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the end-of-period benefit obligation of $ 4.7 million and $ 5.0 million as of march 31 , 2014 and 2013 , respectively , is included in postretirement obligations within other long-term liabilities in the accompanying consolidated balance story_separator_special_tag the following discussion and analysis is intended to help the reader understand our business , financial condition , results of operations , and liquidity and capital resources . you should read this discussion in conjunction with “ item 6. selected financial data , ” and our consolidated financial statements and the related notes contained elsewhere in this annual report . the statements in this discussion regarding industry outlook , our expectations regarding our future performance , liquidity and capital resources , and other non-historical statements in this discussion are forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described in “ item 1a . risk factors ” and “ introductory note — cautionary note regarding forward-looking statements ” . our actual results may differ materially from those contained in or implied by any forward-looking statements . 40 our fiscal year ends march 31 and , unless otherwise noted , references to years or fiscal are for fiscal years ended march 31. see “ — results of operations. ” overview we are a leading provider of management consulting , technology , and engineering services to the u.s. government in the defense , intelligence , and civil markets . additionally , we provide our management and technology consulting services to major corporations , institutions , and not-for-profit organizations . we are a well-known , trusted and long-term partner to our clients , who seek our expertise and objective advice to address their most important and complex problems . leveraging our 100-year consulting heritage and a talent base of approximately 22,700 people , we deploy our deep domain knowledge , functional expertise , and experience to help our clients achieve their objectives . we have a collaborative culture , supported by our operating model , which helps our professionals identify and respond to emerging trends across the markets we serve and deliver enduring results for our clients . today , we serve substantially all of the cabinet-level departments of the u.s. government . our major clients include the department of defense , all branches of the u.s. military , the u.s. intelligence community , and civil agencies such as the department of homeland security , the department of energy , the department of health and human services , the department of the treasury , and the environmental protection agency . we support these clients in addressing complex and pressing challenges such as combating global terrorism , improving cyber capabilities , transforming the healthcare system , improving efficiency and managing change within the government , and protecting the environment . in the commercial sector , we serve u.s. clients primarily in the financial services , healthcare , and energy markets , and international clients , primarily in the middle east . financial and other highlights with continued uncertainty in the federal budget environment , the company effectively managed indirect costs during the first half of fiscal 2014 to ensure financial strength and flexibility during the second half of fiscal 2014. this included a focus on management of our capacity , including balancing the supply of consulting staff with market demand , and the deployment and productivity of our consulting staff to minimize the amount of time consulting staff spent on non-revenue producing activities . revenue decreased 4.9 % from fiscal 2013 to fiscal 2014 primarily driven by reductions in headcount due to lower demand in an uncertain federal budget environment and a reduction in billable expenses . revenue in fiscal 2014 was additionally impacted by the october 2013 government shutdown and weather-related closures . while lower headcount led to fewer billable hours in total , we experienced continued improvement in productivity of consulting staff over the prior year which helped reduce the impact of such reduced billable hours . the decline in our revenue described above was partially offset by an increase in inorganic revenue during fiscal 2014 of $ 103 million from our acquisition of booz allen engineering services , or bes , that closed on november 30 , 2012. operating income increased 3.2 % to $ 460.6 million in fiscal 2014 from $ 446.2 million in fiscal 2013 , which reflects a 70 basis point increase in operating margin to 8.4 % from 7.7 % in the comparable period . due to our proactive planning and effective cost management during the first half of our fiscal 2014 , we were able to mitigate the impact of the uncertainty in the federal government on our operating margin . the improvement in operating margin was due to increased contract profitability due to disciplined cost management of indirect spending and recovery of additional allowable expenses throughout the fiscal year . in addition , there were decreases in salaries and salary related benefits , and employer retirement plan contributions primarily due to the net decline in our headcount and , to a lesser extent , changes in our executives ' compensation and our discretionary employer retirement plan contributions . cash provided by operations decreased $ 131.9 million to $ 332.7 million in fiscal 2014 from $ 464.7 million in fiscal 2013. the decrease in cash provided by operations was primarily due to an increase in cash paid for taxes due to a rise in expected taxable income as well as the timing of payments related to fiscal 2013. non-gaap measures we publicly disclose certain non-gaap financial measurements , including adjusted operating income , adjusted ebitda , adjusted net income , and adjusted diluted earnings per share , or eps , because management uses these measures for business planning purposes , including to manage our business against internal projected results of operations and measure our performance . story_separator_special_tag ( f ) reflects the release of income tax reserves . ( g ) reflects tax effect of adjustments at an assumed marginal tax rate of 40 % . ( h ) excludes an adjustment of approximately $ 3.1 million and $ 9.1 million of net earnings for fiscal 2014 and 2013 , respectively , associated with the application of the two-class method for computing diluted earnings per share . recent developments the following recent development occurred after march 31 , 2014 , which may cause our future results of operations to differ from our historical results of operations discussed under “ — results of operations. ” on may 7 , 2014 we entered into the second amendment to the credit agreement , dated as of july 31 , 2012 ( as previously amended by the first agreement to the credit agreement , dated as of august 16 , 2013 ) . prior to the second amendment , approximately $ 660 million of term loan a and $ 1,010 million of term loan b was outstanding . pursuant to the second amendment , we borrowed additional term loan a of approximately $ 170 million , the proceeds of which were used to partially prepay outstanding principal on the term loan b. following the amendment , $ 830 million of term loan a and approximately $ 841 million of term loan b were outstanding under the credit agreement . the rates for term loan a and term loan b , as amended , remain unchanged . the amendment also extends the maturity date of term loan a and the revolving credit facility to may 31 , 2019. the maturity date for term loan b remains unchanged . we also amended its existing debt covenants to provide for greater operational and financial flexibility . in connection with the second amendment we expect to accelerate the amortization of ratable portions of the dic and oid that do not qualify for deferral of approximately $ 1.0 million . these expenses will be reflected in other expense , net in the three months ended june 30 , 2014. furthermore , the company expects to expense third party debt issuance costs of approximately $ 2.0 million that did not qualify for deferral and will be reflected in general and administrative costs in the three months ended june 30 , 2014. factors and trends affecting our results of operations our results of operations have been , and we expect them to continue to be , affected by the following factors , which may cause our future results of operations to differ from our historical results of operations discussed under “ — results of operations. ” business environment and key trends in our markets we believe that the following trends and developments in the u.s. government services industry and our markets may influence our future results of operations : budget deficits and the growing u.s. national debt increasing pressure on the u.s. government to reduce federal spending across all federal agencies together with associated uncertainty about the size and timing of those reductions ; changes in the relative mix of overall u.s. government spending and areas of spending growth , with lower spending on homeland security , intelligence and defense-related programs as overseas operations end , and continued increased spending on cyber-security , advanced analytics , technology integration and healthcare ; c ost cutting and efficiency initiatives , current and future budget reductions , continued implementation of congressionally mandated automatic spending cuts , and other efforts to reduce u.s. government spending , which could cause clients to reduce or delay funding for orders for services or invest appropriated funds on a less consistent or rapid basis or not at all , particularly when considering long-term initiatives and in light of uncertainty around congressional efforts to craft a long-term agreement on the u.s. government 's ability to incur indebtedness in excess of its current limits and generally in the current political environment , not issue task orders in sufficient volume to reach current contract ceilings , alter historical patterns of contract awards , including the typical increase in the award of task orders or completion of other contract actions by the u.s. government in the period before the end of the u.s. government 's fiscal year on september 30 , delay requests for new proposals and contract awards , rely on short-term extensions and funding of current contracts , or reduce staffing levels and hours of operation ; current and continued uncertainty around the timing , extent , nature and effect of congressional and other u.s. government action to address budgetary constraints , the outcome of congressional efforts to craft a 44 long-term agreement on the u.s. government 's ability to incur indebtedness in excess of its current limits and the u.s. deficit , including , the required reductions under the budget control act of 2011 ( as amended by the american taxpayer relief act of 2012 and the consolidated appropriations act , 2014 ) , which provides for automatic spending cuts totaling approximately $ 1.2 trillion between 2013 and 2021 ; delays in the completion of the u.s. government 's budget process , which has in the past and could in the future delay procurement of the products , services , and solutions we provide ; increased audit , review , investigation and general scrutiny by u.s. government agencies of government contractors ' performance under u.s. government contracts and compliance with the terms of those contracts and applicable laws ; the implementation by u.s. government agencies of approximately $ 64 billion in mandated 2014 sequestration spending cuts , including an estimated $ 30 billion in cuts to the department of defense ; the federal focus on refining the definition of “ inherently governmental ” work , including proposals to limit contractor access to sensitive or classified information and work assignments , which will continue to drive pockets of insourcing in various agencies , particularly in the intelligence market ; negative publicity and increased scrutiny of government contractors in general , including us , relating to u.s. government expenditures for contractor services and
| results of operations the following table sets forth items from our consolidated statements of operations for the periods indicated : replace_table_token_14_th fiscal 2014 compared to fiscal 2013 revenue revenue decreased to $ 5,478.7 million from $ 5,758.1 million , or a 4.9 % decrease . the decrease was primarily driven by reductions in headcount due to lower demand in an uncertain federal budget environment , and a reduction in billable expenses . revenue in fiscal 2014 was additionally impacted by the october 2013 government shutdown and weather-related closures . while lower headcount led to fewer billable hours in total , we experienced a slight improvement in productivity of consulting staff over the prior year , which helped reduce the impact of such reduced billable hours . the decrease in revenue was partially offset by an increase in inorganic revenue of $ 103.0 million from the company 's acquisition of bes . conversions to funded backlog during fiscal 2014 totaled $ 5.3 billion in comparison to $ 5.4 billion for the comparable period . the decrease in revenue conversion was due to challenging and uncertain market conditions which contributed to a lower conversion of unfunded backlog to funded backlog , the reduced award of new contracts and task orders under which funding was appropriated , and the decline in exercise and subsequent funding of priced options . cost of revenue cost of revenue decreased to $ 2,716.1 million from $ 2,871.2 million , or a 5.4 % decrease . this decrease was primarily due to a decrease in salaries and salary-related benefits of $ 97.3 million , a decrease in employer retirement plan contributions of $ 56.9 million , and a decrease in incentive compensation costs of $ 4.9 million . the decrease was partially offset by increases 52 in other direct consulting staff expenses of $ 5.3 million .
