of the issued and outstanding capital stock of privately held neptune-benson , a leading manufacturer of high-quality water filtration and disinfection products for the commercial , industrial and municipal water markets for $ 283.7 million . neptune-benson is included in the results of our products segment . vaf on july 1 , 2016 , we completed the acquisition of substantially all of the assets of valve and filtration systems , ltd. ( `` vaf '' ) for approximately $ 3.3 million , consisting of $ 2.7 million cash at closing and $ 0.6 million related to a $ 1.0 million maximum earnout payment subject to various performance metrics over the next five years . vaf is a leading screen filtration manufacturer based in arvada , colorado . vaf is included in the results of our products segment . delta uv on august 3 , 2016 , we completed the acquisition of 100 % of the issued and outstanding capital stock of delta ultraviolet corporation ( `` delta uv '' ) , a leading manufacturer and marketer of uv-c technology in north america for $ 4.8 million . delta uv is included in the results of our products segment . ets on november 1 , 2016 , we completed the acquisition of substantially all of the assets of environmental treatment systems inc. ( `` ets '' ) , which adds organic wastewater treatment capability to our industrial treatment solutions , for $ 10.7 million . ets further allows us to insource manufacturing of dissolved air flotation units , the production of which we previously outsourced . ets is included in the results of our industrial segment . noble on may 9 , 2017 , we completed the acquisition of substantially all of the assets of noble water technologies , inc. ( `` noble '' ) , which provides water equipment and treatment systems for commercial buildings , industrial plants , medical laboratories and the pharmaceutical industry , with a focus on the texas market , for $ 7.6 million , consisting of $ 5.9 million cash paid at closing and $ 1.7 million related to a $ 2.4 million maximum earnout payment subject to various performance metrics measured at the end of the 12 month period following closing . noble supports our existing high-purity water capabilities and is based in dallas , texas . noble is included in the results of our industrial segment . adi on june 30 , 2017 , we completed the acquisition of adi systems north america inc. , geomembrane technologies inc. and lange containment systems , inc. ( collectively `` adi '' ) , a leader in anaerobic digestion , aerobic treatment and biogas treatment , green energy recovery and water reuse technologies , as well as industrial wastewater cover liners and containment systems for a base purchase price of cad 72.2 million ( or approximately $ 55.6 million ) , of which cad 67.3 million ( $ 51.8 million ) in cash was paid at closing and included the fair value of the earnout payments of cad 4.9 million ( $ 3.8 million ) . the maximum earnout payment of cad 7.5 million ( or approximately $ 5.8 million ) , is payable over a period of twenty-four months based upon the achievement of certain specified performance metrics . adi is included in the results of our industrial segment . 59 olson on june 30 , 2017 , we completed the acquisition of all of the issued and outstanding shares of capital stock of privately held olson irrigation systems ( `` olson '' ) , a leading designer and producer of filters and irrigation components for the agriculture and industrial markets , for $ 9.4 million . olson is included in the results of our products segment . key factors and trends affecting our business and financial statements various trends and other factors affect or have affected our operating results , including : overall economic trends . the overall economic environment and related changes in industrial , commercial and municipal spending impact our business . in general , positive conditions in the broader economy promote industrial , commercial and municipal customer spending , while economic weakness results in a reduction of new industrial , commercial and municipal project activity . macroeconomic factors that can affect customer spending patterns , and thereby our results of operations , include population growth , total water consumption , municipal budgets , employment rates , business conditions , the availability of credit or capital , interest rates , tax rates and regulatory changes . since the businesses of our customers vary in cyclicality , periodic downturns in any specific sector typically have modest impacts on our overall business . new products and technologies . our ability to maintain our appeal to existing customers and attract new customers depends on our ability to originate , develop and offer a compelling array of products , services and solutions responsive to evolving customer innovations , preferences and specifications . we expect that increased use of water in industrial and commercial processes will drive increased customer demand in the future , and our ability to grow will depend in part on effectively responding to innovation in our customers ' processes and systems . further , our ability to provide products that comply with evolving government regulations will also be a driver of the appeal of our products , services and solutions to industrial and commercial customers . changes in costs . we have significant exposures to certain commodities , including steel , caustic , carbon , calcium nitrate and iridium , and volatility in the market price of these commodity input materials has a direct impact on our costs . if we are unable to manage commodity fluctuations through pricing actions , cost savings projects and sourcing decisions as well as through consistent productivity improvements , it may adversely impact our gross profit and gross margin .
| segment results replace_table_token_7_th 72 ebitda on a segment basis is defined as earnings before interest , taxes , depreciation and amortization . the following is a reconciliation of our segment operating profit to ebitda on a segment basis : replace_table_token_8_th ( 1 ) interest expense and income tax expense ( benefit ) are corporate activities that are not allocated to our three reportable segments . industrial revenues in the industrial segment increased $ 39.2 million , or 6.5 % , to $ 643.4 million in the fiscal year ended september 30 , 2017 from $ 604.2 million in the fiscal year ended september 30 , 2016. the increase in revenues was primarily due to an increase in service revenues of $ 27.7 million driven by higher customer production levels in general manufacturing and pharmaceutical and healthcare end markets and new account penetration in power and hydrocarbon and chemical processing end markets . in addition , an increase of $ 19.4 million of revenue was attributable to our acquisitions of ets , adi and noble during the fiscal year ended september 30 , 2017. our increased revenues were partially offset by a decrease of $ 7.9 million in revenues related to the vernon disposition as of september 30 , 2016. operating profit in the industrial segment increased $ 18.6 million , or 20.3 % , to $ 110.0 million in the fiscal year ended september 30 , 2017 from $ 91.4 million in the fiscal year ended september 30 , 2016. the increase in operating profit was primarily related to an increase in volume of $ 9.4 million as well as $ 9.8 million of benefits experienced as a result of our value creator initiatives . value creator benefits include carry over benefits from operational efficiency initiatives that we implemented in the prior fiscal year .
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our forward-looking statements and factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements include , but are not limited to , those discussed in the section titled “ forward-looking information ” and “ risk factors ” of this annual report on form 10-k. except as required by law , we assume no obligation to update the forward-looking statements or our risk factors for any reason . overview we are a leading provider of enterprise cloud computing solutions , with a focus on customer relationship management , or crm . we introduced our first crm solution in february 2000 and we have since expanded our offerings with new editions , solutions , enhanced features , platform capabilities and a new analytics solution through internal development and acquisitions . we sell to businesses of all sizes and in almost every industry worldwide on a subscription basis . our mission is to help our customers transform themselves into “ customer companies ” by empowering them to connect with their customers in entirely new ways . with our six core cloud service offerings—sales cloud , service cloud , marketing cloud , communities cloud , analytics cloud and the salesforce1 platform—customers have the tools they need to build a next generation customer success platform . key elements of our strategy include : strengthening our market-leading solutions ; extending distribution into new and high-growth categories ; expanding strategic relationships with our existing customers ; pursuing new customers ; reducing attrition ; building our business in top software markets globally , which includes building partnerships that help add customers ; and encouraging the development of third-party applications on our cloud computing platforms . we believe the factors that will influence our ability to achieve our objectives include : our prospective customers ' willingness to migrate to enterprise cloud computing services ; the availability , performance and security of our service ; our ability to continue to release , and gain customer acceptance of , new and improved features ; our ability to successfully integrate acquired businesses and technologies ; successful customer adoption and utilization of our service ; acceptance of our service in markets where we have few customers ; the emergence of additional competitors in our market and improved product offerings by existing and new competitors ; the location of new data centers ; third-party developers ' willingness to develop applications on our platforms ; our ability to attract new personnel and retain and motivate current personnel ; and general economic conditions which could affect our customers ' ability and willingness to purchase our services , delay the customers ' purchasing decision or affect attrition rates . to address these factors , we will need to , among other things , continue to add substantial numbers of paying subscriptions , upgrade our customers to fully featured versions or arrangements such as an enterprise license agreement , provide high quality technical support to our customers , encourage the development of third-party applications on our platforms and continue to focus on retaining customers at the time of renewal . our plans to invest for future growth include the continuation of the expansion of our data center capacity , the hiring of additional personnel , particularly in direct sales , other customer-related areas and research and development , the expansion of domestic and international selling and marketing activities , specifically in our top markets , continuing to develop our brands , the addition of distribution channels , the upgrade of our service offerings , the development of new services such as the announcement of our analytics cloud and community cloud , the integration of acquired technologies , the expansion of our marketing cloud and salesforce1 platform core service offerings , and the additions to our global infrastructure to support our growth . 30 we also regularly evaluate acquisitions or investment opportunities in complementary businesses , joint ventures , services and technologies and intellectual property rights in an effort to expand our service offerings . we expect to continue to make such investments and acquisitions in the future and we plan to reinvest a significant portion of our incremental revenue in future periods to grow our business and continue our leadership role in the cloud computing industry . as a result of our aggressive growth plans , specifically our hiring plan and acquisition activities , we have incurred significant expenses from equity awards and amortization of purchased intangibles which have resulted in net losses on a u.s. generally accepted accounting principles ( `` gaap '' ) basis . as we continue with our growth plan , we may continue to have net losses on a gaap basis . we remained focused on improving operating margins in fiscal 2015 and expect to remain similarly focused in fiscal 2016. our operating loss for fiscal 2015 was $ 145.6 million compared to $ 286.1 million during the same period a year ago . our typical subscription contract term is 12 to 36 months , although terms range from one to 60 months , so during any fiscal reporting period only a subset of active subscription contracts is eligible for renewal . we calculate our attrition rate as of the end of each month . our current attrition rate calculation does not include the marketing cloud service offerings . our attrition rate was between nine and ten percent during the fiscal year ended january 31 , 2015 , which is consistent with the attrition rate as of january 31 , 2014 . we expect our attrition rate to remain in this range as we continue to expand our enterprise business and invest in customer success and related programs . story_separator_special_tag for example , customers may use the sales cloud , the service cloud or our salesforce1 platform to record account and contact information , which are similar features across these core service offerings . depending on a customer 's actual and projected business requirements , more than one core service offering may satisfy the customer 's current and future needs . we record revenue based on the individual products ordered by a customer , and not according to the customer 's business requirements and usage . in addition , as we introduce new features and functions within each offering , and refine our allocation methodology for changes in our business , we do not expect it to be practical to adjust historical revenue results by core service offering for comparability . accordingly , comparisons of revenue performance by core service offering over time may not be meaningful . our sales cloud service offering is our most widely distributed service offering and has historically been the largest contributor of subscription and support revenues . as a result , sales cloud has the most international exposure and foreign exchange rate exposure , relative to the other cloud service offerings . conversely , revenue for marketing cloud is primarily derived from the americas , with little impact from foreign exchange rate movement . we estimate that for fiscal 2016 , subscription and support revenues from the sales cloud service offering will continue to be the largest contributor of subscription and support revenue , and foreign currency will continue to have a more pronounced impact on sales cloud subscription and support revenues than revenues from our other cloud service offerings . 32 seasonal nature of deferred revenue , accounts receivable and operating cash flow deferred revenue primarily consists of billings to customers for our subscription service . over 90 percent of the value of our billings to customers is for our subscription and support service . we generally invoice our customers in annual cycles . approximately 80 percent of all subscription and support invoices were issued with annual terms during fiscal 2015 in comparison to nearly 74 percent during fiscal 2014. occasionally , we bill customers for their multi-year contract on a single invoice which results in an increase in noncurrent deferred revenue . we typically issue renewal invoices in advance of the renewal service period , and depending on timing , the initial invoice for the subscription and services contract and the subsequent renewal invoice may occur in different quarters . this may result in an increase in deferred revenue and accounts receivable . there is a disproportionate weighting towards annual billings in the fourth quarter , primarily as a result of large enterprise account buying patterns . our fourth quarter has historically been our strongest quarter for new business and renewals . the year on year compounding effect of this seasonality in both billing patterns and overall new and renewal business causes the value of invoices that we generate in the fourth quarter for both new business and renewals to increase as a proportion of our total annual billings . accordingly , because of this billing activity , our first quarter is historically our largest collections and operating cash flow quarter . the sequential quarterly changes in accounts receivable , related deferred revenue and operating cash flow during the first three quarters of our fiscal year are not necessarily indicative of the billing activity that occurs in the fourth quarter as displayed below ( in thousands , except unbilled deferred revenue ) : replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th ( 1 ) operating cash flow represents net cash provided by operating activities for the three months ended in the periods stated above . 33 unbilled deferred revenue , a non-gaap measure the deferred revenue balance on our consolidated balance sheet does not represent the total contract value of annual or multi-year , non-cancelable subscription agreements . unbilled deferred revenue represents future billings under our subscription agreements that have not been invoiced and , accordingly , are not recorded in deferred revenue . unbilled deferred revenue was approximately $ 5.7 billion as of january 31 , 2015 and approximately $ 4.5 billion as of january 31 , 2014 . our typical contract length is between 12 and 36 months . we expect that the amount of unbilled deferred revenue will change from quarter to quarter for several reasons , including the specific timing , duration and size of large customer subscription agreements , varying billing cycles of subscription agreements , the specific timing of customer renewals , foreign currency fluctuations , the timing of when unbilled deferred revenue is to be recognized as revenue , and changes in customer financial circumstances . for multi-year subscription agreements billed annually , the associated unbilled deferred revenue is typically high at the beginning of the contract period , zero just prior to renewal , and increases if the agreement is renewed . low unbilled deferred revenue attributable to a particular subscription agreement is often associated with an impending renewal and may not be an indicator of the likelihood of renewal or future revenue from such customer . accordingly , we expect that the amount of aggregate unbilled deferred revenue will change from year-to-year depending in part upon the number and dollar amount of subscription agreements at particular stages in their renewal cycle . such fluctuations are not a reliable indicator of future revenues . unbilled deferred revenue does not include minimum revenue commitments from indirect sales channels , as we recognize revenue , deferred revenue , and any unbilled deferred revenue upon sell-through to an end user customer . cost of revenues and operating expenses cost of revenues .