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the net earnings from operations for 2015 of $ 8,398 include after-tax earnings of $ 9,209 for those businesses classified as story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) is intended to help the reader understand our results of operations and financial condition for the three years ended december 31 , 2017 , 2016 and 2015 . the md & a should be read in conjunction with our consolidated financial statements and notes included in item 8 of this form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed elsewhere in this form 10-k , particularly in item 1a . `` risk factors '' and in the `` special note regarding forward-looking statements '' preceding part i of this form 10-k. throughout this md & a , we refer to measures used by management to evaluate performance , including a number of financial measures that are not defined under accounting principles generally accepted in the united states of america ( `` gaap '' ) . please see `` non-gaap disclosures '' at the end of this item 7 for further detail on these financial measures . we believe these measures provide investors with important information that is useful in understanding our business results and trends . reconciliations within this md & a provide more details on the use and derivation of these measures . overview dover is a diversified global manufacturer delivering innovative equipment and components , specialty systems , consumable supplies , software and digital solutions and support services through four operating segments : engineered systems , fluids , refrigeration & food equipment and energy . for the year ended december 31 , 2017 , consolidated revenue from continuing operations was $ 7.8 billion , an increase of $ 1.0 billion or 15.2 % , as compared to the prior year . this increase included organic revenue growth of 7.8 % , acquisition-related growth of 9.7 % and a favorable impact of 0.4 % from foreign currency , partially offset by a 2.7 % impact from dispositions . overall , customer pricing had a favorable impact of 0.6 % on revenue for the year . within our engineered systems segment , revenue increased $ 210.0 million , or 8.9 % , from the prior year , reflecting organic growth of 5.6 % , acquisition-related growth of 6.7 % and a favorable impact from foreign currency of 0.9 % , partially offset by a 4.3 % impact from dispositions . organic growth was broad-based across both the printing & identification and industrials platforms . our fluids segment revenue increased $ 550.3 million , or 32.4 % , comprised of acquisition-related growth of 29.3 % , organic growth of 2.8 % and a favorable foreign currency impact of 0.3 % . the organic growth was principally driven by industrial pump activity and solid hygienic and pharma markets partially offset by continued weakness in transport markets . within our refrigeration & food equipment segment , revenue decreased $ 21.2 million , or 1.3 % , from the prior year , including a 5.1 % decline due to a disposition , partially offset by organic revenue growth of 3.4 % and a favorable impact from foreign currency translation of 0.4 % . the organic growth was driven primarily by demand for refrigeration systems and heat exchangers in our refrigeration business . our energy segment revenue increased $ 297.8 million , or 26.9 % , from the prior year , comprised of organic revenue growth of 26.8 % and acquisition-related growth of 0.2 % , partially offset by an unfavorable impact from foreign currency translation of 0.1 % . the increase in organic revenue within our energy segment was driven primarily by increases in u.s. rig count and well completions . gross profit was $ 2.9 billion for the year ended december 31 , 2017 , an increase of $ 418.4 million , or 16.9 % , as compared to the prior year . the increase was primarily due to the growth in sales volumes as well as the benefits of prior restructuring actions , and a reduction to a voluntary product recall accrual of $ 7.2 million compared to charge of $ 23.2 million in 2016. gross profit margin was 36.9 % for the year ended december 31 , 2017 compared to 36.4 % for the prior year . for further discussion related to our consolidated and segment results , see `` consolidated results of operations '' and `` segment results of operations , '' respectively , within md & a . bookings increased 17.0 % over the prior year at $ 8.0 billion for the year ended december 31 , 2017 . included in this result was a 9.6 % increase in organic bookings , a 9.8 % increase in acquisition-related bookings and a 0.2 % favorable impact due to foreign exchange rates , which were partially offset by a 2.6 % decline due to dispositions . bookings increased 35.7 % , 30.7 % and 11.6 % within our fluids , energy and engineered systems segments , respectively , while bookings in our refrigeration & food equipment segment decreased 3.8 % . overall , our book-to-bill increased from the prior year to 1.02. backlog as of december 31 , 2017 was $ 1.2 billion , up from $ 1.1 billion from the prior year . from a geographic perspective , our u.s. , european and china markets all grew organically year-over-year . on december 7 , 2017 , we announced that our board of directors approved a plan to spin-off our upstream energy businesses within the our energy segment , collectively , the “ wellsite ” business , through a u.s. tax-free spin-off to shareholders . we expect to complete the separation in may of 2018 , subject to the satisfaction or waiver of certain customary conditions . we have incurred $ 15.3 story_separator_special_tag the gain was primarily due to the sales of texas hydraulics ( `` thi '' ) , a custom manufacturer of fluid power components within the engineered systems segment , and tipper tie , a global supplier of processing and clip packaging machines within the refrigeration & food equipment segment . upon disposal of thi and tipper tie , we recognized gains on sale of $ 11.9 million and $ 85.0 million , respectively . these disposals did not represent strategic shifts in operations and , therefore , did not qualify for presentation as discontinued operations . income taxes our businesses span the globe with 36.2 % , 39.0 % and 33.8 % of our pre-tax earnings in 2017 , 2016 and 2015 , respectively , generated in foreign jurisdictions . foreign earnings are generally subject to local country tax rates that are below the 35.0 % u.s. statutory tax rate as of december 31 , 2017 . as a result , our effective non-u.s. tax rate is typically significantly lower than the u.s. statutory tax rate . effective january 1 , 2018 , the u.s. statutory rate will decrease to 21.0 % . our effective tax rate was 16.7 % for the year ended december 31 , 2017 , compared to 26.2 % for the year ended december 31 , 2016 . the 2017 and 2016 rates were impacted by $ 46.9 million and $ 13.6 million , respectively , of favorable net discrete items . we recorded a provisional net tax benefit in the fourth quarter of 2017 of $ 50.9 million primarily related to the tax reform act . the final impact may differ from these provisional amounts , possibly materially , due to , among other things , issuance of additional regulatory guidance , changes in interpretations and assumptions we made , and actions we may take as a result of the tax reform act . we recorded a $ 172.0 million benefit related to the re-measurement of deferred tax liabilities arising from a lower u.s. corporate tax rate . we also recorded provisional tax expense of $ 115.0 million related to the deemed repatriation of unremitted earnings of foreign subsidiaries . we plan to make cash distributions to the u.s from non-u.s. subsidiaries of up to an estimated $ 450.0 million , and consequently we have recorded $ 11.0 million of anticipated local withholding tax expense associated with these planned distributions . the net tax benefit in the fourth quarter of 2017 also included a benefit of $ 4.9 million related to decreases in statutory tax rates of foreign jurisdictions . for the year ended december 31 , 2016 , the discrete items were primarily driven by the adjustment of tax accounts to the u.s. tax return filed . for the year ended december 31 , 2015 , our effective tax rate on continuing operations was 25.6 % . the effective tax rate was impacted by favorable net discrete items totaling $ 17.5 million , principally related to settlements of uncertain tax matters . we believe it is reasonably possible during the next twelve months that uncertain tax positions may be settled , which could result in a decrease in the gross amount of unrecognized tax benefits . this decrease may result in an income tax benefit . due to the potential for resolution of federal , state , and foreign examinations and the expiration of various statutes of limitation , our gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $ 14.1 million . we believe adequate provision has been made for all income tax uncertainties . earnings from continuing operations for the year ended december 31 , 2017 , earnings from continuing operations increased $ 302.8 million , or 59.5 % , to $ 811.7 million , or eps of $ 5.15 , compared with earnings from continuing operations of $ 508.9 million , or eps of $ 3.25 , for the year ended december 31 , 2016 . the 2017 results include a net benefit of $ 172.6 million , or eps of $ 1.09 , from dispositions , a net tax benefit primarily from the tax cuts and jobs act of $ 50.9 million , or eps of $ 0.32 , and a net benefit of $ 4.6 million , or eps of $ 0.03 , from a reduction to a previously recorded product recall accrual . results also included rightsizing and other costs of $ 39.1 million , or eps of $ 0.25 , wellsite separation related costs of $ 9.7 million , or eps of $ 0.06 , and disposition costs of $ 3.2 million , or eps of $ 0.02 . excluding these aforementioned benefits and costs , earnings from continuing operations increased 39 % in 2017 as a result of higher earnings due to increased sales volumes , partially offset by higher weighted average shares outstanding relative to 2016. for the year ended december 31 , 2016 , earnings from continuing operations decreased $ 87.0 million , or 14.6 % , to $ 508.9 million , or eps of $ 3.25 , compared with earnings from continuing operations of $ 595.9 million , or eps of $ 3.74 , for the year ended december 31 , 2015 . the 2016 and 2015 results include discrete tax benefits of $ 13.6 million , or eps of $ 0.09 , and $ 17.5 million , or eps of $ 0.11 , respectively . excluding these discrete tax benefits , earnings from continuing operations decreased 14.4 % in 2016 primarily due to lower revenues , a product recall charge of $ 23.2 million and acquisition-related expenses . eps decreased in 2016 as a result of lower earnings , partially offset by lower weighted average shares outstanding relative to 2015 .
| consolidated results of operations replace_table_token_6_th * nm : not meaningful revenue for the year ended december 31 , 2017 , revenue increased $ 1.0 billion , or 15.2 % to $ 7.8 billion compared with 2016 , reflecting organic growth of 7.8 % , acquisition-related growth of 9.7 % and a favorable impact from foreign currency translation of 0.4 % , partially offset by a 2.7 % impact from dispositions . growth in organic revenue was largely driven by improved market conditions in u.s. oil and gas-related end markets for the energy segment , as well as strong broad-based activity in the engineered systems segment . organic growth also reflected strong shipments in our pumps and hygienic & pharma businesses in the fluids segment and solid retail refrigeration activity in the refrigeration & food equipment segment . acquisition-related growth of 9.7 % was led by the fluids and engineered systems segments , largely due to the full-year benefit from the 2016 acquisitions of wayne fueling systems ltd. ( `` wayne '' ) within our fluids segment and ravaglioli s.p.a group ( `` rav '' ) within our engineered systems segment , as well as the 2017 acquisition of caldera graphics s.a.s . ( `` caldera '' ) within our engineered systems segment . overall customer pricing was favorable , impacting consolidated revenue 0.6 % . for the year ended december 31 , 2016 , revenue decreased $ 162.0 million , or 2.3 % to $ 6.8 billion compared with 2015 , reflecting an organic decline of 5.4 % , a 3.0 % impact from dispositions and an unfavorable impact of 1.0 % from foreign currency translation , offset by growth from acquisitions of 7.1 % . decline in organic revenue was attributable to weakness in u.s. oil and gas-related end markets as well as reduced capital spending by our customers . acquisition-related growth of 7.1 % was largely driven by the acquisitions of tokheim group s.a.s .
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we also record gains and losses resulting from the translation of intercompany balances of a long-term investment nature in foreign currency translation in other comprehensive loss and accumulated other comprehensive loss . in the years ended december 31 , 2018 , 2017 , and 2016 , we recorded $ 1.6 million , $ 0.5 million and $ 8.8 million of foreign currency transaction losses in our consolidated statements of income , respectively . financial instruments . our financial instruments consist primarily of cash and cash equivalents , accounts and notes receivable , accounts payable and short and long-term debt . the carrying amounts of these items , other than long-term debt , approximate their fair market values due to the short-term nature of these instruments . the fair value of our fixed-rate debt is determined using level 2 inputs such as quoted market prices for publicly traded instruments , story_separator_special_tag as used herein , the terms equifax , the company , we , our and us refer to equifax inc. , a georgia corporation , and its consolidated subsidiaries as a combined entity , except where it is clear that the terms mean only equifax inc. all references to earnings per share data in management 's discussion and analysis , or md & a , are to diluted earnings per share , or eps , unless otherwise noted . diluted eps is calculated to reflect the potential dilution that would occur if stock options or other contracts to issue common stock were exercised and resulted in additional common shares outstanding . business overview equifax inc. is a global data , analytics and technology company . we provide information solutions and human resources business process outsourcing services for businesses , governments and consumers . we have a large and diversified group of clients , including financial institutions , corporations , governments and individuals . our services are based on comprehensive databases of consumer and business information derived from numerous sources including credit , financial assets , telecommunications and utility payments , employment , income , demographic and marketing data . we use advanced statistical techniques , machine learning and proprietary software tools to analyze available data to create customized insights , decision-making solutions and processing services for our clients . we also provide information , technology and services to support debt collections and recovery management . additionally , we are a leading provider of payroll-related and human resource management business process outsourcing services in the united states of america , or u.s. for consumers , we provide products and services to help people understand , manage and protect their personal information and make more informed financial decisions . we currently operate in four global regions : north america ( u.s. and canada ) , asia pacific ( australia , new zealand and india ) , europe ( the united kingdom , or u.k. , spain and portugal ) and latin america ( argentina , chile , costa rica , ecuador , el salvador , honduras , mexico , paraguay , peru and uruguay ) . we maintain support operations in the republic of ireland , chile , costa rica and india . we also offer equifax branded credit services in russia and india through joint ventures , have investments in consumer and or commercial credit information companies through joint ventures in cambodia , malaysia , singapore and the united arab emirates , and have an investment in a consumer and commercial credit information company in brazil . 2017 cybersecurity incident in 2017 , we experienced a cybersecurity incident following a criminal attack on our systems that involved the theft of certain personally identifiable information of u.s. , canadian and u.k. consumers . criminals exploited a software vulnerability in a u.s. website application to gain unauthorized access to our network . in march 2017 , the u.s. department of homeland security distributed a notice concerning the software vulnerability . we undertook efforts to identify and remediate vulnerable systems ; however , the vulnerability in the website application that was exploited was not identified by our security processes . we discovered unusual network activity in late-july 2017 and upon discovery promptly investigated the activity . once the activity was identified as potential unauthorized access , we acted to stop the intrusion and engaged a leading , independent cybersecurity firm to conduct a forensic investigation to determine the scope of the unauthorized access , including the specific information impacted . based on our forensic investigation , the unauthorized access occurred from mid-may 2017 through july 2017. no evidence was found that the company 's core consumer , employment and income , or commercial reporting databases were accessed . we continue to cooperate with law enforcement in connection with the criminal investigation into the actors responsible for the 2017 cybersecurity incident . as a result of the 2017 cybersecurity incident , we are party to numerous lawsuits and governmental investigations . see “ item 1a . risk factors ” and “ item 3. legal proceedings ” in this form 10-k for more information regarding these lawsuits and investigations . product liability . as a result of the 2017 cybersecurity incident , we offered trustedid ® premier , a credit file monitoring and identity theft protection product , for free to all eligible u.s. consumers who signed up through january 31 , 2018. we also provided free credit reports and scores , credit monitoring and identity theft protection for twenty four months to impacted consumers in canada and the u.k. we have recorded the expenses necessary to provide this service to those who signed up . through december 31 , 2017 , we recorded $ 50.7 million of product costs in selling , general and administrative expenses in the accompanying consolidated statements of income . in 2018 , the company extended the free credit monitoring services for an additional twelve months for eligible consumers impacted by the 2017 cybersecurity incident by providing them the opportunity to enroll in experian ® idnotify at no cost . story_separator_special_tag due to the 2017 cybersecurity incident we ceased 36 advertising our consumer business in the u.s. in september 2017. we resumed advertising our u.s. paid products in the fourth quarter of 2018. as part of our response to the 2017 cybersecurity incident , we made our trustedid ® premier service , an identity theft protection and credit file monitoring product , available for free to all u.s. consumers for twelve months for those who signed up by january 31 , 2018. in late 2018 , the company extended the free credit file monitoring services for impacted consumers in the u.s. using the free trustedid premier ® service by providing them the opportunity to enroll in experian ® idnotify at no cost for an additional twelve months . similarly , for impacted consumers in canada and the u.k. , we provided free credit reports and scores , credit monitoring and identity theft protection for twenty four months . as part of our commitment to providing long-term resources and protections for consumers , in january 2018 , the company introduced lock & alert , a mobile application enabled service that allows u.s. consumers to quickly lock and unlock their equifax credit report for free , for life . geographic information . we currently have operations in the following countries : argentina , australia , canada , chile , costa rica , ecuador , el salvador , honduras , india , mexico , new zealand , paraguay , peru , portugal , the republic of ireland , spain , the u.k. , uruguay and the u.s. we also offer equifax branded credit services in india and russia through joint ventures , we have investments in consumer and or commercial credit information companies through joint ventures in cambodia , malaysia , singapore and the united arab emirates , and have an investment in a consumer and commercial credit information company in brazil . approximately 71 % our revenue was generated in the u.s. during both of the twelve months ended december 31 , 2018 and 2017 . key performance indicators . management focuses on a variety of key indicators to monitor operating and financial performance . these performance indicators include measurements of operating revenue , change in operating revenue , operating income , operating margin , net income , diluted earnings per share , cash provided by operating activities and capital expenditures . key performance indicators for the twelve months ended december 31 , 2018 , 2017 and 2016 , include the following : replace_table_token_4_th * amounts above include accruals for capital expenditures . business environment and company outlook demand for our services tends to be correlated to general levels of economic activity and to consumer credit activity , small commercial credit and marketing activity . demand is also enhanced by our initiatives to expand our products , capabilities , and markets served . in the united states , we expect 2019 economic activity , as measured by gdp , to be down from the levels seen in the second half of 2018. we expect modest growth in consumer credit , excluding mortgage , over the course of 2019. u.s. mortgage market originations are expected to be much weaker in the first half of 2019 and down for the full year of 2019 versus 2018. we anticipate 2019 economic activity , as measured by gdp , in canada to be slightly below the levels seen in the second half of 2018. in australia , as measured by gdp , we anticipate 2019 economic activity to be below the levels seen in the second half of 2018 due to overall weakness in consumer credit markets . in the european markets we serve , the u.k. , spain and portugal , we are expecting 2019 economic activity , as measured by gdp , to be at or slightly below the levels in 2018. in latin america , our two largest markets are in argentina and chile . in argentina , the market weakened significantly in 2018. we are expecting continued weakness in 2019 but at lower levels than in 2018. in chile , we are expecting economic activity in 2019 to be down slightly compared to 2018 . 37 the 2017 cybersecurity incident is expected to continue to negatively impact revenue , principally in our usis and global consumer solutions businesses . we have incurred , in 2018 , and will continue to incur , in 2019 , legal , consulting and other costs related to the analysis and response to the 2017 cybersecurity incident . additionally , in 2018 and beyond , we have incurred and will continue to incur increased costs and capital expenditures related to our technology transformation , which includes costs for enhanced data security . in 2018 and beyond , we had and will continue to have increases in the ongoing run-rate of technology and security spending . we also expect to continue to incur increased expenses for insurance , finance , compliance activities , and to meet increased legal and regulatory requirements . the ultimate amount of these increases is expected to be significant . as a result of the 2017 cybersecurity incident , we are subject to a significant number of proceedings and investigations as described in “ item 3. legal proceedings ” in this form 10-k. while we believe it is reasonably possible that we will incur losses associated with these proceedings and investigations , it is not possible to estimate the amount of loss or range of possible loss that might result from adverse judgments , settlements , penalties or other resolution of the proceedings and investigations based on the various stages of these proceedings and investigations , that alleged damages have not been specified or are uncertain , the uncertainty as to the certification of a class or classes and the size of any certified class , as applicable , and the lack of resolution on significant factual and legal issues .
| segment financial results u.s. information solutions replace_table_token_11_th u.s. information solutions revenue decreased 1 % in 2018 compared to 2017 due to declines in our core credit decisioning services and lower project related revenue as well as the negative impact from the 2017 cybersecurity incident . these declines were partially offset by revenue from a 2018 acquisition , growth in core mortgage , and revenue from mortgage channel partners . u.s. information solutions revenue increased 2 % in 2017 compared to 2016 due to growth in the mortgage and financial verticals , partially offset by a decline in our auto vertical and the impact of the 2017 cybersecurity incident . online information solutions . revenue for 2018 decreased 1 % compared to 2017 , due to declines in our core credit decisioning services and identity and fraud solutions revenue . these declines were partially offset by growth from a 2018 acquisition and revenue from mortgage , auto , and direct to consumer channel partners . revenue for 2017 increased 1 % compared to 2016 , due to growth in core credit decisioning and identity and fraud solutions . mortgage solutions . revenue increased 3 % in 2018 compared to 2017 , primarily due to a new product offering . this growth was partially offset by declines in the mortgage market and our other mortgage product offerings . revenue increased 5 % in 2017 compared to 2016 , driven by growth in core mortgage , as well as growth from other mortgage product offerings . financial marketing services . revenue decreased 4 % in 2018 compared to 2017 due to a reduction in projects delivered . revenue increased 4 % in 2017 compared to 2016 due to growth in credit marketing services and project related revenue . u.s. information solutions operating margin .
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these factors include the impact of global transfer prices , the timing and level of remittances from foreign affiliates , profits and losses in various markets , the valuation of deferred tax assets or liabilities , or changes in tax laws , regulations , accounting principles , or interpretations thereof . -95- nu skin enterprises , inc. notes to consolidated financial statements the principal components of deferred taxes are as follows ( u.s. dollars in thousands ) : replace_table_token_54_th at december 31 , 2013 , the company had foreign operating loss carryforwards of approximately $ 49.4 million for tax purposes , which will be available to offset future taxable income . if not used , $ 12.6 million of carryforwards will expire between 2014 and 2023 , while $ 36.8 million do not expire . a valuation allowance has been placed on foreign operating loss carryforwards of approximately $ 41.6 million . the valuation allowance primarily represents amounts for foreign operating loss carryforwards for which it is more likely than not some portion or all of the deferred tax asset will not be realized . in making such determination , the company considers all available positive and negative evidence , including future reversals of existing taxable temporary difference , projected story_separator_special_tag the following discussion of our financial condition and results of operation should be read in conjunction with the consolidated financial statements and related notes thereto , which are included in this annual report on form 10-k. business overview we are a leading global direct selling company with operations in 53 markets worldwide . in 2013 , we achieved a record $ 3.2 billion in revenue , representing year-over-year growth of 49 % . from our founding in 1984 , we have strived to differentiate ourselves through innovation in both our products and our sales channel . we develop and distribute innovative , premium-quality anti-aging personal care products and nutritional supplements under our nu skin and pharmanex category brands , respectively . over the last five years , we have introduced new pharmanex nutritional supplements and nu skin personal care products under our ageloc anti-aging brand . we operate in the direct selling channel , primarily utilizing person-to-person marketing to market and sell our products . consumers of our products can purchase products either directly from an individual distributor of our products or directly from the company . as of december 31 , 2013 , we had approximately 1,335,000 persons who purchased products directly from the company during the previous three months ( `` actives '' ) . we believe a significant majority of actives purchase our products at a preferred price , but are not actively pursuing our business opportunity . approximately 92 % of our 2013 revenue came from outside of the united states . due to the size of our foreign operations , our results , as reported in u.s. dollars , are often impacted by foreign currency fluctuations . in addition , our results are impacted by global economic , political , demographic and business trends and conditions . mainland china became our largest revenue market in 2013 and accounted for approximately 32 % of our revenue . direct selling is relatively new to mainland china and we believe the market holds significant potential . we have implemented a distinct business model in mainland china to conform with local laws and regulations . our business is subject to various laws and regulations globally , particularly with respect to our direct selling business models and our product categories . for example , f ollowing a number of negative media stories published in january 2014 by the people 's daily in mainland china , we received inquiries from various government regulators in mainland china asking us to respond to a number of allegations relating to our business practices , products and business model . in response to this media and regulatory scrutiny we have voluntarily taken a number of actions in mainland china , including temporarily suspending our business promotional meetings , temporarily suspending acceptance of applications for any new sales representatives , and extending our product refund and return policies . the adverse publicity and suspension of business promotional meetings and acceptance of applications has had a significant negative impact on the number of sales leaders and actives , and our revenue in the short term will be negatively impacted by these voluntary actions . any inability to resume normal business operations in the near term could have a more significant impact on our business . we currently plan to focus our attention during the next several months on training our sales force with respect to the promotion of both products and the business opportunity we offer in mainland china . it is currently unclear what impact the adverse publicity and our voluntary actions will have on our business in this market in the longer term or whether these voluntary actions will be effective in addressing concerns of regulators in mainland china . regardless , it is likely that we will be fined and could potentially face some other form of sanctions from these regulators . these other sanctions could include a formal suspension of our ability to recruit new sales people and direct sellers , a temporary suspension of our ability to sell products in various markets or , in the most extreme cases , loss of existing licenses to operate in various jurisdictions in mainland china . any of these actions or outcomes could materially harm our business and financial condition . -48- our revenue depends on the number and productivity of our actives and sales leaders . sales leaders include our independent distributors who have completed and who maintain specified sales requirements , and our sales employees and contractual sales promoters in mainland china , who have completed certain qualification requirements . story_separator_special_tag income statement presentation we report revenue in five geographic regions and we translate revenue from each market 's local currency into u.s. dollars using weighted-average exchange rates . the following table sets forth revenue information by region for the periods indicated . this table should be reviewed in connection with the tables presented under `` results of operations , '' which disclose selling expenses and other costs associated with generating the aggregate revenue presented . -50- revenue by region replace_table_token_8_th cost of sales primarily consists of : cost of products purchased from third-party vendors ; costs of self-manufactured products ; cost of adjustments to inventory carry value ; cost of sales materials which we sell to our sales force at or near cost ; amortization expenses associated with certain products and services such as the pharmanex biophotonic scanners that are leased to our sales force ; freight cost of shipping products to our sales force and import duties for the products ; and royalties and related expenses for licensed technologies . we source the majority of our products from third-party manufacturers . under direct selling regulations in mainland china , we are required to manufacture the products we distribute through direct sellers in mainland china . cost of sales and gross profit , on a consolidated basis , may fluctuate as a result of changes in the ratio between self-manufactured products and products sourced from third-party suppliers . in addition , because we purchase a significant amount of our goods in u.s. dollars and recognize revenue in local currencies , our gross margin is subject to exchange rate risks . because our gross margins vary from product to product and due to higher pricing in some markets , changes in product mix and geographic revenue mix can impact our gross margin on a consolidated basis . selling expenses are our most significant expense and are classified as operating expenses . selling expenses include sales commissions paid to our sales force , special incentives , costs for incentive trips and other rewards , as well as wages , benefits , bonuses and other labor and unemployment expenses we pay to our sales force in mainland china . selling expenses do not include any amounts we pay to our sales force for personal purchases . our global sales compensation plan , which we employ in all our markets , except mainland china , is an important factor in our ability to attract and retain our sales leaders . under our global sales compensation plan , sales leaders can earn `` multi-level '' compensation , where they earn commissions for product sales to their consumer groups as well as the product sales made through the sales network they have developed and trained . we do not pay commissions on sales materials , which are sold to our sales force at or near cost . small fluctuations occur in the amount of commissions paid as the actives change from month to month . however , with over 1,335,000 actives and 102,000 sales leaders , the fluctuation in the overall payout is relatively small . selling expenses as a percentage of revenue typically increase in connection with a limited-time offer due to growth in the number of sales leaders qualifying for increased sales compensation and promotional incentives . from time to time , we make modifications and enhancements to our global sales compensation plan in an effort to help motivate our sales force and develop leadership characteristics , which can have an impact on selling expenses . -51- outside of mainland china , distributors also have the opportunity to make profits by purchasing products from us at a discount and selling them to consumers with a mark-up . we do not account for nor pay additional commissions on these mark-ups received by distributors . in many markets , we also allow individuals who are not part of our sales force , whom we refer to as `` preferred customers , '' to buy products directly from us at a discount . we pay commissions on preferred customer purchases to the referring member of our sales force . general and administrative expenses include : wages and benefits ; rents and utilities ; depreciation and amortization ; promotion and advertising ; professional fees ; travel ; research and development ; and other operating expenses . labor expenses are the most significant portion of our general and administrative expenses . promotion and advertising expenses include costs of sales force conventions held in various markets worldwide , which we expense in the period in which they are incurred . because our various sales force conventions are not held during each fiscal year , or in the same period each year , their impact on our general and administrative expenses may vary from year to year and from quarter to quarter . for example , we held our global convention in october 2013 and will have another global convention in the fall of 2015 as we currently plan to hold a global convention every other year . in addition , we hold regional conventions and conventions in our major markets at different times during the year . these conventions have significant expenses associated with them . because we have not incurred expenses for these conventions during every fiscal year or in comparable interim periods , year-over-year comparisons have been impacted accordingly . provision for income taxes depends on the statutory tax rates in each of the jurisdictions in which we operate . for example , statutory tax rates in 2013 were approximately 16.5 % in hong kong , 17 % in taiwan , 24.2 % in south korea , 42.7 % in japan and 25 % in mainland china . we are subject to taxation in the united states at the statutory corporate federal tax rate of 35 % and we pay taxes in multiple states within the united states at various tax rates . our overall effective tax rate was 34.5 % for the year ended december 31 , 2013 .
| quarterly results the following table sets forth selected unaudited quarterly data for the periods shown as revised ( u.s. dollars in millions , except per share amounts ) : replace_table_token_23_th recent accounting pronouncements in february 2013 , the fasb issued asu no . 2013-02 , reporting of amounts reclassified out of accumulated other comprehensive income . this pronouncement was issued to improve the reporting of reclassifications out of accumulated other comprehensive income . the amendments in this update seek to attain that objective by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under u.s. gaap to be reclassified in its entirety to net income . for other amounts that are not required under u.s. gaap to be reclassified in their entirety to net income in the same reporting period , an entity is required to cross-reference other disclosures required under u.s. gaap that provide additional detail about those amounts . this would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account ( i.e . inventory ) instead of directly to income or expense in the same reporting period . this pronouncement is effective prospectively for reporting periods beginning after december 15 , 2012. the adoption of asu 2013-02 did not have a material impact on our consolidated financial position , results of operations or cash flows . in july 2013 , the fasb issued asu no . 2013-11 , income taxes ( topic 740 ) : presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists ( a consensus of the emerging issues task force ) .