| results of operations the following tables set forth selected data for each of the periods indicated ( in thousands ) : replace_table_token_9_th ( 1 ) cost of revenues and marketing and sales expenses include the following amounts related to amortization of purchased intangibles from business combinations ( in thousands ) : replace_table_token_10_th ( 2 ) cost of revenues and operating expenses include the following amounts related to stock-based expenses ( in thousands ) : replace_table_token_11_th 39 revenues by geography were as follows ( in thousands ) : replace_table_token_12_th americas revenue attributed to the united states was approximately 94 percent , 96 percent and 94 percent for fiscal 2015 , 2014 and 2013 , respectively . no other country represented more than ten percent of total revenue during fiscal 2015 , 2014 or 2013 . the following tables set forth selected consolidated statements of operations data for each of the periods indicated as a percentage of total revenues : replace_table_token_13_th replace_table_token_14_th 40 replace_table_token_15_th replace_table_token_16_th replace_table_token_17_th we present constant currency information to provide a framework for assessing how our underlying business performed excluding the effect of foreign currency rate fluctuations . to present this information , current and comparative prior period results for entities reporting in currencies other than united states dollars are converted into united states dollars at the weighted average exchange rate for the year being compared to for growth rate calculations presented , rather than the actual exchange rates in effect during that period . replace_table_token_18_th unbilled deferred revenue was approximately $ 5.7 billion as of january 31 , 2015 and $ 4.5 billion as of january 31 , 2014 . unbilled deferred revenue represents future billings under our non-cancelable subscription agreements that have not been invoiced and , accordingly , are not recorded in deferred revenue . 41 fiscal years ended january 31 , 2015 and 2014 revenues .
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for these performance-based awards , expense is recognized when it is story_separator_special_tag overview realnetworks creates innovative technology products and services that make it easy to connect with and enjoy digital media . we manage our business and report revenue and operating income ( loss ) in three segments : ( 1 ) consumer media ( 2 ) mobile services , and ( 3 ) games . within our consumer media segment revenue is primarily derived from the licensing of our video compression , or codec , technology , including our latest technology , realmedia high definition , or rmhd . we also generate revenue from the sales of our pc-based realplayer products , including realplayer plus and related products . these products and services are delivered directly to consumers and through partners , such as oems and mobile device manufacturers . our mobile services business generates revenue primarily from the sale of saas services , which include our intercarrier messaging service , ringback tones , and the integration of our realtimes platform . we generate a significant portion of our revenue from sales within our mobile services business from a few mobile carriers . the loss of these contracts or the termination or non-renewal or renegotiation of contract terms that are less favorable to us could result in the loss of future revenues and could result in the loss of anticipated profits . our games business , through its gamehouse and zylom brands , derives revenue from sales of mobile games , games licenses , online games subscription services , and advertising on games sites and within our games . we sold the slingo and social casino portion of our games business to gaming realms plc , a london-based online gaming company , for $ 18.0 million in august 2015. the purpose of the sale was to derive value from this business and to allow greater focus on our traditional casual games business . this transaction is further described in note 3. acquisitions and disposals , to the consolidated financial statements included in item 8 of part ii of this form 10-k. we allocate to our reportable segments certain corporate expenses which are directly attributable to supporting our businesses , including but not limited to a portion of finance , it , legal , human resources and headquarters facilities . remaining expenses , which are not directly attributable to supporting the business , are reported as corporate items . corporate expenses also include restructuring charges , lease exit and related charges , as well as stock compensation expense . on december 31 , 2017 , our contract with loen entertainment , co , ltd. ( loen ) for our music on demand services expired . as the profits generated from this business had significantly declined over time , we did not renew the sole contract for this service . accordingly , we have reported the operating results of this business as discontinued operations for all periods presented . the assets and liabilities of the music on demand business at december 31 , 2017 and 2016 have been reported as assets and liabilities of discontinued operations in the consolidated balance sheet . refer to note 16 to our consolidated financial statements for additional information on these discontinued operations . unless otherwise noted , amounts and percentages for all periods discussed below reflect the results of operations and financial condition of our continuing operations . in 2017 our consolidated revenue declined by $ 2.8 million compared with 2016 , due to a decrease of $ 2.5 million in consumer media revenue and $ 0.5 million in mobile services revenue . these decreases were offset by an increase of $ 0.3 million in games revenue . see below for further information regarding fluctuations by segment . as of december 31 , 2017 , we had $ 60.0 million in unrestricted cash , cash equivalents and short-term investments , compared to $ 77.1 million as of december 31 , 2016 . the 2017 decrease in cash , cash equivalents , and short-term investments from december 31 , 2016 was due primarily to our ongoing cash flows used in operating activities . in addition to our revenue growth plans , we have continued to reduce costs and better align our operating expenses with our revenue profile through various restructuring actions , as described below in consolidated operating expenses . these actions drove the $ 16.5 million decline in our operating expenses during 2017 compared to 2016 . summary of results consolidated results of operations were as follows ( dollars in thousands ) : replace_table_token_3_th 20 replace_table_token_4_th 2017 compared with 2016 revenue decreased by $ 2.8 million , or 3 % . the reduction in revenue resulted from a decline of $ 2.5 million in our consumer media segment , and a decline of $ 0.5 million in our mobile services segment . these declines were offset by an increase of $ 0.3 million in our games segment . for further detail regarding the changes , please see the discussions of segment revenues below . gross margin increased to 71 % from 66 % , driven by margin increases in consumer media and mobile services , offset by decreased margin in our games business due to increased app store fees as our mix shifts towards mobile games . operating expenses decreased by $ 16.5 million as compared to the prior year as a result of our continuing cost reduction efforts . these efforts were the primary reason for reductions to salaries , benefits and professional services costs of $ 7.7 million , facilities costs of $ 4.6 million , marketing expense of $ 1.8 million and lower lease exit costs of $ 2.2 million . further contributing to the decrease year over year is a benefit of $ 0.5 million relating to warrants received from napster in the first quarter of 2017 , which is discussed further in note 5 fair value measurements . these decreases were offset by an increase of $ 1.0 million in restructuring due to increased severance charges . story_separator_special_tag the decrease was primarily due to $ 4.1 million lower restructuring charges in 2016 compared to 2015 , as well as a reduction of $ 1.5 million in salary , benefit and professional service expenses , and lower expenses for facilities and support services as a result of our reduction of office space at our corporate headquarters and ongoing cost reduction efforts . these decreases were offset in part by the prior year release of $ 2.4 million for previously accrued sales taxes , a benefit of $ 1.2 million relating to the warrants received from napster in the first quarter of 2015 and an increase in stock compensation expense of $ 0.8 million in 2016 due in part to the authorization and granting of fully vested equity awards for our 2015 incentive bonuses in the first quarter of 2016. consolidated operating expenses our operating expenses consist primarily of salaries and related personnel costs including stock based compensation , consulting fees associated with product development , sales commissions , amortization of certain intangible assets capitalized in our acquisitions , professional service fees , advertising costs , and restructuring charges . operating expenses were as follows ( dollars in thousands ) : replace_table_token_9_th research and development expenses decreased by $ 0.2 million , or 1 % , in the year ended 2017 as compared to 2016. the decrease was primarily due to lower expenses for facilities and support services of $ 1.0 million as a result of our ongoing cost reduction efforts . the decrease was also due to the acceleration of depreciation expense of $ 0.7 million taken in the first quarter of 2016. these decreases were offset in part by an increase of $ 1.3 million in salaries , benefits and professional services expense due to increased efforts towards our growth initiatives . research and development expenses decreased by $ 13.7 million , or 31 % , in the year ended 2016 as compared to 2015. the decrease was primarily due to a $ 5.1 million reduction from the sale of our slingo and social casino games business , a $ 5.1 million reduction in personnel and related expenses , and a $ 2.9 million decrease in infrastructure costs , including reduced expenses for facilities and support services as a result of reduction of office space at our corporate headquarters . sales and marketing expenses decreased by $ 8.7 million , or 27 % , in the year ended 2017 , compared with 2016 . the decrease was due to reductions of $ 5.7 million in salaries , benefits and professional services fees , a $ 1.9 million decrease in marketing expenses , as well as decreased facilities and support services costs of $ 1.1 million . sales and marketing expenses decreased by $ 16.6 million , or 34 % , in the year ended 2016 , compared with 2015 . the decrease was primarily due to a $ 4.9 million reduction from the sale of our slingo and social casino games business , a decrease of $ 7.6 million in marketing expenses , a $ 2.6 million decrease in personnel and related expenses , as well as decreased facilities and support services costs . general and administrative expenses decreased by $ 6.4 million , or 23 % , in the year ended 2017 compared with 2016 . the decrease was primarily due to a reduction of $ 3.4 million in salaries , benefits and professional services fees , a decrease of $ 1.8 million related to reduced facilities and support services costs , as well as the first quarter 2017 benefit of $ 0.5 million relating to warrants we received from napster , which are discussed further in note 5 fair value measurements . also contributing to the decrease was a benefit of $ 0.4 million in the first quarter of 2017 related to the release of previously accrued taxes . general and administrative expenses increased by $ 2.9 million , or 12 % , in the year ended 2016 , compared with 2015 . the increased costs year over year were partially due to the prior year release of $ 2.4 million for previously accrued sales taxes , the impact of the benefit received in 2015 relating to warrants received from napster of $ 1.2 million , and accelerated depreciation 24 expense in 2016 due in part to a reduction in space at our corporate headquarters . these increases were offset in part by further reductions in personnel and related expenses of $ 1.6 million and savings recognized from the sale of our slingo and social casino games business of $ 1.2 million . restructuring and other charges and lease exit and related charges consist of costs associated with the ongoing reorganization of our business operations and our ongoing expense re-alignment efforts . the restructuring expense amounts in all years primarily related to severance costs due to workforce reductions . for additional details on these charges see note 10. restructuring charges and note 11. lease exit and related charges . other income ( expenses ) other income ( expenses ) , net was as follows ( dollars in thousands ) : replace_table_token_10_th the 2017 gain ( loss ) on investment , net , was due to the collection and recognition of the second and final anniversary payment of $ 4.5 million from our 2015 sale of the slingo and social casino business , which included an agreed-to additional $ 0.5 million as a result of the extension of the second anniversary payment from august to december . the 2016 gain ( loss ) on investments , net , was due to the collection and recognition of the first anniversary payment of $ 4.0 million from our 2015 sale of the slingo and social casino business , a net gain of $ 2.5 million from the sale of our remaining j-stream investment , and a gain of $ 2.0 million , net of transaction costs , from the sale of a domain name .