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total product revenue from these customers represents approximately $ 1.1 billion , $ 1.3 billion and $ 1.9 billion of our total consolidated product revenue in 2016 , 2015 and 2014 , respectively , and is attributable to our u.s. iron ore business segment . 99 the story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) is designed to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition , results of operations , liquidity and other factors that may affect our future results . the following discussion should be read in conjunction with the consolidated financial statements and related notes that appear elsewhere in this document . industry overview the key driver of our business is demand for steelmaking raw materials from u.s. steelmakers . in 2016 , the u.s. produced approximately 79 million metric tons of crude steel or about 5 % of total global crude steel production . this is consistent when compared to u.s. crude steel production in 2015. u.s. total steel capacity utilization was 71 % in 2016 , which is an approximate 1 % decrease from 2015. additionally , in 2016 , china produced approximately 808 million metric tons of crude steel , or approximately 50 % of total global crude steel production . these figures represent an approximate 1 % increase in chinese crude steel production when compared to 2015. throughout 2016 , global crude steel production increased about 1 % compared to 2015. during 2016 , the platts 62 % price showed resiliency and outperformed the levels seen in 2015. we believe this is the result of improved sentiment about steel demand in china and signs of high-cost capacity closures as well as more disciplined approach to supply instituted by the major iron ore producers , most notably rio tinto . furthermore , major supply additions from both brazil and australia anticipated to come online this year have experienced difficulties ramping up and completion dates have been further delayed . we believe the new management teams at the major iron ore producers will continue this disciplined supply approach through 2017 , which could help maintain or even improve these current price levels . the platts 62 % price increased 52 % to an average price of $ 70.76 per metric ton for the three months ended december 31 , 2016 compared to the three months ended december 31 , 2015. in comparison , the full-year platts 62 % price has increased 5 % to an average price of $ 58.45 per metric ton during the year ended december 31 , 2016. the spot price volatility impacts our realized revenue rates , particularly in our asia pacific iron ore business segment because its contracts correlate heavily to the platts 62 % price and to a lesser extent , our u.s. iron ore contracts . alongside the rally in global iron ore prices , the prices for hot-rolled coil , another important metric in our price realizations in the u.s. , also improved . we believe this is the result of trade cases , which has substantially curbed the amount of unfairly traded steel imports entering the u.s. in 2017 , we believe the market will remain healthy as the new u.s. administration has placed emphasis on the enforcement of unfairly traded steel as well as repairing the infrastructure in the u.s. , which should support demand for domestic steel . also , steel inventory levels remain low compared to previous years , which should help support pricing . our consolidated revenues for the years ended december 31 , 2016 and 2015 were $ 2.1 billion and $ 2.0 billion , respectively , with net income from continuing operations per diluted share of $ 0.97 and $ 0.63 , respectively . net income from continuing operations for the years ended december 31 , 2016 and december 31 , 2015 were impacted positively as a result of gains on extinguishment/restructuring of debt of $ 166.3 million and $ 392.9 million , respectively . additionally , results for the year ended december 31 , 2015 were impacted negatively by income tax expense primarily due to the placement of a valuation allowance against u.s. deferred tax assets . strategy we are focused on our core u.s. iron ore business in 2014 , we established a strategy centering the company around our u.s. iron ore business . we are the market-leading iron ore producer in the u.s. , supplying differentiated iron ore pellets under long-term contracts to the largest north american steel producers . we have the unique advantage of being a low cost producer of iron ore pellets in the u.s. market with significant transportation and logistics advantages to serve the u.s. steel market effectively . pricing structures contained in and the long-term supply provided by our existing contracts , along with our low-cost operating profile , positions u.s. iron ore as a strong cash flow generator in most commodity pricing environments . since instituting our core strategy of focusing on this business , we have achieved significant accomplishments including providing volume certainty by signing a new ten-year supply agreement with our largest customer ; substantially reducing operating costs by making various operational improvements ; and developing alternate iron unit strategies to provide opportunities to enter into the eaf end market . 45 optimized , divested or shutdown all non-core business segments given the current and projected constructive iron ore pricing market , we are focused on optimizing the remaining ore reserve base of our asia pacific iron ore business . asia pacific iron ore is a well-recognized and reliable supplier to steelmakers in asia . we will continue to operate asia pacific iron ore with very low total capital expenditures for the remaining life of the mine . story_separator_special_tag rychel to our board of directors . mr. rychel is executive vice president , chief financial officer and treasurer of aleris corporation , a privately held company that is a global leader in aluminum rolled products . he joined aleris in 2012 and presently leads the global finance activities for the organization . mr. rychel joined the audit committee of our board . with the addition of mr. rychel , our board of directors is now comprised of ten members , of which nine are independent . in addition to mr. rychel 's appointment to the audit committee , we made other changes to our board committee assignments . michael siegal , who is a current member of our board of directors , has been appointed to the audit committee . additionally , gabriel stoliar has stepped down from the audit committee and has been appointed as a member of the compensation committee . executive leadership promotions on december 14 , 2016 , our board of directors elected p. kelly tompkins as the executive vice president & chief operating officer , effective january 1 , 2017. mr. tompkins most recently was the executive vice president and chief financial officer , a position he held since april 2015. he previously served as executive vice president , business development from october 2014 to april 2015 , executive vice president , external affairs and president , global commercial from november 2013 to october 2014 , chief administrative officer from july 2013 to november 2013 , executive vice president , legal , government affairs and sustainability from may 2010 to july 2013 , chief legal officer from january 2011 to january 2013 and president , cliffs china from october 2012 to november 2013. in addition , on december 14 , 2016 , our board of directors elected timothy k. flanagan to assume the duties of executive vice president , chief financial officer & treasurer , effective january 1 , 2017. mr. flanagan has held several positions since april 2008 , most recently serving as vice president , corporate controller & chief accounting officer since march 2012. he was assistant controller from february 2010 to march 2012 , and director , internal audit from april 2008 to february 2010. business segments the company 's primary continuing operations are organized and managed according to product category and geographic location : u.s. iron ore and asia pacific iron ore. as of march 31 , 2015 , management determined that our north american coal operating segment met the criteria to be classified as held for sale under asc 205 , presentation of financial statements . as such , all current and historical north american coal operating segment results are included in our financial statements and classified within discontinued operations . additionally , as a result of the ccaa filing of the bloom lake group on january 27 , 2015 and the wabush group on may 20 , 2015 , we no longer have a controlling interest over the bloom lake group and certain other wholly-owned subsidiaries , and we no longer have a controlling interest over the wabush group . the bloom lake group , wabush group and certain of each of their wholly-owned subsidiaries were previously reported as eastern canadian iron ore and other reportable segments . as such , we deconsolidated the bloom lake group and certain other wholly-owned subsidiaries as of january 27 , 2015. additionally , as a result of the wabush filing on may 20 , 2015 , we deconsolidated certain wabush group wholly-owned subsidiaries effective may 20 , 2015. the wholly-owned subsidiaries deconsolidated effective may 20 , 2015 are wabush group entities that were not deconsolidated as part of the deconsolidation effective january 27 , 2015. financial results prior to the respective deconsolidations of the bloom lake and wabush groups and subsequent expenses directly associated with the canadian entities are included in our financial statements and classified within discontinued operations . 47 results of operations – consolidated 2016 compared to 2015 the following is a summary of our consolidated results of operations for the years ended december 31 , 2016 and 2015 : replace_table_token_4_th revenues from product sales and services sales revenue for the year ended december 31 , 2016 increased $ 95.7 million , or 4.8 % , from 2015 , which primarily was driven by higher sales volume from our u.s. iron ore operations of 932 thousand long tons equating to an increase in revenue of $ 73.5 million and higher pricing from our asia pacific iron ore operations for an increase of $ 69.2 million . the increase in volume mainly was attributable to additional nominated tons from short-term contracts . higher pricing and revenue rates were driven by an increase in the platts 62 % price and a hedging impact in 2015 that was not repeated in 2016 , for increased revenue of $ 32.7 million and $ 29.3 million , respectively . these positive movements were partially offset from lower pricing from our u.s. iron ore operations for a decrease of $ 62.0 million . lower pricing primarily was driven by the negative inflation of certain price indices and the impact of net lower overall contracted pricing terms for two short-term customer contracts that were based on fixed negotiated rates compared to the prior-year period , which was based on a different method . refer to “ results of operations – segment information `` for additional information regarding the specific factors that impacted revenue during the period . cost of goods sold and operating expenses cost of goods sold and operating expenses for the years ended december 31 , 2016 and 2015 were $ 1,719.7 million and $ 1,776.8 million , respectively , a decrease of $ 57.1 million , or 3.2 % year-over-year . cost of goods sold and operating expenses for the year ended december 31 , 2016 decreased as a result of operational efficiencies and cost-cutting efforts across each of our business units , which reduced costs by $ 114.5 million .
| 2017 outlook summary per sales ton information u.s. iron ore ( a ) asia pacific iron ore ( b ) cost of goods sold and operating expense rate $ 70 - $ 75 $ 37 - $ 42 less : freight and venture partner 's cost reimbursements expense rate ( c ) $ 11 $ 2 depreciation , depletion & amortization rate $ 4 $ 1 cash cost of goods sold and operating expense rate $ 55 - $ 60 $ 34 - $ 39 sales volume ( million tons ) 19.0 11.5 production volume ( million tons ) 19.0 11.5 ( a ) u.s. iron ore tons are reported in long tons of pellets . ( b ) asia pacific iron ore tons are reported in metric tons of lump and fines . ( c ) the freight and venture partners ' cost reimbursements have offsetting amounts in revenue and have no impact on sales margin . u.s. iron ore outlook ( long tons ) as previously disclosed , for 2017 , we expect full-year sales and production volumes of approximately 19 million long tons from our u.s. iron ore business . this compares to 18.2 million long tons of sales and 16.0 million long tons of production in 2016. our full-year 2017 u.s. iron ore cash cost of goods sold and operating expense expectation is $ 55 - $ 60 per long ton , which compares to $ 56 per long ton for the full-year 2016. asia pacific iron ore outlook ( metric tons , f.o.b . the port ) our full-year 2017 asia pacific iron ore expected sales and production volume is approximately 11.5 million tons . the product mix is expected to contain 50 percent lump ore and 50 percent fines .
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the following discussion includes information regarding future financial performance and plans , targets , aspirations , expectations , and objectives of management , which constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995 and forward-looking information within the meaning of the canadian securities laws as described in further detail under “ special note regarding forward-looking statements ” that is set forth below . actual results may differ materially from the results discussed in the forward-looking statements because of a number of risks and uncertainties , including the matters discussed in the “ special note regarding forward-looking statements ” below . in addition , please refer to the risks set forth under the caption “ risk factors ” included in our annual report for a further description of risks and uncertainties affecting our business and financial results . historical trends should not be taken as indicative of future operations and financial results . other than as required under the u.s. federal securities laws or the canadian securities laws , we do not assume a duty to update these forward-looking statements , whether as a result of new information , subsequent events or circumstances , changes in expectations or otherwise . we prepare our financial statements in accordance with accounting principles generally accepted in the united states ( “ u.s . gaap ” or “ gaap ” ) . however , this management 's discussion and analysis of financial condition and results of operations also contains certain non-gaap financial measures to assist readers in understanding our performance . non-gaap financial measures either exclude or include amounts that are not reflected in the most directly comparable measure calculated and presented in accordance with gaap . where non-gaap financial measures are used , we have provided the most directly comparable measures calculated and presented in accordance with u.s. gaap , a reconciliation to gaap measures and a discussion of the reasons why management believes this information is useful to it and may be useful to investors . unless the context otherwise requires , all references in this section to the “ company , ” “ we , ” “ us , ” or “ our ” are to restaurant brands international inc. and its subsidiaries , collectively . overview we are a canadian corporation originally formed on august 25 , 2014 to serve as the indirect holding company for tim hortons and its consolidated subsidiaries and for burger king and its consolidated subsidiaries . on march 27 , 2017 , we acquired popeyes louisiana kitchen , inc. and its consolidated subsidiaries . we are one of the world 's largest quick service restaurant ( “ qsr ” ) companies with more than $ 30 billion in system-wide sales and over 24,000 restaurants in more than 100 countries and u.s. territories as of december 31 , 2017 . our tim hortons ® , burger king ® , and popeyes ® brands have similar franchise business models with complementary daypart mixes and product platforms . our three iconic brands are managed independently while benefiting from global scale and sharing of best practices . tim hortons restaurants are quick service restaurants with a menu that includes premium blend coffee , tea , espresso-based hot and cold specialty drinks , fresh baked goods , including donuts , timbits ® , bagels , muffins , cookies and pastries , grilled paninis , classic sandwiches , wraps , soups and more . burger king restaurants are quick service restaurants that feature flame-grilled hamburgers , chicken and other specialty sandwiches , french fries , soft drinks and other affordably-priced food items . popeyes restaurants are quick service restaurants featuring a unique “ louisiana ” style menu that includes spicy chicken , chicken tenders , fried shrimp and other seafood , red beans and rice , and other regional items . we have three operating and reportable segments : ( 1 ) tim hortons ( “ th ” ) ; ( 2 ) burger king ( “ bk ” ) ; and ( 3 ) popeyes louisiana kitchen ( “ plk ” ) . our business generates revenue from the following sources : ( i ) franchise revenues , consisting primarily of royalties based on a percentage of sales reported by franchise restaurants and franchise fees paid by franchisees ; ( ii ) property revenues from properties we lease or sublease to franchisees ; and ( iii ) sales at restaurants owned by us ( “ company restaurants ” ) . in addition , our tim hortons business generates revenue from sales to franchisees related to our supply chain operations , including manufacturing , procurement , warehousing and distribution , as well as sales to retailers . 27 recent events and factors affecting comparability tax reform on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the “ tax act ” ) that significantly revises the u.s. tax code generally effective january 1 , 2018 by , among other changes , lowering the corporate income tax rate from 35 % to 21 % , limiting deductibility of interest expense and performance based incentive compensation and implementing a modified territorial tax system . as a canadian entity , we generally would be classified as a foreign entity ( and , therefore , a non-u.s. tax resident ) under general rules of u.s. federal income taxation . however , we have subsidiaries subject to u.s. federal income taxation and therefore the tax act impacted our consolidated results of operations in 2017 , and is expected to continue to impact our consolidated results of operations in future periods . also on december 22 , 2017 , the securities and exchange commission ( the “ sec ” ) staff issued staff accounting bulletin no . story_separator_special_tag due january 15 , 2022 and entering into a first amendment to our credit agreement in may 2015 . 29 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > ( income ) loss from equity method investments ( income ) loss from equity method investments reflects our share of investee net income or loss , non-cash dilution gains or losses from changes in our ownership interests in equity method investees and basis difference amortization . the change in ( income ) loss from equity method investments during 2017 was primarily driven by the prior year recognition of an $ 11.6 million increase to the carrying value of our investment balance and a non-cash dilution gain included in ( income ) loss from equity method investments on the issuance of capital stock by one of our equity method investees , partially offset by improved results of our bk equity method investments in the current period . the change in ( income ) loss from equity method investments during 2016 was primarily driven by improved earnings for carrols restaurant group , inc. , our largest equity method investment based on our carrying value , and pangaea foods ( china ) holdings , ltd. other operating expenses ( income ) , net our other operating expenses ( income ) , net were comprised of the following : replace_table_token_12_th net losses on disposal of assets , restaurant closures and refranchisings represent sales of properties and other costs related to restaurant closures and refranchisings . gains and losses recognized in the current period may reflect certain costs related to closures and refranchisings that occurred in previous periods . net losses on derivatives during 2015 are primarily due to changes in fair value related to interest rate swaps not designated for hedge accounting . these interest rate swaps were settled during may 2015. net losses ( gains ) on foreign exchange are primarily related to revaluation of foreign denominated assets and liabilities . interest expense , net replace_table_token_13_th during 2017 , interest expense , net increased primarily due to higher outstanding debt from incremental term loans and the issuance of senior notes during 2017 , partially offset by an increase in interest income and a lower weighted average interest rate . during 2016 , interest expense , net decreased primarily in connection with a decrease in outstanding debt as a result of prepayments on our term loans in may 2015. loss on early extinguishment of debt during 2017 , we recorded a $ 122.0 million loss on early extinguishment of debt which primarily reflects the payment of premiums to fully redeem our second lien notes and the write-off of unamortized debt issuance costs and discounts in connection with the refinancing of our term loan facility . during 2015 , we recorded a $ 40.0 million loss on early extinguishment , which primarily reflects the write-off of unamortized debt issuance costs and unamortized discounts in connection with a prepayment of our term loan facility . 34 income tax expense the change in our effective income tax rate to ( 12.1 ) % in 2017 from 20.3 % in 2016 is primarily due to provisional amounts recorded in 2017 for the tax act impact . our effective income tax rate in 2017 also includes a benefit from stock option exercises as a result of the required adoption of a new share-based compensation accounting standard , as well as differing tax rules applicable to certain subsidiaries outside canada . these factors were partially offset by a valuation allowance on foreign exchange capital losses . our effective income tax rate was 20.3 % for 2016 and 24.1 % for 2015 , primarily due to the mix of income from multiple tax jurisdictions and differing tax rules applicable to certain subsidiaries outside canada . we are in the process of analyzing the effects of the new tax provisions that potentially impact certain foreign income , expenses and credits , such as gilti ( global intangible low-taxed income ) , beat ( base-erosion anti-abuse tax ) and fdii ( foreign-derived intangible income ) . we have not recorded any impact for gilti , beat or fdii in 2017. the ultimate impact of the tax act on our effective tax rate in future periods will depend on interpretations and regulatory changes from the internal revenue service , the sec , the fasb and various tax jurisdictions , as well as any actions we may take . net income our net income increased to $ 1,235.3 million for 2017 compared to net income of $ 955.9 million for 2016 , primarily as a result of a $ 133.6 million income tax benefit in 2017 compared to a $ 243.9 million income tax expense in 2016 , a net change of $ 377.5 million . additionally , segment income in th and bk increased $ 150.7 million and 2017 includes $ 106.9 million of plk segment income . these factors were partially offset by a $ 122.0 million loss on early extinguishment of debt , a $ 109.9 million increase in other operating expenses ( income ) , net , $ 61.7 million of plk transaction costs , and a $ 45.3 million increase in interest expense , net . we reported net income of $ 955.9 million for 2016 compared to net income of $ 511.7 million in 2015. the increase in net income is primarily as a result of increases in segment income in th and bk totaling $ 222.0 million , the non-recurrence of $ 116.7 million in th transaction and restructuring costs , a $ 106.2 million decrease in other operating expenses ( income ) , net , the non-recurrence of $ 40.0 loss on early extinguishment of debt , a $ 25.7 million increase from the impact of equity method investments , an $ 11.4 million decrease in interest expense , net , a $ 10.0 million decrease in depreciation and amortization , and a $ 9.8 million decrease in share-based compensation and non-cash incentive compensation .
| results of operations tabular amounts in millions of u.s. dollars unless noted otherwise . replace_table_token_8_th ( b ) for items included in our results of operations , we calculate the fx impact by translating current year results at prior year monthly average exchange rates . we analyze these results on a constant currency basis as this helps identify underlying business trends , without distortion from the effects of currency movements . 30 replace_table_token_9_th ( c ) th segment income includes $ 12.7 million , $ 12.2 million and $ 13.6 million of cash distributions received from equity method investments for 2017 , 2016 and 2015 , respectively . th segment income for 2015 includes $ 0.5 million of acquisition impact on cost of sales . replace_table_token_10_th ( d ) bk segment income for 2017 includes $ 0.8 million of cash distributions received from equity method investments . comparable sales th comparable sales were relatively flat for 2017 , primarily driven by canada comparable sales of 0.2 % . bk comparable sales of 3.1 % for 2017 was primarily driven by u.s. comparable sales of 2.5 % . plk comparable sales of ( 1.5 ) % for 2017 was primarily driven by u.s. comparable sales of ( 2.2 ) % . sales and cost of sales sales include th supply chain sales and sales from company restaurants . th supply chain sales represent sales of products , supplies and restaurant equipment , other than equipment sales related to initial restaurant establishment or renovations , as well as sales to retailers . sales from company restaurants , including sales by our consolidated th restaurant vies ( see note 2 to the accompanying consolidated financial statements included in part ii , item 8 “ financial statements and supplementary data ” of our annual report for additional information on restaurant vies ) , represent restaurant-level sales to our guests .
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grainger 's operations are primarily in the united states ( u.s. ) and canada , with a presence in europe , asia and latin america . grainger uses a combination of multichannel and single channel business models to provide customers with a range of options for finding and purchasing products utilizing sales representatives , catalogs , direct marketing materials and ecommerce . grainger serves approximately 3 million customers worldwide through a network of highly integrated branches , distribution centers and websites . grainger 's two reportable segments are the u.s. and canada . the u.s. operating segment reflects the results of grainger 's u.s. business . the canada operating segment reflects the results for acklands – grainger inc. , grainger 's canadian business . other businesses include single channel online businesses such as monotaro in japan and zoro in the u.s. , and business units in europe , asia and latin america . business environment . given grainger 's large number of customers and the diverse industries it serves , several economic factors and industry trends tend to shape grainger 's business environment . the overall economy and leading economic indicators provide general insight into projecting grainger 's growth . grainger 's sales in the u.s. and canada tend to positively correlate with business investment , business inventory , exports and industrial production . in the u.s. , sales tend to positively correlate with gross domestic product ( gdp ) . in canada , sales tend to positively correlate with oil prices . the table below provides these estimated indicators for 2016 and 2017 : replace_table_token_6_th in the u.s. , business investment and exports are two major indicators of mro spending . per the global insight february 2017 forecast , business investment is forecast to improve in 2017 through equipment related spendings as the influence from slow growth abroad and in the united states fades . export growth is expected to improve in 2017 as the global economy stabilizes and attracts more capital to the united states . per the global insight february 2017 forecast , canada economic growth in 2016 is forecast to continue to remain low but improve in 2017. for the year , the canadian economy , as measured by gdp , is forecast to grow to 2.1 % in 2017 compared to the 2016 estimate of 1.3 % . the 2017 forecast assumes that oil prices will continue a slow but steady rise and that business nonresidental investment ( a component of business investment ) will begin to increase . the latest forecast for the canadian dollar includes further downward adjustments and weakness over the next two years compared to the u.s. dollar . outlook . grainger plans to continue to make investments in its supply chain , ecommerce capabilities , information systems , sales force productivity tools and inventory management services . these investments will support the company 's revenue growth objectives of ( i ) continuing to grow its share of business with large , complex customers ; ( ii ) creating a unique value proposition to further penetrate the medium customer segment and ( iii ) further leveraging its ecommerce capabilities to serve smaller customers . through the execution of continuous improvement initiatives , the u.s. business will reduce its cost base while ensuring that it continues to deliver an effortless customer experience . in canada , the company took aggressive actions in 2016 that will position the business for long-term sustainable growth and profitability . these actions , which included business and personnel reorganization , branch closures , erp and ecommerce investments , should position the canadian business for growth in 2017 and restore the business to break even by the end of 2017. on january 25 , 2017 , grainger reiterated its 2017 sales and earnings per share guidance issued on november 11 , 2016 , and continues to expect 2 to 6 percent sales growth and earnings per share of $ 11.30 to $ 12.40 for 2017 . 16 matters affecting comparability . there were 255 sales days in the full year 2016 and 2015. grainger completed one acquisition in 2015 and one in 2014 , both of which were immaterial individually and in the aggregate . grainger 's operating results have included the results of each business acquired since the respective acquisition dates . story_separator_special_tag style= '' vertical-align : bottom ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; padding-right:2px ; '' > percent increase/ ( decrease ) intercompany sales to zoro 1 volume ( 1 ) price ( 1 ) total ( 1 ) % mid-single-digit sales growth to government and retail customers and low single-digit growth to light manufacturing was offset by mid-teen declines in sales to natural resource and reseller customers and mid-single-digit declines to heavy manufacturing customers and contractors . in 2016 , ecommerce sales for the u.s. business were $ 3,660 million , an increase of 12 % over the prior year and represented 46 % of total sales . the increase was primarily driven by an increase in sales via edi and electronic purchasing platforms . if the company included keepstock® , the electronic inventory management offering , total ecommerce and keepstock® sales would represent 57 % of total sales . the segment gross profit margin decreased 1.3 percentage points in 2016 compared to 2015 , driven by price deflation exceeding cost deflation and stronger sales growth to lower margin customers . operating expenses were down 2 % for 2016 versus 2015 . the decrease in operating expenses was driven by lower employees benefit costs , partially offset by higher restructuring costs and other charges discussed above . excluding the restructuring and other charges in both periods , operating expenses would have been down 4 % . for the segment , operating earnings of $ 1,275 million for 2016 decreased 7 % versus $ 1,372 million in 2015 . the decline in operating earnings for 2016 was primarily driven by lower sales and gross profit margin , partially offset by lower operating expenses . excluding the restructuring costs and other charges in both periods , operating earnings decreased 5 % . story_separator_special_tag the increase was primarily driven by an increase in sales via edi and electronic purchasing platforms in the u.s. if the company included keepstock® , the electronic inventory management offering , total ecommerce and keepstock® sales would represent 50 % of total sales . refer to the segment analysis below for further details . gross profit of $ 4,231 million for 2015 decreased 2 % . the gross profit margin for 2015 was 42.4 % , down 0.9 percentage point versus 2014 , primarily driven by higher sales to lower margin customers and price deflation exceeding cost deflation . operating expenses of $ 2,931 million for 2015 decreased 1 % from $ 2,967 million for 2014. the decrease was primarily driven by lower employee benefits , partially offset by higher severance and contract services costs . operating expenses included new sales representatives , supply chain and inventory management solutions , as well as $ 42 million of charges primarily related to reorganizing the businesses in the u.s. and canada . in 2014 , operating expenses included $ 51 million related to the closing of the business in brazil , restructuring costs , the transition of the retirement plan in europe and an impairment charge for the business in colombia . excluding the reorganization and restructuring costs from both years , operating expenses were down 1 % . operating earnings of $ 1,300 million for 2015 decreased 3 % from $ 1,347 million for 2014. operating earnings declined due to a lower gross profit margin , partially offset by operating expense leverage . operating earnings included the charges noted above . excluding these charges from both years , operating earnings decreased 5 % . net earnings attributable to grainger for 2015 decreased by 4 % to $ 769 million from $ 802 million in 2014. the decrease in net earnings primarily resulted from lower operating earnings , partially offset by lower income taxes . diluted earnings per share of $ 11.58 in 2015 were 1 % higher than $ 11.45 for 2014 , due to lower average shares outstanding . the following table reconciles reported diluted earnings per share determined in accordance with generally accepted accounting principles ( gaap ) in the u.s. to adjusted diluted earnings per share , a non-gaap measure . management believes adjusted diluted earnings per share is an important indicator of operations because it excludes items that may not be indicative of core operating results . because non-gaap financial measures are not standardized , it may not be possible to compare this financial measure with other companies ' non-gaap financial measures having the same or similar names . 21 replace_table_token_10_th ( 1 ) the tax impact of adjustments is calculated on the income tax rate in each applicable jurisdiction . segment analysis the following comments at the reportable segment and other business unit level include external and intersegment net sales and operating earnings . see note 16 to the consolidated financial statements . united states net sales were $ 7,963 million for 2015 , an increase of $ 37 million , or flat when compared with net sales of $ 7,926 million for 2014. contributors to the sales performance for 2015 were as follows : percent increase/ ( decrease ) volume — intercompany sales to zoro 1 price ( 1 ) total — % mid-single-digit sales growth to light manufacturing and government customers and low single-digit growth to commercial services were offset by a mid-teen decline in sales to natural resource customers and low-single-digit declines to heavy manufacturing customers and contractors . in 2015 , ecommerce sales for the u.s. business were $ 3,275 million , an increase of 16 % over the prior year , and represented 41 % of total sales . the increase was primarily driven by an increase in sales via edi and electronic purchasing platforms . if the company included keepstock® , the electronic inventory management offering , total ecommerce and keepstock® sales would represent 51 % of total sales . the segment gross profit margin decreased 1.0 percentage point in 2015 compared to 2014 , primarily driven by price decreases exceeding product cost decreases and higher sales to lower margin customers . operating expenses were up 1 % for 2015 versus 2014. operating expenses included an incremental $ 96 million in growth-related spending on ecommerce , new sales representatives , supply chain and inventory management solutions , as well as $ 32 million of charges related to reorganizing the business , including branch closures . excluding the reorganization costs , operating expenses decreased 1 % primarily due to lower employee benefit costs . for the segment , operating earnings of $ 1,372 million for 2015 decreased 5 % versus $ 1,444 million in 2014. excluding the reorganization expenses mentioned above , operating earnings were down 3 % . the decline in operating earnings for 2015 was due to a lower gross profit margin , partially offset by positive operating expense leverage . 22 canada net sales were $ 891 million for 2015 , a decrease of $ 185 million , or 17 % , when compared with $ 1,076 million for 2014. in local currency , sales increased 5 % for 2015. the 17 % decrease for the year consisted of the following contributors : percent increase/ ( decrease ) volume ( 14 ) foreign exchange ( 12 ) acquisition 5 price 4 total ( 17 ) % sales performance in canada was driven by mid-teen declines in the oil and gas , contractor , commercial services , heavy manufacturing , resellers and retail markets . net sales in the agriculture and mining and utilities end markets were up in the mid-single digits . in 2015 , ecommerce sales for canada were $ 107 million , a decrease of 13 % versus the prior year and represented 12 % of total sales . if the company included keepstock® , the electronic inventory management offering , total ecommerce and keepstock® sales would represent 23 % of total sales .
| results of operations the following table is included as an aid to understanding changes in grainger 's consolidated statements of earnings ( in millions of dollars ) : replace_table_token_7_th ( a ) may not sum due to rounding 2016 compared to 2015 grainger 's net sales of $ 10,137 million for 2016 were an increase of 2 % when compared with net sales of $ 9,973 million for the comparable 2015 period . the 2 % increase for the year consisted of the following : percent increase/ ( decrease ) cromwell acquisition 3 volume 1 price ( 2 ) total 2 % sales growth to government , retail and light manufacturing customers were offset by a decline in sales to natural resource customers , resellers , contractors and heavy manufacturing customers . in 2016 , ecommerce sales for grainger were $ 4,757 million , an increase of 15 % over the prior year and represented 47 % of total sales . the increase was primarily driven by an increase in sales via edi and electronic purchasing platforms in the u.s. and japan businesses . if the company included keepstock® , the electronic inventory management offering , total ecommerce and keepstock® sales would represent 56 % of total sales . refer to the segment analysis below for further details . gross profit of $ 4,115 million for 2016 decreased 3 % . the gross profit margin for 2016 was 40.6 % , down 1.8 percentage points versus 2015 , primarily due to price deflation exceeding cost deflation and unfavorable customer mix . 17 operating expenses of $ 2,995 million for 2016 increased 2 % from $ 2,931 million for 2015 . the increase was primarily due to the following : $ 35 million of restructuring charges primarily in the u.s. and canadian businesses . $ 52 million of impairment charges for goodwill and intangible assets in other businesses .