| segment operating results consumer media consumer media segment results of operations were as follows ( dollars in thousands ) : replace_table_token_5_th 21 2017 compared with 2016 total consumer media revenue in 2017 decreased by $ 2.5 million , or 10 % as compared to the prior year . of the decrease , $ 1.6 million is due to continuing declines in our subscription products , as well as a decrease of $ 0.6 million from licensing of our codec technologies due to timing of contract renewals . cost of revenue decreased by $ 2.6 million , resulting in an increase in gross margin of 8 percentage points . the decrease to cost of revenue was driven by lower bandwidth and other support costs of $ 1.8 million directly resulting from our ongoing efforts to optimize functionality and increase efficiencies . the decrease was also due to reduced royalties compared to the prior year of $ 0.3 million and reduced third party customer service costs of $ 0.3 million . operating expenses decreased by $ 3.9 million compared to the prior year , due to lower expenses for facilities and support services of $ 2.8 million as a result of our ongoing cost reduction efforts , the acceleration of depreciation expense of $ 0.7 million taken in the first quarter of 2016 related to the obsolescence of e-commerce assets , and lower marketing expense of $ 0.3 million . 2016 compared with 2015 total consumer media revenue decreased by $ 3.6 million , or 12 % as compared to the prior year . of the decrease , $ 2.2 million is due primarily to the timing of contracts and contract renewals for codec technology licenses . continuing declines in our subscription products of $ 1.5 million also contributed to the decrease in consumer media revenue .
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this annual report on form 10-k contains forward-looking statements that involve substantial risks and uncertainties . these forward-looking statements are not historical facts , but rather are based on current expectations , estimates and projections about us , our current and prospective portfolio investments , our industry , our beliefs , and our assumptions . words such as “ anticipates , ” “ expects , ” “ intends , ” “ plans , ” “ will , ” “ may , ” “ continue , ” “ believes , ” “ seeks , ” “ estimates , ” “ would , ” “ could , ” “ should , ” “ targets , ” “ projects , ” and variations of these words and similar expressions are intended to identify forward-looking statements . the forward-looking statements contained in this annual report on form 10-k include statements as to : our and our portfolio companies ' future operating results and financial condition , including the ability of us and our portfolio companies to achieve our respective objectives ; our business prospects and the prospects of our portfolio companies ; our relationships with third parties , including but not limited to lenders and venture capital investors , including other investors in our portfolio companies ; the impact and timing of our unfunded commitments ; the expected market for venture capital investments ; the performance of our existing portfolio and other investments we may make in the future ; the impact of investments that we expect to make ; actual and potential conflicts of interest with tpc , the adviser and its senior investment team and investment committee ; our contractual arrangements and relationships with third parties ; the dependence of our future success on the u.s. and global economies , including with respect to the industries in which we invest ; our expected financings and investments ; the ability of our adviser to attract , retain and have access to highly talented professionals , including our adviser 's senior management team ; our ability to qualify and maintain our qualification as a ric and as a bdc ; the adequacy of our available liquidity , cash resources and working capital and compliance with covenants under our borrowing arrangements ; and the timing of cash flows , if any , from the operations of our portfolio companies . these statements are not guarantees of future performance and are subject to risks , uncertainties , and other factors , some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements , including without limitation : changes in laws and regulations , changes in political , economic or industry conditions , and changes in the interest rate environment or other conditions affecting the financial and capital markets , including with respect to changes resulting from or in response to , or potentially even the absence of changes as a result of , the impact of the covid-19 pandemic ; the length and duration of the covid-19 outbreak in the united states as well as worldwide , and the magnitude of its impact and time required for economic recovery , including with respect to the impact of travel restrictions and other isolation and quarantine measures on the ability of the adviser 's investment professionals to conduct in-person diligence on , and otherwise monitor , existing and future investments ; an economic downturn and the time period required for robust economic recovery therefrom , including the current economic downturn as a result of the impact of the covid-19 pandemic , which has already generally had a material impact on our portfolio companies ' results of operations and financial condition and will likely continue to have a material impact on our portfolio companies ' results of operations and financial condition , for its duration , which could lead to the loss of some or all of our investments in such portfolio companies and have a material adverse effect on our results of operations and financial condition ; a contraction of available credit , an inability or unwillingness of our lenders to fund their commitments to us and or an inability to access capital markets or additional sources of liquidity , including as a result of the impact and duration of the covid-19 pandemic , could have a material adverse effect on our results of operations and financial condition and impair our lending and investment activities ; 54 interest rate volatility could adversely affect our results , particularly given that we use leverage as part of our investment strategy ; currency fluctuations could adversely affect the results of our investments in foreign companies , particularly to the extent that we receive payments denominated in foreign currency rather than u.s. dollars ; risks associated with possible disruption in our or our portfolio companies ' operations due to wars and other forms of conflict , terrorist acts , security operations and catastrophic events such as fires , floods , earthquakes , tornadoes , hurricanes and global health epidemics ; and the risks , uncertainties and other factors we identify in “ risk factors ” in this annual report on form 10-k under part i , item 1a , and in our other filings with the sec that we make from time to time . although we believe that the assumptions on which these forward-looking statements are based are reasonable , any of those assumptions could prove to be inaccurate , and as a result , the forward-looking statements based on those assumptions also could be inaccurate . important assumptions include , without limitation , our ability to originate new loans and investments , borrowing costs and levels of profitability and the availability of additional capital . in light of these and other uncertainties , the inclusion of a projection or forward-looking statement in this annual report on form 10-k should not be regarded as a representation by us that our plans and objectives will be achieved . story_separator_special_tag in addition , the indenture governing the 2022 notes contains certain covenants , including covenants ( i ) requiring our compliance with the asset coverage requirements set forth in section 18 ( a ) ( 1 ) ( a ) as modified by section 61 ( a ) of the 1940 act ( after giving effect to any exemptive relief granted to us by the sec ) ; and ( ii ) if our asset coverage has been below the 1940 act minimum asset coverage requirements ( after giving effect to any exemptive relief granted to us by the sec ) for more than six consecutive months , prohibiting the declaration of any cash dividend or distribution on our common stock ( except to the extent necessary for us to maintain our treatment as a ric under subchapter m of the code ) , or purchasing any of our common stock , unless , at the time of the declaration of the dividend or distribution or the purchase , and after deducting the amount of such dividend , distribution , or purchase , we are in compliance with the 1940 act asset coverage requirements ( after giving effect to any exemptive relief granted to us by the sec ) . the credit facility also includes certain covenants , including without limitation , a covenant requiring 150 % asset coverage in accordance with the 1940 act , and the note purchase agreement governing the 2025 notes contains certain covenants , including without limitation , a minimum asset coverage ratio of 150 % , a minimum interest coverage ratio of 125 % , and a minimum stockholders ' equity threshold . moreover , the fixed rate of the 2025 notes is subject to a 1.00 % increase in the event that a below investment grade event ( as defined in the note purchase agreement ) occurs , which risk is increased as a result of the impact of the covid-19 pandemic . see “ note 6. borrowings ” in the notes to consolidated financial statements for more information regarding the terms of the credit facility , the 2022 notes , and the 2025 notes . as discussed below under “ results of operations , ” our net asset value per share as of december 31 , 2020 decreased moderately as compared to our net asset value per share as of december 31 , 2019. any significant increase in aggregate unrealized depreciation of our investment portfolio or significant reductions in our net asset value as a result of the effects of the covid-19 pandemic or otherwise increases the risk of failing to meet the 1940 act asset coverage requirements and breaching covenants under the credit facility , under the indenture governing the 2022 notes , and under the note purchase agreement governing the 2025 notes , or otherwise triggering an event of default under the relevant borrowing arrangement . any such breach of covenant or event of default , if we are not able to obtain a waiver from the required lenders or debt holders , would have a material adverse effect on our business , liquidity , financial condition , results of operations and ability to pay distributions to our stockholders . see “ risk factors ” in this annual report on form 10-k under part i , item 1a for more information . as of december 31 , 2020 , we were in compliance with the asset coverage requirements under the 1940 act , and we were not in breach of any covenants under the credit facility , under the indenture governing the 2022 notes , or under the note purchase agreement governing the 2025 notes . we do not expect to breach any of these covenants in the near term assuming that conditions do not materially deteriorate further or for a prolonged period of time . we will continue to monitor the evolving situation relating to the covid-19 pandemic and related guidance from u.s. and international authorities , including federal , state and local public health authorities . given the dynamic nature of this situation and the fact that there may be developments outside of our control that require us or our portfolio companies to adjust plans of operation , we can not reasonably estimate the full impact of covid-19 on our financial condition , results of operations or cash flows in the future . however , it could have a material adverse impact for a prolonged period of time on our future net investment income , particularly with respect to our interest income , the fair value of our portfolio investments , and the results of operations and financial condition of us and our portfolio companies . see “ risk factors ” in this annual report on form 10-k under part i , item 1a , and in our other filings with the sec that we make from time to time , for more information . portfolio composition , investment activity and asset quality portfolio composition we originate and invest primarily in venture growth stage companies . companies at the venture growth stage have distinct characteristics differentiating them from venture capital-backed companies at other stages in their development lifecycle . we invest primarily in ( i ) growth capital loans that have a secured collateral position and that are generally used by venture growth stage companies to finance their continued expansion and growth , ( ii ) equipment financings , which may be structured as loans or leases , that have a secured collateral position on specified mission-critical equipment , ( iii ) on a select basis , revolving loans that have a secured collateral position and that are typically used by venture growth stage companies to advance against inventory , components , accounts receivable , contractual or future billings , bookings , revenues , sales or cash payments and collections including proceeds from a sale , financing or the equivalent and ( iv ) direct equity investments in venture growth stage companies .
| results of operations set forth below is a comparison of the results of operations for the years ended december 31 , 2020 and 2019. the comparison of the fiscal years ended december 31 , 2019 and 2018 can be found within “ item 7. management 's discussion and analysis of financial condition and results of operations ” included in part ii of our annual report on form 10-k for the fiscal year ended december 31 , 2019 , which is incorporated herein by reference . comparison of operating results for the years ended december 31 , 2020 and 2019 an important measure of our financial performance is net increase ( decrease ) in net assets resulting from operations , which includes net investment income ( loss ) , net realized gains ( losses ) and net unrealized gains ( losses ) . net investment income ( loss ) is the difference between our income from interest , dividends , fees and other investment income and our operating expenses including interest on borrowed funds . net realized gains ( losses ) on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost . net unrealized gains ( losses ) on investments is the net change in the fair value of our investment portfolio . for the year ended december 31 , 2020 , our net increase in net assets resulting from operations was $ 35.3 million , which was comprised of $ 47.9 million of net investment income and $ 12.5 million of net realized and unrealized losses . on a per share basis for the year ended december 31 , 2020 , net investment income was $ 1.57 per share and the net increase in net assets from operations was $ 1.16 per share .
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ernst & young llp we have served as the company 's auditor since 2009. los angeles , california february 22 , 2021 f-4 hudson pacific properties , inc. consolidated balance sheets ( in thousands , except share data ) replace_table_token_30_th the accompanying notes are an integral part of these consolidated financial statements . f-5 hudson pacific properties , inc. consolidated statements of operations ( in thousands , except share data ) replace_table_token_31_th the story_separator_special_tag the following discussion relates to our consolidated financial statements and should be read in conjunction with the consolidated financial statements and the related notes , see part iv , item 15 ( a ) “ exhibits , financial statement schedules. ” statements in this item 7 contain forward-looking statements . such statements are subject to risks , uncertainties and assumptions and may be affected by known and unknown risks , trends , uncertainties and factors that are beyond our control . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those anticipated , estimated or projected . in particular , information concerning projected future occupancy rates , rental rate increases , property development timing and investment amounts contain forward-looking statements . furthermore , all of the statements regarding future financial performance ( including anticipated funds from operations ( “ ffo ” ) market conditions and demographics ) are forward-looking statements . numerous factors will affect our actual results , some of which are beyond our control . these include the impact of the covid-19 pandemic , the breadth and duration of the current economic recession and its impact on our tenants , the strength of commercial and industrial real estate markets , market conditions affecting tenants , competitive market conditions , interest rate levels , volatility in our stock price and capital market conditions . accordingly , investors should use caution and not place undue reliance on this information , which speaks only as of the date of this report . we expressly disclaim any responsibility to update any forward-looking information , whether as a result of new information , future events , or otherwise , except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws to disclose material information . for a discussion of important risks related to our business , and related to investing in our securities , including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking statements see part i , item 1a “ risk factors. ” in light of these risks , uncertainties and assumptions , the forward-looking events discussed in this report might not occur . executive summary through our interest in hudson pacific properties , l.p. ( our operating partnership ) and its subsidiaries , at december 31 , 2020 , our office portfolio consisted of approximately 15.6 million square feet of in-service , repositioning , redevelopment and development properties . additionally , as of december 31 , 2020 , our studio portfolio consisted of 1.2 million square feet of in-service and development properties and our land portfolio consisted of 3.2 million developable square feet . as of december 31 , 2020 , our in-service office portfolio was 93.5 % leased ( including leases not yet commenced ) . our same-store studio properties were 90.2 % leased for the average percent leased for the 12 months ended december 31 , 2020. impact of covid-19 the following discussion is intended to provide stockholders with certain information regarding the impact of the covid-19 pandemic on our business and management 's efforts to respond to that impact . unless otherwise specified , the statistical and other information regarding our portfolio and tenants are estimates based on information available to us as of february 10 , 2021. as a result of the continued uncertainty surrounding this situation , we expect that such statistical and other information will change , potentially significantly , going forward and may not be indicative of the actual impact of the covid-19 pandemic on our business , operations , cash flows and financial condition for future periods . we continue to closely monitor the impact of the covid-19 pandemic on all aspects of our business and geographies , including how it will impact our tenants and business partners . while we did not incur significant disruptions during the year ended december 31 , 2020 from the covid-19 pandemic , we are unable to predict the impact that the covid-19 pandemic will have on our financial condition , results of operations and cash flows due to numerous uncertainties . these uncertainties include the scope , severity and duration of the pandemic , the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures , among others . the spread of covid-19 is having a significant impact on the global economy , the u.s. economy , the economies of the local markets throughout the west coast in which our properties are located , and the broader financial markets . the commercial real estate market has come under pressure due to numerous factors , including preventative measures taken by local , state and federal authorities to alleviate the public health crisis such as mandatory business closures , quarantines , restrictions on travel and “ shelter-in-place ” or “ stay-at-home ” orders . these containment measures , which generally do not apply to businesses designated as “ essential , ” are affecting the operations of different categories of our tenancy to varying degrees with , for example , “ essential businesses ” generally permitted to remain open and operational , storefront retail and restaurants generally limited to take-out and delivery services only , and non-essential businesses generally forced to temporarily close , curtail operations and or implement work-from-home strategies . story_separator_special_tag the situation surrounding the covid-19 pandemic remains fluid , and we are actively managing our response in collaboration with tenants , government officials and business partners and assessing potential impacts to our financial position and operating results , as well as potential adverse developments in our business . for further information regarding the impact of covid-19 on us , see part i , item 1a , “ risk factors. ” current year highlights acquisitions during 2020 , we continued to focus on strategic acquisitions by investing across the risk-return spectrum , favoring opportunities where we can employ leasing , capital investments and management expertise to create additional value . on december 18 , 2020 , we acquired , through a joint venture with cppib us re-3 , inc. , a subsidiary of canada pension plan investment board ( “ cppib ” ) , the 668,109 square-foot 1918 eighth office property located in seattle , washington . we own 55 % of the ownership interest in the consolidated joint venture . please refer to part iv , item 15 ( a ) “ exhibits , financial statement schedules—note 3 to the consolidated financial statements—investment in real estate ” for details . as of december 24 , 2020 , the company owns 50 % of the ownership interests in the joint venture which owns the sunset la development in los angeles , california . please refer to part iv , item 15 ( a ) “ exhibits , financial statement schedules—note 3 to the consolidated financial statements—investment in real estate ” for details . dispositions we had no dispositions during the year ended december 31 , 2020. held for sale as of december 31 , 2020 , we had no properties that met the criteria to be classified as held for sale . studio joint venture on july 30 , 2020 , funds affiliated with blackstone property partners ( “ blackstone ” ) acquired a 49 % interest in our three hollywood studios and five on-lot or adjacent class a office properties ( collectively , the “ hollywood media portfolio ” ) at a gross portfolio valuation of $ 1.65 billion , before closing credits , prorations and costs ( the “ studio joint venture ” ) . the transaction included sunset gower , sunset bronson and sunset las palmas studios , as well as 6040 sunset , icon , cue , epic and harlow , along with 1.1 million square feet of development rights associated with sunset gower and sunset las palmas studios . we retained a 51 % ownership stake and remain responsible for day-to-day operations , leasing and development , and the joint venture will look to partner on studio acquisitions in los angeles and other key markets . in conjunction with closing the transaction , the joint venture closed a $ 900.0 million mortgage loan secured by the portfolio . this loan has an initial term of two years from the first payment date , with three one-year extension options , subject to certain requirements . with an initial interest rate of libor plus 2.15 % per annum , it bears interest only payable every month during the term of the loan with principal payable at maturity . the loan is non-recourse , except as to customary non-recourse carveout guaranties from us and the blackstone affiliate . the combined proceeds from the sale of the 49 % interest in the hollywood media portfolio and our share of asset-level financing was approximately $ 1.27 billion before closing credits , prorations and costs . we used approximately $ 849.5 million to repay all outstanding amounts under our revolving credit facilities , met park north loan and term loans b and d , which were originally due in the second and fourth quarter 2022 , respectively . the remainder is available for potential future investments and or share repurchases , and general corporate purposes . 47 under construction and future development projects we completed construction of our harlow property in 2020 . the following table summarizes the properties currently under construction and future developments as of december 31 , 2020 : replace_table_token_13_th _ 1. determined by management based upon estimated leasable square feet , which may be less or more than the boma rentable area . square footage may change over time due to re-measurement or re-leasing . 2. we own 75 % of the ownership interest in the consolidated joint venture that owns this property . this property is fully leased to google , inc. for approximately 14 years anticipated to commence upon completion of construction and build-out of tenant improvements in 2022 . 3. we own 20 % of the ownership interest in the unconsolidated joint venture that owns bentall centre—development . 4. we own 50 % of the ownership interest in the unconsolidated joint venture that owns sunset la—development . 5. we own 51 % of the ownership interest in the consolidated joint venture that owns sunset bronson studios , sunset gower studios and sunset las palmas studios . financings during the year ended december 31 , 2020 , the outstanding borrowings on our unsecured revolving credit facility decreased by $ 75.0 million , net of draws . we use the unsecured revolving credit facility to finance the acquisition of properties , to provide funds for tenant improvements and capital expenditures and to provide for working capital and other corporate purposes . see part iv , item 15 ( a ) “ exhibits , financial statement schedules—note 6 to the consolidated financial statements—debt ” for details on our debt . on july 30 , 2020 , in conjunction with closing the studio joint venture transaction with blackstone , the joint venture closed a $ 900.0 million mortgage loan secured by our hollywood media portfolio . this loan has an initial term of two years from the first payment date , with three one-year extension options , subject to certain requirements . with an initial interest rate of libor plus 2.15 % per annum , it bears interest only payable every month during the term of the loan with principal payable at maturity .
| results of operations as of december 31 , 2020 , our portfolio consists of 64 properties ( 41 wholly-owned properties , 15 properties owned by joint ventures and eight land properties ) located in eleven california , three seattle and one western canada submarkets , totaling approximately 20.0 million square feet . the following table summarizes our consolidated and unconsolidated portfolio as of december 31 , 2020 : replace_table_token_14_th 1. determined by management based upon estimated leasable square feet , which may be less or more than the building owners and managers association ( “ boma ” ) rentable area . square footage may change over time due to re-measurement or re-leasing . represents 100 % share of consolidated and unconsolidated joint ventures . 2. percent occupied for office properties is calculated as ( i ) square footage under commenced leases as of december 31 , 2020 , divided by ( ii ) total square feet , expressed as a percentage . percent leased for office properties includes uncommenced leases . percent leased for studio properties is calculated as ( i ) average square footage under commenced leases for the 12 months ended december 31 , 2020 , divided by ( ii ) total square feet , expressed as a percentage . 3. office portfolio calculated as ( i ) annualized base rent divided by ( ii ) square footage under commenced leases as of december 31 , 2020. annualized base rent does not reflect tenant reimbursements . studio portfolio calculated as annual base rent per leased square foot calculated as ( i ) annual base rent divided by ( ii ) square footage under leased as of december 31 , 2020 . 4. includes office properties owned and included in our stabilized portfolio as of january 1 , 2019 and still owned and included in the stabilized portfolio as of december 31 , 2020 . 5. included in our non-same-store property group .