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under the supervision and with the participation of our management , including our chief executive officer and principal accounting officer , we assessed the effectiveness of our internal control over financial reporting based on the framework in internal control-integrated framework issued by the committee of sponsoring organizations of the treadway commission . while this assessment is not formally documented , management did use it to identify a material weakness in internal control over financial reporting . a material weakness is a control deficiency , or a combination of deficiencies , in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis . 35 the material weakness identified is disclosed below . documentation of proper accounting procedures is not complete and some of the documentation that exists has not been reviewed or approved by management , or has not been properly communicated and made available to employees responsible for portions of the internal control system . additionally , we did not have a system in place for verification of third-party deposits . not all fully implemented fundamental elements of an effective control environment were present as of december 27 , 2013 , including formalized monitoring procedures . these deficiencies represent a material weakness in our internal control over financial reporting given that it results in a reasonable possibility that a material misstatement to the annual or interim consolidated financial statements would not have been prevented or detected . based on this assessment , our management concluded that our internal control over financial reporting was not effective as of december 27 , 2013. this annual report does not include an attestation report of our independent registered public accounting firm regarding the internal control over financial reporting . we were not required to have , nor have we engaged our independent registered public accounting firm , to perform an audit of internal control over financial reporting pursuant to the rules of the securities and exchange commission that permits us to provide only management 's report in this annual report . management 's remediation initiatives will include efforts to remedy the material weakness in internal control through continued progress accumulating and documenting accounting procedures . focused , on-the-job training and orientation for new staff members continues to align their performance with tasks required to produce complete and accurate financial reports on a timely basis . management has dedicated considerable resources to spearhead remediation efforts and continues to address all noted deficiencies . the accounting and information departments are working closely to identify and address system interface issues and streamline processes and procedures . we have implemented new reconciliation procedures to ensure information is properly transferred to the accounting system . item 9b . other information none . part iii item 10. directors , executive officers , and corporate governance the names and ages and positions of the directors and executive officers of the company are listed below along with their business experience during the past five years . the business address of all executive officers of the company is 3901 n. schreiber way , coeur d'alene , idaho 83815. all of these individuals are citizens of the united states . our board of directors currently consists of five directors . directors are elected at the annual meeting of shareholders to serve until they resign or are removed , or are otherwise disqualified to serve , or until their successors are elected and qualified . executive officers are appointed by the board . no family relationships exist among any of the directors or executive officers of the company . frederick sandford , age 52 chief executive officer , president and director ralph e. peterson , age 80 principal accounting officer ronald l. junck , age 66 executive vice president , secretary and general counsel john schneller , age 47 director jeff wilson , age 53 director j.d . smith , age 43 director john stewart , age 57 director frederick j. sandford , 52 , was appointed as our president and chief executive officer on february 22 , 2013 and was elected to the board of directors on november 7 , 2013. mr. sandford has experience leading companies in transition and all phases of growth . since 2005 , he has served as an independent consultant to silicon valley venture capitalists . from 2003-2005 , he led the restructuring of the environmental trust , a land mitigation organization with 80 holdings , resulting in significant asset protection . earlier in his career he founded , built and grew a private security enterprise that led to a successful exit . he also founded , built and successfully sold a liquid waste company . mr. sandford was awarded a full fellowship and earned his mba from cornell university while serving as the ceo of student agencies , america 's oldest student-run company . he is a former us navy seal . he earned a ba in psychology from the university of massachusetts at amherst 36 ralph e. peterson , 80 , was appointed as our principal accounting officer on august 1 , 2013 and to the board as a director in november 2007. mr. peterson previously served as our chief financial officer from april , 2009 to october 2010 , and again in february , 2011 to may 2012. from 2002 until 2006 , mr. peterson was a partner with a mid-sized venture capital firm . story_separator_special_tag by excluding the change in fair value of our derivative liabilities , ebitda-d provides a basis for measuring the financial performance of our operations excluding factors that are beyond our control . for all of these reasons , we believe that ebitda-d provides us and investors with information that is relevant and useful in evaluating our business . however , because ebitda-d excludes depreciation and amortization , it does not measure the capital we require to maintain or preserve our fixed assets . in addition , because ebitda-d does not reflect interest expense , it does not take into account the total amount of interest we pay on outstanding debt nor does it show trends in interest costs due to changes in our financing or changes in interest rates . ebitda-d , as defined by us , may not be comparable to ebitda-d as reported by other companies that do not define ebitda-d exactly as we define the term . because we use ebitda-d to evaluate our financial performance , we reconcile it to net income , which is the most comparable financial measure calculated and presented in accordance with gaap . the following is a reconciliation of ebitda-d to net income for the periods presented : replace_table_token_4_th results of operations 52 weeks end ed december 27 , 2013 story_separator_special_tag annual facility fee equal to 0.75 % of the facility threshold in place and lockbox fees . as collateral for repayment of any and all obligations , we granted wells fargo bank , n.a . a security interest in our all of our property including , but not limited to , accounts receivable , intangible assets , contract rights , investment property , deposit accounts , and other such assets . the agreement contains a covenant that requires the sum of the excess available advances , plus or minus our book cash balance at month end , must at all times be greater than accrued payroll and accrued payroll taxes . at december 27 , 2013 and december 28 , 2012 , we were in compliance with this covenant . operating activities : net cash provided by operating activities totaled approximately $ 5.2 million in 2013 , an increase of $ 7.0 million compared to net cash used by operating activities of approximately $ 1.8 million in 2012. net trade accounts receivable , decreased by approximately $ 2.7 million , primarily driven by the subsequent collection of receivables arising from the heightened sales in the fourth quarter of 2012 related to disaster recovery work . in 2013 , workers ' compensation risk pool deposits increased approximately $ 927,000. investing activities : net cash used by investing activities totaled approximately $ 19,000 in 2013 , approximately a $ 425,000 decrease from approximately $ 443,000 used in 2012. this change was primarily related to cash consideration of $ 150,000 related to the acquisition of dr services in 2012. financing activities : net cash used by financing activities totaled approximately $ 1.0 million in 2013 compared to cash provided by financing activities of approximately $ 2.8 million in 2012. financing activity relates almost exclusively to changes in the balance of our factoring liability . in addition , we paid off a note in the amount of $ 150,000 in connection with the acquisition of dr services in 2012 . 15 critical accounting policies management 's discussion and analysis of financial conditions and results of operations provides a narrative discussion of our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) . management believes the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements . basis of presentation : the consolidated financial statements include the accounts of command center , inc. and all of our wholly-owned subsidiaries . all significant intercompany balances and transactions have been eliminated in consolidation . the consolidated financial statements and accompanying notes are prepared in accordance with u.s. gaap . use of estimates : the preparation of consolidated financial statements in conformity with u.s. gaap requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . fiscal year end : our consolidated financial statements are presented on a 52/53-week fiscal year end basis , with the last day of the fiscal year being the last friday of each calendar year . in fiscal years consisting of 53 weeks , the final quarter will consist of 14 weeks . fiscal years 2013 and 2012 both consisted of 52 weeks . revenue recognition : we generate revenues primarily from providing on-demand labor services . revenue from services is recognized at the time the service is performed and is net of adjustments related to customer credits . revenues are reported net of customer credits and taxes collected from customers that are remitted to taxing authorities . cost of staffing services : cost of services includes the wages of temporary employees , related payroll taxes , workers ' compensation expenses , and other direct costs of services . accounts receivable and allowance for doubtful accounts : accounts receivable are carried at their estimated recoverable amount , net of allowances . we regularly review our accounts receivable for collectability .
| operations summary : revenue decreased by approximately 4.8 % in the fiscal year ended december 27 , 2013 to $ 93.7 million from $ 98.4 million in 2012. the decrease is due primarily to decreased restoration work , the winding down of hard-bid construction contracts through dr services , and our focus on reducing lower margin work . store operations : at the beginning of 2013 , we operated 59 stores . during the year , we closed four stores and opened one , ending the year with 56 stores operating in 23 states . same store revenues increased approximately 8.0 % to $ 92.9 million in 2013 compared to $ 86.0 million in 2012. the increase in same store sales is primarily attributable to our increased focus on attracting new , high quality clients , strengthening existing client relationships , and encouraging existing client growth . same store revenues are measured taking revenue from locations that were operational during the majority of both operating periods . cost of staffing services : our cost of staffing services decreased to 74.1 % of revenue in 2013 from 74.7 % in 2012. this decrease is due primarily to decreased per diem and other costs of staffing services , as well as efforts to increase our margins . in 2014 , we will continue to focus on increasing our gross margin and increasing profitability . worker 's compensation costs for the fiscal year ended december 27 , 2013 increased to 4.5 % of revenue , compared to 4.2 % of revenue in 2012. this increase is primarily attributable to an increase in our claims liability as determined by an actuary . our workers ' compensation costs as a percentage of revenue quarter by quarter for the last two years were as follows : replace_table_token_5_th 14 gross margin : the factors affecting gross margin in 2013 are discussed under the cost of staffing services above .
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these forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated . factors that could cause actual results to differ materially from those anticipated , certain of which are beyond our control , are set forth in item 1a under the caption “ risk factors. ” our actual results , performance or achievements could differ materially from those expressed in , or implied by , forward-looking statements . accordingly , we can not be certain that any of the events anticipated by forward-looking statements will occur or , if any of them do occur , what impact they will have on us . we caution you to keep in mind the cautions and risks described in this document and to refrain from attributing undue certainty to any forward-looking statements , which speak only as of the date of the document in which they appear . we do not undertake to update any forward-looking statement . overview creative realities , inc. is a minnesota corporation that provides innovative digital marketing technology solutions to retail companies , individual retail brands , enterprises , and organizations throughout the united states and in certain international markets . we have expertise in a broad range of existing and emerging digital marketing technologies , as well as the related media management and distribution software platforms and networks , device management , product management , customized software service layers , systems , experiences , workflows , and integrated solutions . our technology and solutions include : digital merchandising systems and omni-channel customer engagement systems , interactive digital shopping assistants , advisors and kiosks , and other interactive marketing technologies such as mobile , social media , point-of-sale transactions , beaconing and web-based media that enable our customers to transform how they engage with consumers . we have expertise in a broad range of existing and emerging digital marketing technologies , as well as the following related aspects of our business : content , network management , and connected device software and firmware platforms ; customized software service layers ; hardware platforms ; digital media workflows ; and proprietary processes and automation tools . our main operations are conducted directly through creative realities , inc. ( f/k/a wireless ronin technologies , inc. ) , and under our wholly owned subsidiaries creative realities , llc , a delaware limited liability company , wireless ronin technologies canada , inc. , a canadian corporation , and conexus world global , llc , a kentucky limited liability company . we generate revenue in this business by : ● consulting with our customers to determine the technologies and solutions required to achieve their specific goals , strategies and objectives ; ● designing our customers ' digital marketing experiences , content and interfaces ; ● engineering the systems architecture delivering the digital marketing experiences we design – both software and hardware – and integrating those systems into a customized , reliable and effective digital marketing experience ; ● managing the efficient , timely and cost-effective deployment of our digital marketing technology solutions for our customers ; 22 ● delivering and updating the content of our digital marketing technology solutions using a suite of advanced media , content and network management software products ; and ● maintaining our customers ' digital marketing technology solutions by : providing content production and related services ; creating additional software-based features and functionality ; hosting the solutions ; monitoring solution service levels ; and responding to and or managing remote or onsite field service maintenance , troubleshooting and support calls . these activities generate revenue through : bundled-solution sales ; service fees for consulting , experience design , content development and production , software development , engineering , implementation , and field services ; software license fees ; and maintenance and support services related to our software , managed systems and solutions . our sources of revenue we generate revenue through digital marketing solution sales , which include system hardware , professional and implementation services , software design and development , software licensing , deployment , and maintenance and support services . we currently market and sell our technology and solutions primarily through our sales and business development personnel , but we also utilize agents , strategic partners , and lead generators who provide us with access to additional sales , business development and licensing opportunities . our expenses our expenses are primarily comprised of three categories : sales and marketing , research and development , and general and administrative . sales and marketing expenses include salaries and benefits for our sales , business development solution management and marketing personnel , and commissions paid on sales . this category also includes amounts spent on marketing networking events , promotional materials , hardware and software to prospective new customers , including those expenses incurred in trade shows and product demonstrations , and other related expenses . our research and development expenses represent the salaries and benefits of those individuals who develop and maintain our proprietary software platforms and other software applications we design and sell to our customers . our general and administrative expenses consist of corporate overhead , including administrative salaries , real property lease payments , salaries and benefits for our corporate officers and other expenses such as legal and accounting fees . critical accounting policies and estimates the company 's significant accounting policies are described in note 2 of the company 's consolidated financial statements included elsewhere in this filing . the company 's consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states . certain accounting policies involve significant judgments , assumptions , and estimates by management that could have a material impact on the carrying value of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . story_separator_special_tag contract losses are determined to be the amount by which the estimated direct and indirect costs of the contract exceed the estimated total revenue that will be generated by the contract and are included in cost of sales and classified in accrued expenses in the balance sheet . our presentation of revenue recognized on a contract completion basis has been consistently applied for all periods presented . software and software license sales included in “ services and other ” software and software license sales are recognized when a fixed fee order has been received and delivery has occurred to the customer . we assess whether the fee is fixed or determinable and free of contingencies based upon signed agreements received from the customer confirming terms of the transaction . software is delivered to customers electronically or on a cd-rom , and license files are delivered electronically . maintenance and support services included in “ services and other ” is maintenance and support services revenue . this consists of software updates and various forms of support services . software updates provide customers with rights to unspecified software product upgrades and maintenance releases and patches released during the term of the support period . support includes access to technical support personnel for software and hardware issues . we also offer a hosting service through our network operations center , or noc , allowing the ability to monitor and support its customers ' networks 7 days a week , 24 hours a day . this revenue is recognized ratably over the term of the contract , which is typically one to three years . maintenance and support is renewable by the customer . rates for maintenance and support , including subsequent renewal rates , are typically established based upon a fee per location , per device , or a specified percentage of net software license fees as set forth in the arrangement . we support agreement fees are based on the level of service provided to its customers , which can range from monitoring the health of a customer 's network to supporting a sophisticated web-portal to managing the end-to-end hardware and software of a digital marketing system . costs and estimated earnings recognized in excess of billings on uncompleted contracts are recorded as unbilled services and are included in work-in-process on the balance sheet . billings in excess of costs and estimated earnings on uncompleted contracts are recorded as deferred revenue until revenue recognition criteria are met . unbilled receivables are a normal part of our business as some receivables are invoiced in the month following shipment or completion of services . our policy is to present any taxes imposed on revenue-producing transactions on a net basis . 25 accounts receivable our unsecured accounts receivable are customer obligations due under normal trade terms , carried at their face value less an allowance for doubtful accounts . we had a factoring arrangement with allied affiliated funding for the majority of our accounts receivable during the period october 15 , 2015 to august 16 , 2016. we determine our allowance for doubtful accounts based on the evaluation of the aging of our accounts receivable and on a customer-by-customer analysis of its high-risk customers . our reserves contemplate our historical loss rate on receivables , specific customer situations and the economic environments in which we operate . we determine past-due accounts receivable on a customer-by-customer basis . accounts receivable are written off after all reasonable collection efforts have failed . goodwill and intangible assets goodwill represents the excess of the purchase price over the fair value of net assets acquired . goodwill is subject to an impairment review at a reporting unit level , on an annual basis , or when an event occurs or circumstances change that would indicate potential impairment . the company has one reporting unit , and therefore the entire goodwill is allocated to that reporting unit . if the carrying value of the reporting unit exceeds its fair value , an impairment loss is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the implied fair value of that goodwill . the implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation , in accordance with accounting standards codification ( “ asc ” ) 805 , business combinations . the residual fair value after this allocation is the implied fair value of the reporting unit goodwill . fair value of the reporting unit was estimated using a discounted cash flow analyses consisting of various assumptions , including expectations of future cash flows based on projections or forecasts derived from analysis of business prospects and economic or market trends that may occur , we also use these same expectations in a number of valuation models in addition to discounted cash flows , including , leveraged buy-out , trading comps and market capitalization , and ultimately determined an estimated fair value of our reporting unit based on weighted average calculations from these models . the company bases its fair value estimates on assumptions it believes to be reasonable but that are unpredictable and inherently uncertain . in addition , the company 's market capitalization could fluctuate from time to time . such fluctuation may be an indicator of possible impairment of goodwill if the company 's market capitalization falls below its book value . if this situation occurs , the company will perform the required detailed analysis to determine if there is impairment . the company performed its annual impairment test at september 30 , 2016 and determined there was no impairment of goodwill . we updated our goodwill analysis as of december 31 , 2016 using actual fourth quarter 2016 results and updated projected 2017 results noting no impairment exists . the valuation of goodwill and intangible assets is subject to a high degree of judgment , uncertainty and complexity .