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management 's discussion and analysis of financial condition and results of operations of the company 's annual report on form 10-k for the year ended december 31 , 201 9 . overview we were formed on july 27 , 2010 , and we elected to be taxed , and currently qualify , as a reit for u.s. federal income tax purposes commencing with our taxable year ended december 31 , 2012. we commenced our principal operations on april 13 , 2012 , when we satisfied the conditions of our escrow agreement regarding the minimum offering and issued approximately 308,000 shares of our common stock . we have no paid employees and are externally managed by cmft management and , with respect to investments in securities , our investment advisor . cim indirectly owns and or controls cmft management ; our dealer manager , cco capital ; our property manager , crei advisors ; and cco group . we ceased issuing shares in our offering on april 4 , 2014 and in the initial drip offering effective as of june 30 , 2016 , but will continue to issue shares of common stock under the secondary drip offering until certain liquidity events occur , such as the listing of our shares , on a national securities exchange or the sale of our company , or the secondary drip offering is otherwise terminated by our board . we suspended issuing shares of common stock under our secondary drip offering on august 30 , 2020 , in connection with our entry into the merger agreements . on march 25 , 2021 , the board approved reinstating the drip effective april 1 , 2021. we expect that property acquisitions in 2021 and future periods will be funded by proceeds from financing of the acquired properties , cash flows from operations and the strategic sale of properties and other asset acquisitions . our operating results and cash flows are primarily influenced by rental and other property income from our commercial properties , interest expense on our indebtedness and acquisition and operating expenses . as 94.1 % of our rentable square feet 53 was under lease , including any month-to-month agreements , as of december 31 , 2020 with a weighted average remaining lease term of 8.8 years , we believe our exposure to changes in commercial rental rates on our portfolio is substantially mitigated , except for vacancies caused by tenant bankruptcies or other factors , including due to circumstances related to covid-19 . our manager regularly monitors the creditworthiness of our tenants by reviewing each tenant 's financial results , any available credit rating agency reports on the tenant or guarantor , the operating history of the property with such tenant , the tenant 's market share and track record within its industry segment , the general health and outlook of the tenant 's industry segment and other information for changes and possible trends . if cmft management identifies significant changes or trends that may adversely affect the creditworthiness of a tenant , it will gather a more in-depth knowledge of the tenant 's financial condition and , if necessary , attempt to mitigate the tenant credit risk by evaluating the possible sale of the property or identifying a possible replacement tenant should the current tenant fail to perform on the lease . we have primarily acquired core commercial real estate assets principally consisting of retail properties located throughout the united states . as of december 31 , 2020 , we owned 516 properties , comprising 21.3 million rentable square feet of commercial space located in 45 states . in april 2019 , we announced our intention to pursue a more diversified investment strategy across the capital structure by balancing our existing portfolio of core commercial real estate assets with our future investments in a portfolio of commercial mortgage loans and other real estate-related credit investments , in which our sponsor and its affiliates have expertise , that we would originate , acquire , finance and manage . as of december 31 , 2020 , our loan portfolio consisted of 206 loans with a net book value of $ 892.3 million . as of december 31 , 2020 , we had $ 41.0 million of unsettled broadly syndicated loan purchases included in cash and cash equivalents , and investments in real estate-related securities of $ 38.2 million . pursuant to our strategy , during the year ended december 31 , 2020 , we disposed of 30 properties , encompassing 1.7 million gross rentable square feet . we previously expected to sell a substantial portion of our anchored-shopping center portfolio and certain single-tenant properties within 24 months of december 31 , 2019 , subject to market conditions . in light of current market conditions brought on by the covid-19 pandemic , we can not provide assurance that these properties will be sold within such 24-month period . as a result , we placed 15 properties with a carrying value of $ 228.4 million that were previously classified as held for sale back in service as real estate assets in the consolidated balance sheets during the year ended december 31 , 2020. as of december 31 , 2020 , our portfolio consisted of 455 retail properties , 56 anchored shopping centers , four industrial properties and one office property representing 34 industry sectors . see note 4 — real estate assets to the consolidated financial statements in this annual report on form 10-k for a discussion of the disposition of individual properties during the year ended december 31 , 2020. covid-19 the covid-19 outbreak and the associated “ shelter-in-place ” or “ stay-at-home ” orders or other quarantine mandates or public health guidance issued by local , state or federal authorities has adversely affected a number of our tenants ' businesses . story_separator_special_tag on october 29 , 2020 , ccit ii terminated the ccit ii merger agreement pursuant to sections 9.1 ( c ) ( ii ) and 9.2 of the ccit ii merger agreement and entered into an agreement ( the “ termination notice ” ) with us reflecting such termination and pursuant to which , among other things , ccit ii paid the termination fee equal to $ 7.38 million to us in accordance with the ccit ii merger agreement , and agreed to pay to us the amount of our expenses up to $ 3.69 million , required to be paid pursuant to the terms of the ccit ii merger agreement ( such amounts together , the “ ccit ii termination payment ” ) . operating highlights and key performance indicators 2020 activity completed the mergers , which included the acquisition of 146 properties with an aggregate value of $ 763.0 million and the assumption of debt totaling $ 379.7 million . in addition to the property acquisitions related to the mergers , we acquired four properties for an aggregate purchase price of $ 35.5 million . invested $ 582.7 million in broadly syndicated loans and sold broadly syndicated loans for an aggregate gross sales price of $ 42.0 million . received payment in full on one senior loan totaling $ 40.8 million . disposed of 30 properties , consisting of 20 retail properties and 10 anchored shopping centers , for an aggregate sales price of $ 270.4 million . entered into two repurchase agreements that provide up to $ 800.0 million to finance a portfolio of existing and future commercial real estate mortgage loans . increased total debt by $ 303.3 million , from $ 1.6 billion to $ 2.1 billion . 55 portfolio information the following table shows the carrying value of our portfolio by investment type as of december 31 , 2020 and 2019 : replace_table_token_3_th the following table details overall statistics of our credit portfolio as of december 31 , 2020 ( dollar amounts in thousands ) : replace_table_token_4_th ( 1 ) as of december 31 , 2020 , 100 % of the our loans by principal balance earned a floating rate of interest , primarily indexed to u.s. dollar libor . ( 2 ) maximum maturity date assumes all extension options are exercised by the borrowers ; however , our cre loans may be repaid prior to such date . real estate portfolio information as of december 31 , 2020 , we owned 516 properties located in 45 states , the gross rentable square feet of which was 94.1 % leased , including any month-to-month agreements , with a weighted average lease term remaining of 8.8 years . during the year ended december 31 , 2020 , we disposed of 30 properties , for an aggregate gross sales price of $ 270.4 million . the following table shows the property statistics of our real estate assets as of december 31 , 2020 and 2019 : replace_table_token_5_th ( 1 ) includes square feet of buildings on land parcels subject to ground leases . ( 2 ) investment-grade tenants are those with a credit rating of bbb- or higher by standard & poor 's financial services llc ( “ standard & poor 's ” ) or a credit rating of baa3 or higher by moody 's investor service , inc. ( “ moody 's ” ) . the ratings may reflect those assigned by standard & poor 's or moody 's to the lease guarantor or the parent company , as applicable . the 56 weighted average credit rating is weighted based on annualized rental income and is for only those tenants rated by standard & poor 's . the following table summarizes our real estate acquisition activity during the years ended december 31 , 2020 and 2019 : replace_table_token_6_th ( 1 ) includes square feet of buildings on land parcels subject to ground leases . the following table shows the tenant diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2020 : replace_table_token_7_th ( 1 ) includes leases which are master lease agreements . ( 2 ) includes square feet of the buildings on land parcels subject to ground leases . 57 the following table shows the tenant industry diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2020 : replace_table_token_8_th ( 1 ) includes leases which are master lease agreements . ( 2 ) includes square feet of the buildings on land parcels subject to ground leases . the following table shows the geographic diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2020 : replace_table_token_9_th ( 1 ) includes square feet of the buildings on land parcels subject to ground leases . 58 the following table shows the property type diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2020 : replace_table_token_10_th ( 1 ) includes square feet of the buildings on land parcels subject to ground leases . leases although there are variations in the specific terms of the leases of our properties , the following is a summary of the general structure of our current leases . generally , the leases of the properties acquired provide for initial terms of ten or more years and provide the tenant with one or more multi-year renewal options , subject to generally the same terms and conditions as the initial lease term . certain leases also provide that in the event we wish to sell the property subject to that lease , we first must offer the lessee the right to purchase the property on the same terms and conditions as any offer which we intend to accept for the sale of the property .
| results of operations overview we are not aware of any material trends or uncertainties , other than the effects of the outbreak of covid-19 , and national economic conditions affecting real estate in general , that may reasonably be expected to have a material impact on our results from the acquisition , management and operation of properties other than those listed in part i , item 1a — risk factors . currently , we are unable to predict the impact that the covid-19 pandemic will have on our financial condition , results of operations and cash flows in future periods due to numerous uncertainties . for a comparison of the years ended december 31 , 2019 and 2018 , see item 7. management 's discussion and analysis of financial condition and results of operations of the company 's annual report on form 10-k for the year ended december 31 , 2019. same store analysis our results of operations are influenced by the timing of acquisitions and the operating performance of our real estate assets . we review our stabilized operating results , measured by net operating income , from properties that we owned for the entirety of both the current and prior year reporting periods , referred to as “ same store ” properties , and we believe that the presentation of operating results for same store properties provides useful information to stockholders . net operating income is a supplemental non-gaap financial measure of a real estate company 's operating performance . net operating income is considered by management to be a helpful supplemental performance measure , as it enables management to evaluate the impact of occupancy , rents , leasing activity , and other controllable property operating results at our real estate properties , and it provides a consistent method for the comparison of our properties .
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the story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations , as well as disclosures included under the heading business and elsewhere in this form 10-k , include forward-looking statements within the meaning of the private securities litigation reform act of 1995. this act provides a safe harbor for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results . all statements other than statements of historical fact we make in this form 10-k are forward-looking . in particular , statements preceded by , followed by or that include the words intends , estimates , plans , believes , expects , anticipates , should , could or similar expressions , are forward-looking statements . these statements include , but are not limited to , statements regarding future sales and operating results ; growth and trends of our company and our industry , generally ; growth of the markets in which we participate ; international events ; product performance ; the acquisition of or investment in other entities ; the construction of new or refurbishment of existing facilities by us ; our ability to successfully develop and commercialize our therapeutic products ; our ability to expand our long-term business opportunities ; financial projections and estimates and their underlying assumptions ; and future performance . all of such statements are subject to certain risks and uncertainties , many of which are difficult to predict and generally beyond our control , that could cause actual results to differ materially from those expressed in , or implied or projected by , the forward-looking information and statements . these risks and uncertainties include , but are not limited to : whether ad-rts-il-12 + veledimex , the car-t programs , or any of our other therapeutic products will advance further in the clinical trials process and whether and when , if at all , they will receive final approval from the fda or equivalent foreign regulatory agencies and for which indications ; whether ad-rts-il-12 + veledimex , the car-t programs and our other therapeutic products will be successfully marketed if approved ; whether any of our synthetic biology platform discovery and development efforts will be successful ; our ability to achieve the results contemplated by our collaboration agreements ; the strength and enforceability of our intellectual property rights ; competition from pharmaceutical and biotechnology companies ; the development of and our ability to take advantage of the market for dna-based biotherapeutics ; our ability to raise additional capital to fund our operations on terms acceptable to us ; general economic conditions ; and the other risk factors contained in this annual report on form 10-k. forward-looking statements reflect our current expectations and are inherently uncertain . our actual results may differ significantly from our expectations . we assume no obligation to update this forward-looking information . the section herein entitled risk factors describes some , but not all , of the factors that could cause these differences . the following discussion and analysis should be read in conjunction with our historical financial statements and the notes to those financial statements which are included in item 8 of part ii of this form 10-k. business overview ziopharm oncology , inc. is a biopharmaceutical company that seeks to acquire , develop and commercialize , on its own or with commercial partners , a diverse portfolio of cancer therapies that can address unmet medical 59 needs through synthetic biology . pursuant to an exclusive channel collaboration agreement ( or ecc ) with intrexon corporation , or intrexon , we obtained rights to intrexon 's synthetic biology platform for use in the field of oncology , which included a clinical stage product candidate , ad-rts-il-12 used with the oral activator veledimex . the synthetic biology platform is an industrialized engineering approach for molecular and cell biology and gene control . it employs an inducible gene-delivery system that enables controlled in vivo expression of genes that produce therapeutic proteins to treat cancer . ad-rts-il-12 + veledimex uses this gene delivery system to produce interleukin-12 , or il-12 , a potent , naturally occurring anti-cancer protein . we have completed two phase 2 studies evaluating ad-rts-il-12 + veledimex , the first for the treatment of metastatic melanoma , and the second for the treatment of metastatic breast cancer ; data from these phase 2 studies was presented in december 2014. we are continuing to pursue intratumoral injection of ad-rts-il-12 + veledimex in breast cancer and brain cancer . in addition to our synthetic biology programs , intrexon ( and we , through our ecc agreement with intrexon ) recently obtained an exclusive , worldwide license to certain immuno-oncology technologies owned and licensed by the university of texas m.d . anderson cancer center , or md anderson , including technologies relating to novel chimeric antigen receptors , or cars , natural killer , or nk cells and t cell receptors , or tcrs . combining these technologies with intrexon 's technology suite and clinically tested rheoswitch therapeutic system ® , or rts ® , il-12 modules , we plan to develop car-t and other immune cells that will target and kill cancer cells . we plan to leverage the synergy between the platforms to accelerate a promising synthetic immuno-oncology pipeline , with up to five car-t therapies expected to enter the clinic in 2015 and programs for the development of allogeneic car-t therapies that can be used off-the-shelf expected to be initiated in 2016. we plan to continue to combine intrexon 's technology suite with our capabilities to translate science to the patient , and to identify and develop additional products to stimulate or inhibit key pathways , including those used by the body 's immune system , to treat cancer. enabling technology synthetic biology entails the application of engineering principles to biological systems for the purpose of designing and constructing new biological systems or redesigning/modifying existing story_separator_special_tag our non-viral methods , which we believe are nimble , fast and less costly than other approaches , together with our industrialized , scalable engineering approach are expected to enable highly efficient and less costly manufacturing approaches to gene engineered cell-based therapy . in addition , our proprietary rheoswitch therapeutic system ® may give us the ability to control in vivo gene expression ( on-off-on-off etc . ) in car-t or tcr cells , which we believe could result in significantly lower toxicity compared to other products currently in development . 