| results of operations note : all dollar amounts reported in results of operations are in thousands , except per-share information . year ended december 31 , 2016 compared to year ended december 31 , 2015 the tables presented below compare our results of operations from one period to another , and present the results for each period and the change in those results from one period to another in both dollars and percentage change . 27 our consolidated comparisons include certain historical data , transaction entries , journal entries , and chart of account classifications that are not uniformly consistent across creative realities , llc , wireless ronin technologies , inc. broadcast international , inc. and conexus world global , llc . as a result , certain assessments and qualitative descriptions related to our consolidated results can not be compared directly , and may not fully or accurately reflect actual changes in the specific statement of operations line-item category or subcategory at this time . for the year ended december 31 , 2016 , the financial results include the results of the acquisition of conexus for the entire year . for the year ended december 31 , 2015 , the financial results include the results of the acquisition of conexus from the acquisition date of october 15 , 2015 through the year ended december 31 , 2015. as a result of this merger , the results of operations may not be entirely comparable and the variances are explained in more detail in the analysis below . the columns present the following : ● the first two data columns in the table show the dollar results for each period presented . ● the column entitled “ dollars ” show the change in results , in dollars . the column entitled “ % ” show the change in percentages .
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the forward-looking statements in this transition report on form 10-k do not constitute guarantees of future performance . investors are cautioned that statements in this transition report on form 10-k that are not strictly historical statements , including , without limitation , statements regarding current or future financial performance , potential impairment of future earnings , management 's strategy , plans and objectives for future operations or acquisitions , clinical trials and results , litigation strategy , product candidate research , development and regulatory approval , selling , general and administrative expenditures , intellectual property , development and manufacturing plans , availability of materials and product and adequacy of capital resources and financing plans constitute forward-looking statements . such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated , including , without limitation , the risks identified under the caption risk factors and other risks detailed in this transition report on form 10-k and our other filings with the securities and exchange commission . we assume no obligation to update any forward-looking information contained in this transition report on form 10-k , except as required by law . overview we are a world-leading supplier of critical biologic products used to manufacture biologic drugs . in december 2011 , we acquired certain assets and assumed certain liabilities of novozymes biopharma sweden , ab thereby diversifying and expanding our bioprocessing product offering and customer base , as well as doubling our manufacturing capacity . we also apply our expertise in biologic product development to secreflo , for which our first new drug application ( nda ) has been submitted and accepted for priority review by the u.s. food and drug administration ( fda ) and for which we have submitted a marketing authorization application ( maa ) to the european medicines agency ( ema ) . secreflo is a synthetic version of the human hormone secretin being developed by the company as a novel imaging agent for use in combination with magnetic resonance imaging ( mri ) to improve the detection of pancreatic duct abnormalities in patients with pancreatitis . we have begun expending substantial resources on pre-commercialization activities for secreflo . if our nda is approved , we expect these expenditures to increase materially as we seek to commence commercial sales of secreflo . we also have two early stage central nervous system ( cns ) rare disease programs that are advancing through phase 1 clinical trials in friedreich 's ataxia and spinal muscular atrophy . in addition , we have out-licensed certain intellectual property from which we receive royalties from bristol-myers squibb company ( bristol ) on their net sales in the u.s. of their product orencia ® . total revenue in the nine-month fiscal year ended december 31 , 2011 increased as compared to the nine months ended december 31 , 2010 and is primarily due to an increase in bioprocessing product sales orders from our single largest customer as well as increased royalty revenue from bristol as their product orencia ® continues to penetrate the market . on december 20 , 2011 , pursuant to the terms of the asset transfer agreement , dated as of october 27 , 2011 ( the asset transfer agreement ) , by and among the company , repligen sweden ab , a company organized under the laws of sweden and a wholly-owned subsidiary of the company ( repligen sweden ) , novozymes biopharma dk a/s , a company organized under the laws of denmark ( novozymes denmark ) , and novozymes biopharma sweden ab , a company organized under the laws of sweden and a wholly-owned subsidiary of novozymes denmark ( novozymes sweden and , together with novozymes denmark , novozymes ) , we completed the acquisition of novozymes ' business headquartered at novozymes sweden 's facility in lund , sweden and all related operations , including the manufacture and supply of protein a affinity ligands and cell culture ingredients for use in industrial cell culture , stem and therapeutic cell culture and biopharmaceutical manufacturing ( the novozymes biopharma business ) . pursuant to the asset transfer agreement , repligen sweden ( a ) purchased all of the assets related to the novozymes biopharma business and assumed certain specified liabilities related to the novozymes biopharma business from novozymes sweden 26 and ( b ) purchased contract rights and licenses used in the novozymes biopharma business and other specified assets from novozymes denmark ( collectively , the transferred business and the acquisition of the transferred business , the novozymes acquisition ) . the novozymes biopharma business now operates as repligen sweden . we paid a purchase price of 17.0 million euros ( ~ $ 22.1 million ) plus an additional net working capital adjustment of 3.65 million euros ( ~ $ 4.8 million ) for a total upfront cash payment of 20.65 million euros ( ~ $ 26.9 million ) to novozymes for the transferred business upon the consummation of the novozymes acquisition . in addition , novozymes has the right to contingent payments of up to 4.0 million euros ( ~ $ 5.2 million ) consisting of : ( i ) an earn-out of 1.0 million euros ( ~ $ 1.3 million ) if the transferred business achieves sales of a minimum quantity of a novozymes product between january 1 , 2012 and december 31 , 2012 ; ( ii ) two milestone payments of 1.0 million euros ( ~ $ 1.3 million ) each if sales of certain novozymes products achieve agreed levels for the combined calendar years 2012 and 2013 and for calendar year 2014 , respectively ; and ( iii ) technology transfer payments totaling 1.0 million euros ( ~ $ 1.3 million ) following the successful transfer of certain novozymes manufacturing technology . the novozymes acquisition has led to substantial increases in both the size and revenue of the combined company as well as operational costs associated with the combined business . story_separator_special_tag 2009-13 , multiple deliverable revenue arrangements , ( asu no . 2009-13 ) or arrangements pursuant to which we expect to receive significant milestone payments that would be accounted for under asu no . 2010-17 , revenue recognition - milestone method . inventories inventories relate to our bioprocessing business . we value inventory at cost or , if lower , fair market value , using the first-in , first-out method . we review our inventory at least quarterly and record a provision for excess and obsolete inventory based on our estimates of expected sales volume , production capacity and expiration dates of raw materials , work-in-process and finished products . expected sales volumes are determined based on supply forecasts provided by key customers for the next three to 12 months . we write down inventory that has become obsolete , inventory that has a cost basis in excess of its expected net realizable value , and inventory in excess of expected requirements to cost of product revenue . manufacturing of bioprocessing finished goods is done to order and tested for quality specifications prior to shipment . a change in the estimated timing or amount of demand for our products could result in additional provisions for excess inventory quantities on hand . any significant unanticipated changes in demand or unexpected quality failures could have a significant impact on the value of inventory and reported operating results . during all periods presented in the accompanying consolidated financial statements , there have been no material adjustments related to a revised estimate of inventory valuations . 28 business combinations amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed , if any , based on their fair values at the dates of acquisition . the fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management . any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill . the fair value of contingent consideration includes estimates and judgments made by management regarding the probability that future contingent payments will be made , the extent of royalties to be earned in excess of the defined minimum royalties , etc . management updates these estimates and the related fair value of contingent consideration at each reporting period . changes in the fair value of contingent consideration are recorded in our statement of operations . we use the income approach to determine the fair value of certain identifiable intangible assets including customer relationships and developed technology . this approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value . we base our assumptions on estimates of future cash flows , expected growth rates , expected trends in technology , etc . we base the discount rates used to arrive at a present value as of the date of acquisition on the time value of money and certain industry-specific risk factors . we believe the estimated purchased customer relationships and developed technology amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets . the allocation of consideration transferred for the acquisition of the novozymes biopharma business is preliminary as a result of a preliminary valuation report that includes a preliminary fair value assigned to fixed assets . we intend to finalize the valuation report and the fair value of fixed assets in the near term . as a result , the fair values assigned to intangible assets and fixed assets , and the resulting gain on bargain purchase could change in future reporting periods . intangible assets and goodwill intangible assets we amortize our intangible assets that have finite lives using the straight-line method . amortization is recorded over the estimated useful lives ranging from 8 to 8.5 years . we review our intangible assets subject to amortization to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life . if the carrying value of an asset exceeds its undiscounted cash flows , we will write-down the carrying value of the intangible asset to its fair value in the period identified . in assessing fair value , we must make assumptions regarding estimated future cash flows and discount rates . if these estimates or related assumptions change in the future , we may be required to record impairment charges . we generally calculate fair value as the present value of estimated future cash flows to be generated by the asset using a risk-adjusted discount rate . if the estimate of an intangible asset 's remaining useful life is changed , we will amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life . goodwill we test goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value . events that would indicate impairment and trigger an interim impairment assessment include , but are not limited to current economic and market conditions , including a decline in market capitalization , a significant adverse change in legal factors , business climate or operational performance of the business , and an adverse action or assessment by a regulator . our annual impairment test date is the last day of our fiscal fourth quarter . for the nine-month fiscal year ended december 31 , 2011 , the impairment test date was december 31 , 2011 . 29 accrued liabilities we estimate accrued liabilities by identifying services performed on our behalf , estimating the level of service performed and determining the associated cost incurred for such service as of each balance sheet date .
| results of operations the following discussion of the financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and the related footnotes thereto . revenues total revenues for the nine-month fiscal year ended december 31 , 2011 and the nine-month period ended december 31 , 2010 as well as the fiscal years ended march 31 , 2011 and 2010 were comprised of the following : replace_table_token_3_th substantially all of our bioprocessing products are based on recombinant protein a and are sold to customers who incorporate our manufactured products into their proprietary antibody purification systems to be sold directly to the pharmaceutical industry . monoclonal antibodies are a well-established class of drug with applications in rheumatoid arthritis , asthma and a variety of cancers . sales of our bioprocessing products are therefore impacted by the timing of large-scale production orders and the regulatory approvals for such antibodies , which may result in significant quarterly fluctuations . for the nine-month fiscal year ended december 31 , 2011 , bioprocessing product sales increased by $ 1,404,000 or 12 % as compared to the nine months ended december 31 , 2010. volume increased 14 % due to increased demand from certain key customers and other business events , and was offset by a 2 % decrease in sales revenue due to changes in the mix of products sold in the nine-month fiscal year ended december 31 , 2011 as compared to the nine months ended december 31 , 2010. we sell our assorted bioprocessing products at various price points . the mix of products sold varies and impacts the fluctuations in total product revenue and cost of product revenues from period to period .