61 product candidates the following chart identifies our current synthetic biology product candidates and their stage of development , each of which are described in more detail below . synthetic biology programs : ad-rts-il-12 + veledimex ad-rts-il-12 + veledimex has been evaluated in two phase 2 studies , the first for the treatment of metastatic melanoma , and the second for the treatment of unresectable recurrent or metastatic breast cancer . ad-rts-il-12 + veledimex is our lead product candidate , which uses our gene delivery system to produce il-12 , a potent , naturally occurring anti-cancer protein . more specifically , il-12 is a potent immunostimulatory cytokine which activates and recruits dendritic cells that facilitate the cross-priming of tumor antigen-specific t cells . intratumoral administration of ad-rts-il-12 + veledimex , which allows for adjustment of il-12 gene expression upon varying the dose of veledimex , is designed to reduce the toxicity elicited by systemic delivery of il-12 , and increase efficacy through high intratumoral expression . we reported the controlled local expression of il-12 as an immunotherapeutic treatment of glioma ( brain cancer ) in animal models through the use of the rts ® at the october 2013 aacr-nci-eortc conference . veledimex brain penetration was demonstrated in normal mice and monkeys with intact blood brain barriers . treatment with ad-rts-il-12 + veledimex and dc-rts-il-12 + veledimex both demonstrated dose-related increase in survival in the mouse gl-261 glioma model with no adverse clinical signs observed . in december 2013 , we announced the unanimous approval of the recombinant dna advisory committee of the national institutes of health , or the rac/nih , for the initiation of a phase 1 study of ad-rts-il-12 + veledimex , in subjects with recurrent or progressive high grade gliomas . the u.s food and drug administration , or fda , has requested additional nonclinical information to support the phase 1 study and this data has been generated . subject to reaching agreement with the fda , we anticipate initiation of the phase 1 study during the first half of 2015. glioblastoma is by far the most frequent malignant brain tumor and is associated with a particularly aggressive course and dismal prognosis . the current standard of care is based on surgical resection to the maximum feasible extent , followed by radiotherapy and concomitant adjuvant temozolomide . such aggressive treatment , however , is associated with only modest improvements in survival resulting in a very high unmet medical need . at the american association for cancer research , or aacr , 2014 annual meeting , in april 2014 , we presented data from a preclinical study conducted jointly by us and intrexon demonstrating the anti-tumor effects and 62 tolerability of ad-rts-mil-12 in a glioblastoma murine model . veledimex was found to effectively cross the blood brain barrier , with dose-related increases in plasma and brain tissue exposure , and no accumulation in brain tissue following repeat dosing . the study data demonstrated that administration of ad-rts-mil-12 + veledimex resulted in dose-related increases in survival of four- to five-fold , without exhibiting an adverse safety profile , when compared to median survival in vehicle control groups . at the 17th annual meeting of the american society of gene and cell therapy , or asgct , in may 2014 , we presented results demonstrating the potent anti-tumor and anti-cancer stem cell effects of ad-rts-il-12 in a preclinical glioma model . results from human and laboratory studies of ad-rts-il-12 demonstrated that precise control of il-12 gene expression levels can be achieved using intrexon 's rts ® . rapid , tight modulation of in vivo expression of il-12 using the activator ligand , veledimex , was demonstrated across these studies . when il-12 expression was switched on it rapidly led to expression and an immune response . this immune response was characterized by an increase in tumor infiltrating lymphocytes with system wide immune activation . the data presented in may 2014 further demonstrated that ad-rts-il-12 has potent anti-cancer effects in a glioma model , showing both a reduction in tumor mass and prolonged survival when compared to existing treatment standards . the data also showed a significant reduction in cancer stem cells , as measured by dramatically reduced nestin levels . cancer stem cells are thought to play a critical role in recurrence and metastasis . at the aacr 2014 immunology and immunotherapy meeting in december 2014 , together with intrexon , we presented clinical results from the ad-rts-hil-12 + veledimex studies in patients with advanced breast cancer and melanoma demonstrating local and systemic il-12-mediated anti-cancer activity , as well as safety and control of both immune- and il-12-mediated toxicity with use of the rts ® gene switch . in two open-label phase 2 clinical studies , twelve patients with metastatic advanced stage breast cancer and twenty-six patients with metastatic melanoma were administered ad-rts-hil-12 . following intra-tumoral injection of ad-rts-hil-12 , expression of il-12 within patients was controlled by the rts ® gene switch using the oral activator ligand , veledimex , at doses ranging from 5mg to 160mg . all subjects had heavy tumor burden and disease progression at the time of enrollment , with mean number of prior therapies at 14 and 10 for breast cancer and melanoma patients , respectively . treatment with ad-rts-hil-12 + veledimex resulted in an increase in the immune cytokine il-12 and downstream cytokines , ifn- g , ip-10 and il-10 , resulting in a significant increase in the number of cd8+ t-cells .
| overview of results of operations revenue we recognize research and development funding revenue over the estimated period of performance . we have not generated product revenues since our inception . unless and until we receive approval from the fda and or other regulatory authorities for our product candidates , we can not sell our products and will not have product revenues . research and development expenses our research and development expense consists primarily of salaries and related expenses for personnel , costs of contract manufacturing services , costs of facilities and equipment , fees paid to professional service providers in conjunction with our clinical trials , fees paid to research organizations in conjunction with preclinical animal studies , costs of materials used in research and development , consulting , license and milestone payments and sponsored research fees paid to third parties . we have not accumulated and tracked our internal historical research and development costs or our personnel and personnel-related costs on a program-by-program basis . our employee and infrastructure resources are allocated across several projects , and many of our costs are directed to broadly applicable research endeavors . as a result , we can not state the costs incurred for each of our oncology programs on a program-by-program basis . our future research and development expenses in support of our current and future programs will be subject to numerous uncertainties in timing and cost to completion . we test potential products in numerous preclinical studies for safety , toxicology and efficacy . we may conduct multiple clinical trials for each product . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products or indications .
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our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors , including those we discuss under “ risk factors ” and elsewhere in this report on form 10-k. general overview we are the leading provider of postsecondary education for students seeking careers as professional automotive , diesel , collision repair , motorcycle and marine technicians as measured by total average undergraduate full-time enrollment and graduates . we offer undergraduate degree or diploma programs at 12 campuses across the united states . we also offer manufacturer specific advanced training programs , including student-paid electives , at our campuses and manufacturer or dealer sponsored training at certain campuses and dedicated training centers . we have provided technical education for 51 years . our revenues consist principally of student tuition and fees derived from the programs we provide and are presented after reductions related to discounts and scholarships we sponsor , refunds for students who withdraw from our programs prior to specified dates and the portion of tuition students have funded through our proprietary loan program . we generally recognize tuition revenue and fees ratably over the terms of the various programs we offer . we supplement our tuition revenues with additional revenues from sales of textbooks and program supplies and other revenues , such as those from brokenmyth studios or other non-title iv sources , all of which are recognized as sales occur or services are performed . in aggregate , these additional revenues represented approximately 2 % or less of our total revenues in each year for the three-year period ended september 30 , 2016 . tuition revenue and fees generally vary based on the average number of students enrolled and average tuition charged per program . average undergraduate full-time student enrollments vary depending on , among other factors , the number of continuing students at the beginning of a period , new student enrollments during the period , students who have previously withdrawn but decide to re-enroll during the period , graduations and withdrawals during the period . our average undergraduate full-time student enrollments are influenced by : the attractiveness of our program offerings to high school graduates and potential adult students ; the effectiveness of our marketing efforts ; the depth of our industry relationships ; the strength of employment markets and long term career prospects ; the quality of our instructors and student services professionals ; the persistence of our students ; the length of our education programs ; the availability of federal and alternative funding for our programs ; the number of graduates of our programs who elect to attend the advanced training programs we offer and general economic conditions . our introduction of additional program offerings at existing campuses and opening additional campuses is expected to influence our average undergraduate full-time student enrollment . we currently offer start dates at our campuses that range from every three to six weeks throughout the year in our undergraduate programs . the number of start dates of advanced training programs varies by the duration of those programs and the needs of the manufacturers which sponsor them . our tuition charges vary by type and length of our programs and the program level , such as undergraduate or advanced training . we implemented tuition rate increases of up to 3 % for the years ended september 30 , 2016 and 2015 , and 2 % to 4 % for the year ended september 30 , 2014. we regularly evaluate our tuition pricing based on individual campus markets , the competitive environment and ed regulations . most students at our campuses rely on funds received under various government-sponsored student 69 financial aid programs , predominantly title iv programs and various veterans benefits programs , to pay a substantial portion of their tuition and other education-related expenses . approximately 66 % of our revenues , on a cash basis , were collected from funds distributed under title iv programs for the year ended september 30 , 2016 . this percentage differs from our title iv percentage as calculated under the 90/10 rule due to the prescribed treatment of certain title iv stipends under the rule . additionally , approximately 19 % of our revenues , on a cash basis , were collected from funds distributed under various veterans benefits programs for the year ended september 30 , 2016 . we extend credit for tuition and fees , for a limited period of time , to the majority of our students . our credit risk is mitigated through the students ' participation in federally funded financial aid and veterans benefit programs unless students withdraw prior to the receipt by us of title iv or veterans benefit funds for those students . the financial aid and veterans benefits programs are subject to political and budgetary considerations . there is no assurance that such funding will be maintained at current levels . extensive and complex regulations govern the financial assistance programs in which our students participate . our administration of these programs is periodically reviewed by various regulatory agencies . any regulatory violation could be the basis for the initiation of potential adverse actions , including a suspension , limitation , placement on reimbursement status or termination proceeding , which could have a material adverse effect on our business . if any of our institutions were to lose its eligibility to participate in federal student financial aid or veterans benefit programs , the students at that institution , and other locations of that institution , would lose access to funds derived from those programs and would have to seek alternative sources of funds to pay their tuition and fees . the receipt of financial aid and veterans benefit funds reduces the students ' amounts due to us and has no impact on revenue recognition , as the transfer relates to the source of funding for the costs of education which may occur through title iv , veterans benefit or other funds and resources available to the student . story_separator_special_tag our operating results were due in part to the decline in revenues , which , while partially offset by tuition rate increases , were negatively impacted by the decline in our average undergraduate full-time 71 student enrollment . additionally , our results of operations were impacted by the opening of our new campus in long beach , california in august 2015. for the year ended september 30 , 2016 , this campus had revenues of $ 12.2 million and operating expenses of $ 20.0 million , including corporate overhead allocations of $ 6.4 million . operating results were also impacted by an increase in compensation expense , which was partially offset by decreases in advertising , depreciation and amortization , supplies and maintenance and tools and training aids expenses . included in compensation expense was severance of approximately $ 3.9 million related to the september 2016 reduction in workforce . we incurred a net loss of $ 47.7 million compared to $ 9.1 million in the prior year , primarily as a result of the determination that an additional valuation allowance on our deferred tax assets was necessary , which impacted income tax expense by $ 34.2 million . the overall decline in revenues for the period was also a contributing factor to the net loss incurred during the year ended september 30 , 2016. valuation allowance each reporting period , we estimate the likelihood that we will be able to recover our deferred tax assets , which represent timing differences in the recognition of revenue and certain tax deductions for accounting and tax purposes . the realization of deferred tax assets is dependent , in part , upon future taxable income . assessing the need for a valuation allowance requires significant judgment , and we consider all available evidence , including our historical profitability and projections of future taxable income . during the three months ended march 31 , 2016 , there were several pieces of negative evidence that contributed to our conclusion that a valuation allowance was appropriate against all deferred tax assets that rely upon future taxable income for their realization . this negative evidence included ( 1 ) a significant pre-tax loss during the three months ended march 31 , 2016 , ( 2 ) deterioration in leading indicators , such as applications and new student starts , and projected population during the three months ended march 31 , 2016 , which negatively impacts projected future operating results , ( 3 ) financial projections that indicated we will be in a 3-year cumulative loss position during 2016 and ( 4 ) the continued challenging business and regulatory environment facing for-profit education institutions . as a result of our assessment , we recorded a full valuation allowance during the three months ended march 31 , 2016. we will maintain a valuation allowance on our deferred tax assets until sufficient positive evidence exists to support its reversal . see note 13 of the notes to our consolidated financial statements within part ii , item 8 of this report on form 10-k for further discussion . transactions on june 24 , 2016 , we entered into a purchase agreement with coliseum holdings i , llc to sell 700,000 shares of series a preferred stock for a total purchase price of $ 70.0 million . the proceeds from the offering are intended to be used to fund strategic long-term growth initiatives , including the expansion to new markets of campuses on a scale similar to our long beach , california and dallas/ft . worth , texas campuses and the creation of new programs in existing markets with under-utilized campus facilities . additionally , we may use the proceeds to fund strategic acquisitions that complement our core business . see note 15 of the notes to our consolidated financial statements within part ii , item 8 of this report on form 10-k for further discussion . in february 2016 , we made an investment in and entered into a licensing agreement with pro-mech , a company that provides comprehensive technician development programs and shop operations services . this investment , which included $ 0.7 million in cash as well as the conversion of a $ 0.3 million note receivable extended during the first quarter of 2016 , resulted in our ownership of 25 % of the outstanding equity interests of this company . during the three months ended september 30 , 2016 , we determined that our investment was impaired and recorded an impairment charge of $ 0.8 million . see note 10 of the notes to our consolidated financial statements within part ii , item 8 of this report on form 10-k for further discussion . 72 also in february 2016 , we acquired substantially all of the assets of bms , a new york-based full production studio that offers a variety of services , including system architecture design , application and website development , interactive media development and digital technical training for diesel , medical and industrial equipment companies . the cash purchase price for this transaction was $ 1.5 million , and the acquisition includes potential contingent consideration payments in the future of up to $ 0.9 million . see note 11 of the notes to our consolidated financial statements within part ii , item 8 of this report on form 10-k for further discussion . veterans ' benefits the percentage of our revenues , on a cash basis , which were collected from funds distributed under various veterans ' benefits programs was approximately 19 % , 20 % and 20 % for the years ended september 30 , 2016 , 2015 and 2014 , respectively . there continues to be congressional activity around the requirements of the 90/10 rule , such as reducing the 90 % maximum under the rule to 85 % or including military and veteran funding in the 90 % portion of the calculation . potential changes to the 90/10 rule could negatively impact our eligibility to participate in title iv programs .
| results of operations the following table sets forth selected statements of operations data as a percentage of revenues for each of the periods indicated . replace_table_token_8_th year ended september 30 , 2016 compared to year ended september 30 , 2015 revenues . our revenues for the year ended september 30 , 2016 were $ 347.1 million , a decrease of $ 15.6 million , or 4.3 % , as compared to revenues of $ 362.7 million for the year ended september 30 , 2015 . the 9.1 % decrease in our average undergraduate full-time student enrollment resulted in a decrease in revenues of approximately $ 32.3 million . partially offsetting this decrease was one additional earning day in 2016 , which contributed $ 1.3 million in revenue . additionally , the decrease was partially offset by tuition rate increases of up to 3 % , depending on the program . our revenues for the years ended september 30 , 2016 and 2015 excluded $ 18.7 million and $ 21.1 million , respectively , of tuition related to students participating in our proprietary loan program . we recognized $ 7.2 million and $ 5.4 million of revenues and interest under the proprietary loan program for the years ended september 30 , 2016 and 2015 , respectively . revenues for our long beach , california campus were $ 12.2 million for the year ended september 30 , 2016 , as compared to $ 0.7 million for the year ended september 30 , 2015. educational services and facilities expenses . our educational services and facilities expenses for the year ended september 30 , 2016 were $ 194.4 million , consistent with $ 194.4 million for the year ended september 30 , 2015 .
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in addition to historical financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . these forward-looking statements include , but are not limited to , expected sale of the semiconductor systems business in the first half of 2013 ; anticipated financial performance ; expected liquidity and capitalization ; drivers of revenue growth ; management 's plans and objectives for future operations , expenditures and product development and investments in research and development ; business prospects ; potential of future product releases ; anticipated sales performance ; industry trends ; market conditions ; changes in accounting principles and changes in actual or assumed tax liabilities ; expectations regarding tax exposure ; anticipated reinvestment of future earnings ; anticipated expenditures in regard to the company 's benefit plans ; future acquisitions and dispositions and anticipated benefits from prior acquisitions ; anticipated outcomes of legal proceedings and litigation matters ; and anticipated use of currency hedges . these forward-looking statements are neither promises nor guarantees , but involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements . our actual results could differ materially from those anticipated in these forward-looking statements for many reasons , including , but not limited to , the following : economic and political conditions and the effects of these conditions on our customers ' businesses and level of business activity ; our significant dependence upon our customers ' capital expenditures , which are subject to cyclical market fluctuations ; our dependence upon our ability to respond to fluctuations in product demand ; our ability to continually innovate ; delays in our delivery of new products ; our reliance upon third party distribution channels subject to credit , business concentration and business failure risks beyond our control ; fluctuations in our quarterly results , and our failure to meet or exceed our expected financial performance ; customer order timing and other similar factors beyond our control ; our dependence on one customer in our medical components business ; disruptions in or breaches in security of our information technology systems ; changes in interest rates , credit ratings or foreign currency exchange rates ; risk associated with our operations in foreign countries ; disruptions to our manufacturing operations as a result of natural disasters ; our increased use of outsourcing in foreign countries ; our failure to comply with local import and export regulations in the jurisdictions in which we operate ; our history of operating losses and our ability to sustain our profitability ; our exposure to the credit risk of some of our customers and in weakened markets ; violations of our intellectual property rights and our ability to protect our intellectual property against infringement by third parties ; risk of losing our competitive advantage ; our ability to make divestitures that provide business benefits ; our failure to successfully integrate recent and future acquisitions into our business ; our ability to attract and retain key personnel ; our restructuring and realignment activities and disruptions to our operations as a result of consolidation of our operations ; product defects or problems integrating our products with other vendors ' products ; disruptions in the supply of or defects in raw materials , certain key components or other goods from our suppliers ; production difficulties and product delivery delays or disruptions ; our failure to comply with various federal , state and foreign regulations ; changes in governmental regulation of our business or products ; our failure to implement new information technology systems and software successfully ; our failure to realize the full value of our intangible assets ; our ability to utilize our net operating loss carryforwards and other tax attributes ; fluctuations in our effective tax rates ; being subject to u.s. federal income taxation even though we are a non-u.s. corporation ; any need for additional capital to adequately respond to business challenges or opportunities and repay or refinance our existing indebtedness , which may not be available on acceptable terms or at all ; volatility in the market price for our common shares ; our dependence on significant cash flow to service our indebtedness and fund our operations ; our ability to access cash and other assets of our subsidiaries ; the influence over our business of certain significant shareholders ; provisions of our articles of incorporation may delay or prevent a change in control ; our significant existing indebtedness may limit our ability to engage in certain activities ; and our failure to maintain appropriate internal controls in the future . other important risk factors that could affect the outcome of the 29 events set forth in these statements and that could affect the company 's operating results and financial condition are discussed in item 1a of this annual report on form 10-k and elsewhere in this annual report on form 10-k. in this annual report on form 10-k , the words anticipates , believes , expects , intends , future , could , estimates , plans , would , should , potential , continues , and similar words or expressions ( as well as other words or expressions referencing future events , conditions or circumstances ) identify forward-looking statements . readers should not place undue reliance on any such forward-looking statements , which speak only as of the date they are made . management and the company disclaim any obligation to publicly update or revise any such statement to reflect any change in its expectations or in events , conditions , or circumstances on which any such statements may be based , or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements . business overview we design , develop , manufacture and sell laser-based solutions , optical control devices , and associated precision technologies . story_separator_special_tag 2011 restructuring plan update we have substantially completed our 2011 restructuring program that began in the fourth quarter of 2011 , with a goal of eliminating up to twelve ( 12 ) facilities and targeting as much as $ 5.0 million in annualized costs savings . these reductions are expected to be achieved through a combination of site consolidations and 31 divestitures , with divestitures resulting in the elimination of up to five facilities . nine facilities have been exited , including three facilities exited as part of the sale of the laser systems business . we completed the consolidation of multiple operations during the year . we consolidated the manufacturing operations of our specialty lasers and optics products , consolidated our german operations into one facility and , in january 2013 , consolidated our laser scanners business into our corporate headquarters located in bedford , massachusetts . we expect to substantially complete the consolidation and exit of up to three additional facilities in the first half of 2013 primarily as part of the expected sale of our semiconductor systems business . we incurred $ 6.1 million of charges during the year ended december 31 , 2012 , related to the 2011 restructuring plan . these consisted of cash and non-cash charges of $ 4.1 million and $ 2.0 million , respectively . cash charges primarily relate to severance , consulting and exit costs associated with the consolidation of our various facilities . non-cash charges primarily relate to accelerated depreciation resulting from changes in estimated useful lives of certain long-lived assets for which we intend to exit . we expect to incur $ 1.2 million of cash related charges and $ 0.1 million of non-cash charges in 2013 related to the plan . 2012 restructuring plan update during the third quarter of 2012 , we initiated a program ( the 2012 restructuring program ) to identify additional cost savings due to the continued uncertainty and volatility of the macroeconomic environment . this program identified an additional $ 1.0 million to $ 2.0 million of annualized cost savings beyond the savings expected from the 2011 restructuring program . we incurred $ 1.8 million of severance costs associated with the 2012 restructuring program during the year ended december 31 , 2012. this plan was completed during the fourth quarter of 2012. release of our valuation allowance during fiscal year 2012 , based on an accumulation of positive evidence such as cumulative profits over the prior three years and projections for future growth , we determined that it is more likely than not that the benefits of our deferred tax assets will be realized . accordingly , a deferred tax valuation allowance release of $ 15.3 million was recorded as an income tax benefit for the year . as of december 31 , 2012 , a deferred tax valuation allowance of $ 15.5 million continues to be provided on state net operating losses , state tax credit carryforwards and certain foreign tax attributes that the company determined are not more likely than not to be realized . in conjunction with our ongoing review of our actual results and anticipated future earnings , we will continue to reassess the possibility of releasing the valuation allowance currently in place on our deferred tax assets . story_separator_special_tag ross profit the following table sets forth the external gross profit and external gross profit margin for each of our reportable segments for 2012 , 2011 and 2010 ( dollars in thousands ) : replace_table_token_9_th gross profit and gross profit margin can be influenced by a number of factors , including product mix , pricing , volume , manufacturing efficiencies and utilization , costs for raw materials and outsourced manufacturing , headcount , inventory obsolescence , warranty and freight expenses . laser products 2012 compared with 2011 laser products segment gross profit for 2012 decreased $ 7.4 million , or 16.8 % , primarily due to the 4.2 % decline in sales . the 5.1 percentage point decrease in gross profit margin was primarily attributable to product mix , as a higher proportion of our sales were from our fiber lasers product line . we are currently taking significant measures that we expect will lower the costs of our fiber lasers and improve their profitability , including manufacturing efficiencies and designing a lower cost product . in addition , gross profit margin was adversely impacted by lower absorption in our manufacturing facility for specialty lasers , as a result of delays in government funding in the scientific laser market . 2011 compared with 2010 laser products segment gross profit for 2011 increased $ 0.4 million , or 0.9 % , primarily due to the 7.5 % increase in sales . the 2.6 percentage point decrease in gross profit margin was primarily attributable to unfavorable product mix and pricing among various product lines . precision motion and technologies 2012 compared with 2011 precision motion and technologies segment gross profit for 2012 decreased $ 12.3 million , or 13.5 % , primarily due to the significant drop in sales of our westwind spindles product line due to a significant decline in demand in the microelectronics market ; principally related to mechanical drilling of printed circuit boards . in addition , we recognized $ 3.3 million of net gross profit during 2011 , with no comparable amount during 2012 , for orders that had been deferred under multiple-element arrangements , delivered over multiple periods , entered into prior to the adoption of asu 2009-13. precision motion and technologies segment gross profit margin remained relatively flat year over year . 35 2011 compared with 2010 precision motion and technologies segment gross profit for 2011 increased $ 2.4 million , or 2.7 % , due to the 5.8 % increase in sales .
| overview of financial results in 2012 , we initiated actions to focus on strategic initiatives , including committing to a plan to sell our laser systems and semiconductor systems businesses and reporting the results of operations associated with these businesses in discontinued operations . we focused the company 's investments around three strategic growth areas , specifically , medical components , scanning solutions , and fiber lasers . in addition , we consolidated several manufacturing and r & d locations to improve our operating efficiencies while significantly enhancing our employee talent pool with the hiring of new business line leaders , functional leaders , and sales leaders . overall sales for 2012 decreased $ 32.8 million , or 10.8 % , versus the prior year primarily as a result of a steep downturn in the capital equipment market , particularly in the microelectronics market . we currently are not expecting a recovery in these markets in 2013. to a lesser extent , the decrease was also attributable to lower specialty laser sales , which primarily serve scientific end markets . in addition , the year-over-year comparison is also affected by our adoption of accounting standards update ( asu ) 2009-13 , revenue recognition ( topic 605 ) multiple-deliverable revenue arrangements ( asu 2009-13 ) , which amended the revenue recognition 32 guidance for multi-element arrangements . following our adoption of asu 2009-13 as of the beginning of 2011 , we did not defer any revenue on new multiple-element orders received from customers during the period but delivered over multiple periods .
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5. accrued expenses accrued expenses consist of the following ( in thousands ) : replace_table_token_21_th 6. warrants below is a summary of the number of shares issuable upon exercise of outstanding warrants and the terms and accounting treatment for the outstanding warrants ( in thousands , except per share data ) : replace_table_token_22_th ( 1 ) on february 6 , 2013 , the warrant holder exercised a warrant to purchase 107 shares of series 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 the notes to those consolidated financial statements included in item 15 of this 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 under `` risk factors '' and elsewhere in this form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . please also refer to the section under heading `` forward-looking statements . '' overview we are a clinical stage biopharmaceutical company focused on the discovery , development and commercialization of novel protein therapeutics for cancer and rare diseases . our research focuses on the biology of the transforming growth factor-beta ( tgf- b ) protein superfamily , a large and diverse group of molecules that are key regulators in the growth and repair of tissues throughout the human body . we are leaders in understanding the biology of the tgf- b superfamily and in targeting these pathways to develop important new medicines . by coupling our discovery and development expertise , including our proprietary knowledge of the tgf- b superfamily , with our internal protein engineering and manufacturing capabilities , we have built a highly productive research & development platform that has generated innovative protein therapeutic candidates with novel mechanisms of action . these differentiated protein therapeutic candidates have the potential to significantly improve clinical outcomes for patients with cancer and rare diseases . we have three internally discovered protein therapeutic candidates that are currently being studied in numerous ongoing phase 2 clinical trials , focused on cancer and rare diseases . our two most advanced protein therapeutic candidates , sotatercept and ace-536 , promote red blood cell production through a novel mechanism . together with our collaboration partner , celgene corporation , which we refer to as celgene , we are developing sotatercept and ace-536 to treat anemia and associated complications in patients with b -thalassemia and myelodysplastic syndromes ( mds ) , red blood cell disorders that are generally unresponsive to currently approved drugs . our third clinical stage protein therapeutic candidate , dalantercept , is designed to inhibit blood vessel formation through a mechanism that is distinct from , and potentially synergistic with , the dominant class of cancer drugs that inhibit blood vessel formation , the vascular endothelial growth factor ( vegf ) pathway inhibitors . we are developing dalantercept primarily for use in combination with these successful products to produce better outcomes for cancer patients . we are developing sotatercept and ace-536 through our exclusive worldwide collaborations with celgene . as of january 1 , 2013 , celgene became responsible for paying 100 % of worldwide development costs for both programs . we may receive up to $ 560.0 million of potential development , regulatory and commercial milestone payments still outstanding and , if these protein therapeutic candidates are commercialized , we will receive a royalty on net sales in the low-to-mid 20 % range . we also will co-promote sotatercept and ace-536 in north america , if approved , for which our commercialization costs will be entirely funded by celgene . we have not entered into a partnership for dalantercept and retain worldwide rights to this program . as of december 31 , 2013 , our operations have been primarily funded by $ 105.1 million in equity investments from venture investors , $ 86.8 million in net proceeds from our initial public offering , $ 49.2 million in equity investments from our partners and $ 203.6 million in upfront payments , milestones , and net research and development payments from our strategic partners . 76 we expect to continue to incur significant expenses and increasing operating losses over at least the next several years . we expect our expenses will increase substantially in connection with our ongoing activities , as we : conduct clinical trials for dalantercept ; continue our preclinical studies and potential clinical development efforts of our existing preclinical protein therapeutic candidates ; continue research activities for the discovery of new protein therapeutics ; manufacture protein therapeutics for our preclinical studies and clinical trials ; seek regulatory approval for our protein therapeutics ; and operate as a public company . we will not generate revenue from product sales unless and until we or a partner successfully complete development and obtain regulatory approval for one or more of our protein therapeutic candidates , which we expect will take a number of years and is subject to significant uncertainty . all current and future development and commercialization costs for sotatercept and ace-536 are paid by celgene . if we obtain regulatory approval for dalantercept or any future protein therapeutic candidate , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution to the extent that such costs are not paid by future partners . we will seek to fund our operations through the sale of equity , debt financings or other sources , including potential additional collaborations . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms , or at all . if we fail to raise capital or enter into such other arrangements as , and when , needed , we may have to significantly delay , scale back or discontinue the development or commercialization of one or more of our protein therapeutics . story_separator_special_tag ( 2 ) in april 2013 , we and shire ag , which we refer to as shire , determined not to further advance the development of ace-031 , and shire terminated our collaboration agreement , effective as of june 30 , 2013 . ( 3 ) other expenses include unallocated employee and contractor-related expenses , facility expenses , lab supplies and miscellaneous expenses . contract manufacturing expenses contract manufacturing expenses consist primarily of costs incurred for the production of bulk drug substance for third parties other than our partners . the costs generally include employee-related expenses including salary and benefits , direct materials and overhead costs including rent , depreciation , utilities , facility maintenance and insurance . we do not have any current contract manufacturing arrangements . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for personnel , including stock-based compensation and travel expenses for our employees in executive , operational , finance and human resource functions and other general and administrative expenses including directors ' fees and professional fees for accounting and legal services . since the completion of our initial public offering in september 2013 , we have experienced increased expenses related to audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and securities and exchange commission requirements , 79 director and officer insurance premiums , and investor relations costs associated with being a public company . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our protein therapeutics . additionally , if and when we believe regulatory approval of a protein therapeutic candidate appears likely , to the extent that we are undertaking commercialization of such protein therapeutic candidate ourselves , we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations . other expense , net other expense , net consists primarily of interest expense from our venture debt facility , interest income earned on cash and cash equivalents , and the re-measurement gain or loss associated with the change in the fair value of our preferred stock and common stock warrant liabilities . we use the black-scholes option pricing model to estimate the fair value of the warrants . we base the estimates in the black-scholes option pricing model , in part , on subjective assumptions , including stock price volatility , risk-free interest rate , dividend yield , and the fair value of the preferred stock or common stock underlying the warrants . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , accrued expenses and stock-based compensation . we also utilize significant estimates and assumptions in determining the fair value of our common stock and the fair value of our liability-classified warrants to purchase preferred stock and common stock . we base our estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this annual report on form 10-k , we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we have primarily generated revenue through collaboration arrangements with strategic partners for the development and commercialization of our protein therapeutics . we recognize revenue in accordance with accounting standards codification ( asc ) topic 605 , revenue recognition . accordingly , revenue is recognized for each unit of accounting when all of the following criteria are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue on our consolidated balance sheets . amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue , current portion and 80 amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue , net of current portion . under collaboration agreements , we may receive payments for non-refundable up-front fees , milestone payments upon achieving significant development events , research and development reimbursements and royalties on future product sales . these payments are received in connection with the deliverables contained in the arrangements which may include ( 1 ) licenses , or options to obtain licenses , to our technology , ( 2 ) research and development activities performed for the collaboration partner , ( 3 ) participation on joint committees and ( 4 ) manufacturing clinical or preclinical material . effective january 1 , 2011 , we adopted accounting standards update ( asu ) no . 2009-13 , multiple-deliverable revenue arrangements , which amends asc topic 605-25 , revenue recognitionmultiple element arrangements . this guidance applies to new arrangements as well as existing agreements that are significantly modified after january 1 , 2011.
| results of operations comparison of the years ended december 31 , 2013 and 2012 replace_table_token_5_th revenue . we recognized revenue of $ 57.2 million in the year ended december 31 , 2013 , compared to $ 15.3 million in year ended december 31 , 2012. the $ 42.0 million increase was primarily due to the $ 10.0 million milestone payment received in connection with our celgene collaboration for the first patient dosed in a phase 2 trial in ace-536 , $ 7.0 million milestone payment received in connection with our celgene collaboration for initiation of a phase 2b study of sotatercept in end-stage renal disease patients , and recognizing an additional $ 16.7 million of deferred revenue because shire ended our collaboration as of june 30 , 2013. the remaining increase of $ 8.3 million was primarily due to an increase in net cost-sharing revenue from celgene of $ 9.8 million due to celgene assuming 100 % of the costs of development for these protein therapeutic candidates as of january 1 , 2013 , and recognition of $ 0.6 million deferred revenue from celgene , offset by a decrease in net cost-sharing revenue from shire of $ 2.1 million due to the end of the collaboration as of june 30 , 2013 . 85 the following table shows revenue from all sources for the years presented . replace_table_token_6_th research and development expenses .
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