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forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as anticipate , believe , could , estimate , expect , intend , plan , may , should , will , would , project , and similar expressions . these forward-looking statements are based upon information currently available to the company and are subject to a number of risks , uncertainties , and other factors that could cause the company 's actual results , performance , prospects , or opportunities to differ materially from those expressed in , or implied by , these forward-looking statements . important factors that could cause the company 's actual results to differ materially from the results referred to in the forward-looking statements the company makes in this report include : the effects of intense competition in the markets in which we operate ; the cyclical nature of the markets in which we operate ; changes in market conditions in which we operate that would influence the value of the company 's stock ; the company 's ability to achieve its business plans , including with respect to an uncertain economic environment ; the risks associated with international operations , including currency risks ; the company 's ability to retain existing customers and our ability to attract new customers for growth of our business ; the effects of the loss or bankruptcy of or default by any significant customer , suppliers , or other entity relevant to the company 's operations ; the company 's ability to complete cost reduction actions and risks associated with such actions ; the company 's ability to control costs ; political and economic conditions nationally , regionally , and in the markets in which we operate ; natural disasters , war , civil unrest , terrorism , fire , floods , tornadoes , earthquakes , hurricanes , or other matters beyond the company 's control ; the company 's risk of loss not covered by insurance ; the accuracy of estimated forecasts of oem customers and the impact of the current global and european economic environment on our customers ; the risks association with certain minimum purchase agreements we have with suppliers ; fluctuations in the costs of raw materials used in our products ; the outcome of litigation to which the company is a party from time to time , including product liability claims ; work stoppages and other labor issues ; 34 changes in employment , environmental , tax and other laws and changes in the enforcement of laws ; the company 's ability to attract and retain key executives and other personnel ; changes in the company 's pension and retirement liabilities ; the company 's ability to successfully pursue the company 's development activities and successfully integrate new operations and systems , including the realization of revenues , economies of scale , cost savings , and productivity gains associated with such operations ; the company 's ability to obtain or protect intellectual property rights ; the risks associated with the portion of the company 's total assets comprised of goodwill and indefinite lived intangibles ; changes in market conditions that would result in the impairment of goodwill or other assets of the company ; changes in accounting rules and standards , audits , compliance with the sarbanes-oxley act , and regulatory investigations ; the effects of unanticipated deficiencies , if any , in the disclosure controls and internal controls of svendborg ; the effects of changes to critical accounting estimates ; changes in volatility of the company 's stock price and the risk of litigation following a decline in the price of the company 's stock ; failure of the company 's operating equipment or information technology infrastructure ; the company 's ability to implement our new erp system ; the company 's access to capital , credit ratings , indebtedness , and ability to raise additional capital and operate under the terms of the company 's debt obligations ; the risks associated with our debt ; the risks associated with the company 's exposure to variable interest rates and foreign currency exchange rates ; the risks associated with interest rate swap contracts ; the risks related to our outstanding convertible bonds ; the risks associated with the company 's exposure to renewable energy markets ; the risks related to regulations regarding conflict minerals ; the risks associated with the global recession and european economic downturn and volatility and disruption in the global financial markets ; the company 's ability to successfully execute , manage and integrate key acquisitions and mergers , including the lamiflex acquisition and the svendborg acquisition ; the risks associated with the company 's investment in a new manufacturing facility in china ; and other factors , risks , and uncertainties referenced in the company 's filings with the securities and exchange commission , including the risk factors set forth in this document all forward-looking statements speak only as of the date of this report . except as required by law , we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this report or to reflect 35 the occurrence of unanticipated events . all subsequent written and oral forward-looking statements attributable to us or any person acting on the company 's behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section and in our risk factors set forth in part i , item 1a of this form 10-k and in other reports filed with the sec by the company . the following discussion of the financial condition and results of operations of altra industrial motion corp. and its subsidiaries should be read together with the selected historical financial data , and the consolidated financial statements of altra industrial motion corp. and its subsidiaries and related notes included elsewhere in this form 10-k. the following discussion includes forward-looking statements . story_separator_special_tag in valuing the customer relationships , trade names , and trademarks , we utilized variations of the income approach . the income approach was considered the most appropriate valuation technique because the inherent value of these assets is their ability to generate current and future income . the income approach relies on historical financial and qualitative information , as well as assumptions and estimates for projected financial information . projected financial information is subject to risk if our estimates are incorrect . the most significant estimate relates to our projected revenues and profitability . if we do not meet the projected revenues and profitability used in the valuation calculations then the intangible assets could be impaired . in determining the value of customer relationships , we reviewed historical customer attrition rates which were determined to be approximately 5 % per year . most of our customers tend to be long-term customers with very little turnover . while we do not typically have long-term contracts with customers , we have established long-term relationships with customers which make it difficult for competitors to displace us . additionally , we assessed historical revenue growth within our industry and customers ' industries in determining the value of customer relationships . the value of our customer relationships intangible asset could become impaired if future results differ significantly from any of the underlying assumptions . this could include a higher customer attrition rate or a change in industry trends such as the use of long-term contracts which we may not be able to obtain successfully . customer relationships and product technology and patents are considered finite-lived assets , with estimated lives ranging from 8 years to 17 years . the estimated lives were determined by calculating the number of years necessary to obtain 95 % of the value of the discounted cash flows of the respective intangible asset . goodwill and trade names and trademarks are considered indefinite lived assets . other intangible assets include trade names and trademarks that identify us and differentiate us from competitors , and therefore competition does not limit the useful life of these assets . additionally , we believe that our trade names and trademarks will continue to generate product sales for an indefinite period . 37 accounting standards require that an annual goodwill impairment assessment be conducted at the reporting unit level using either a quantitative or qualitative approach . as part of the annual goodwill impairment assessment we performed a quantitative assessment and estimated the fair value of each of our five reporting units using an income approach . we forecasted future cash flows by reporting unit for each of the next five years and applied a long term growth rate to the final year of forecasted cash flows . the cash flows were then discounted using our estimated discount rate . the forecasts of revenue and profitability growth for use in the long-range plan and the discount rate were the key assumptions in our goodwill fair value analysis we review the difference between the estimated fair value and net book value of each reporting unit . if the excess is less than $ 1.0 million , the reporting unit could be required to perform a step two goodwill impairment analysis in a future period , if the estimated profitability decreased by 10 % when compared to our forecasts to determine what amount of goodwill is potentially impaired . as of december 31 , 2013 , each of our reporting units had estimated fair values that were at least $ 1.0 million greater than the net book value . management believes the preparation of revenue and profitability growth rates for use in the long-range plan and the discount rate requires significant use of judgment . if any of our operating segments do not meet our forecasted revenue and or profitability estimates , we could be required to perform an interim goodwill impairment analysis in future periods . in addition , if our discount rate increases , we could be required to perform an interim goodwill impairment analysis . we performed a sensitivity analysis on the estimated fair value of our reporting units by decreasing profitability by 5 % and 10 % in each of the following 5 years leaving all other assumptions constant and increasing the discount rate by 5 % and 10 % leaving all other assumptions constant . we did not identify any reporting unit that would be required to perform a step 2 goodwill impairment analysis as the fair value of our reporting units are substantially in excess of their carrying value . for our indefinite lived intangible assets , mainly trademarks , we estimated the fair value first by estimating the total revenue attributable to the trademarks for each of the reporting units . second , we estimated an appropriate royalty rate using the return on assets method by estimating the required financial return on our assets , excluding trademarks , less the overall return generated by our total asset base . the return as a percentage of revenue provides an indication of our royalty rate ( between 1.0 % and 1.5 % ) . we compared the estimated fair value of our trademarks with the carrying value of the trademarks and did not identify any impairment . long-lived assets , including definite-lived intangible assets , are reviewed for impairment when events or circumstances indicate that the carrying amount of a long-lived asset may not be recovered . long-lived assets are considered to be impaired if the carrying amount of the asset exceeds the undiscounted future cash flows expected to be generated by the asset over its remaining useful life . if an asset is considered to be impaired , the impairment is measured by the amount by which the carrying amount of the asset exceeds its fair value , and is charged to results of operations at that time .
| results of operations . amounts in thousands replace_table_token_6_th year ended december 31 , 2013 compared with year ended december 31 , 2012 amounts in thousands , except pecentage data year ended december 31 , 2013 december 31 , 2012 change % net sales $ 722,218 $ 731,990 $ ( 9,772 ) -1.3 % net sales . sales decreased in 2013 primarily due to lower sales levels across all operating segments due to weak demand in all geographies as well as a decline in the mining , energy and metals industries . the decrease was offset by the positive impact of foreign exchange rate changes in the amount of $ 2.5 million primarily related to changes in euro and british pound sterling exchange rates compared to 2012. we forecast that sales will increase in 2014 primarily due to the full year effect of the acquisition of svendborg , and a modest increase from the introduction of new products and price increases . replace_table_token_7_th gross profit . gross profit decreased in 2013 primarily due to the decrease in sales volume . the decrease was offset by the positive impact of foreign exchange rate changes in the amount of $ 0.7 million . we forecast that 2014 gross profit as a percentage of sales will increase modestly when compared to 2013 due to price increases and as we continue to focus on improving operational efficiency . we expect svendborg to have a higher gross profit as a percentage of sales than that of the company as a whole . 39 replace_table_token_8_th selling , general and administrative expenses . the vast majority of the increase in sg & a , approximately $ 3.1 million , was due to the acquisition cost related to the svendborg acquisition . acquisition costs for the year were $ 2.5 million . increased acquisition costs were offset by the favorable effect of foreign exchange rates in the amount of $ 0.8 million .
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the unaudited pro forma financial information combines the results of operations of ewt and proact as though the company had been combined as of the beginning of years ended september 30 , 2018 and 2017 , and the pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at such time . pro forma results for other acquisitions completed in the year ended september 30 , 2018 were determined to not be material . the unaudited pro forma results presented below include adjustments for increased fair value of acquired intangible assets and related amortization charges , acquisition costs , and interest . year ended september 30 , 2018 2017 total revenues $ 1,385,159 $ 1,294,167 net loss attributable to evoqua water 2,116 1,527 on march 9 , 2018 , the company acquired all story_separator_special_tag financial condition and results of operations 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 indicated or the context otherwise requires , all references to the “ company , ” “ evoqua , ” “ evoqua water technologies corp. , ” “ ewt holdings i corp , ” “ we , ” “ us , ” “ our ” and similar terms refer to evoqua water technologies corp. , together with its consolidated subsidiaries . unless otherwise specified , all dollar amounts in this section are referred to in millions . our fiscal year ends on september 30 of each year and references in this section to a year refer to our fiscal year . as such , references to : 2018 relates to the fiscal year ended september 30 , 2018 , 2017 relates to the fiscal year ended september 30 , 2017 and 2016 relates to the fiscal year ended september 30 , 2016. 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 87 branches as of september 30 , 2018. we have an extensive service and support network , and as a result , a certified evoqua service technician is no more 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 ensure 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 . our vision “ to be the world 's first choice for water solutions ” and our values of “ integrity , customers and performance ” foster a corporate culture that is focused on establishing a workforce that is enabled , empowered and accountable , 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 imperative 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 for the year ended september 30 , 2018 , we served our customers through three segments : industrial , municipal and products . effective october 1 , 2018 , we reorganized our business from a three-segment structure to a two-segment operating model . our segments all draw from the same reservoir of leading technologies , shared manufacturing infrastructure , common business processes and corporate philosophies . the key factors used to identify our reportable segments are the organization and alignment of our internal operations , the nature of the products and services and customer type . 52 within the industrial segment , we primarily provide tailored solutions in collaboration with our customers backed by life‑cycle services including on‑demand water , outsourced water ( formerly known as build-own-operated ) , recycle and reuse and emergency response service alternatives to improve operational reliability , performance and environmental compliance . story_separator_special_tag furthermore , since april 2016 , we have successfully completed twelve acquisitions that expand our vertical markets and geographic reach and enhance our technologies , strengthening our existing capabilities and adding new capabilities and cross selling opportunities in areas such as mobile wastewater treatment , soil and air treatment , regenerative media filtration , anodes , uv and ozone disinfection , aerobic and anaerobic biological treatment technologies and electrochemical and electrochlorination cells . we are able to rapidly scale new technologies using our leading direct and third‑party sales channels and our relationships with key influencers , including municipal representatives , engineering firms , designers and other system specifiers . we believe our continued investment in driving penetration of our recently launched technologies , robust pipeline of new capabilities and best‑in‑class channels to market will allow us to continue to address our customer needs across the water lifecycle . operational excellence we believe that continuous improvement of our operations , processes and organizational structure is a key driver of our earnings growth . effective october 1 , 2018 , we restructured our business into two operating segments , which we expect to result in cost savings in the range of $ 15 million to $ 20 million on an annualized basis once fully implemented . we have separately identified and are pursuing a number of discrete initiatives which , if successful , we expect could result in additional cost savings over the next three years . these initiatives include our epro and supply chain improvement program to consolidate and manage global spending , our improved logistics and transportation management program , further optimizing our engineering cost structure , and capturing benefits of our water one® platform . these improvements focus on creating value for customers through reduced leadtimes , improved quality and superior customer support , while also creating value for shareholders through enhanced earnings growth . furthermore , as a result of significant investments w 54 e have made in our footprint and facilities , we believe we have capacity to support our planned growth without commensurate increase in fixed costs . higher than expected inflation and commodity costs created margin challenges this year , causing short term offsets to the operational excellence initiatives . acquisitions we believe that capex-like , tuck‑in acquisitions present a key opportunity within our overall growth strategy , which we will continue to evaluate strategically . these strategic acquisitions will enable us to accelerate our growth by extending the critical mass in existing markets as well as expand in new geographies and new end market verticals . our existing customer relationships , best‑in‑class channels to market and ability to rapidly commercialize technologies provide a strong platform to drive rapid growth in the businesses we acquire . to capitalize on these opportunities , we have built an experienced team dedicated to mergers and acquisitions that has , since april 2016 , successfully completed twelve acquisitions that expand our vertical markets and geographic reach and enhance our technologies , with purchase prices ranging from approximately $ 2.0 million to approximately $ 283.7 million , and pre‑acquisition revenues ranging from approximately $ 3.1 million to approximately $ 55.7 million . during the year ended september 30 , 2018 , we acquired substantially all of the assets of le groupe ish20top inc. ( “ isotope ” ) and pure water solutions , llc ( “ pure water ” ) and all of the issued and outstanding equity securities of proact services corporation ( “ proact ” ) and pacific ozone technology , inc. ( “ pacific ozone ” ) . see note 3 , “ acquisitions and divestitures ” in item 8 in this annual report on form 10-k for a complete discussion of these acquisitions . during the year ended september 30 , 2017 , we acquired all of the issued and outstanding equity securities of olson irrigation systems ( “ olson ” ) and adi systems north america inc. , geomembrane technologies inc. and lange containment systems , inc. ( collectively , “ adi ” ) from adi group inc. , and substantially all of the assets of noble water technologies , inc. ( “ noble ” ) and environmental treatment systems inc. ( “ ets ” ) . during the year ended september 30 , 2016 , we acquired all of the issued and outstanding equity securities of delta ultraviolet corporation ( “ delta uv ” ) , neptune-benson and magneto special anodes b.v. ( “ magneto ” ) , and substantially all of the assets of valve and filtration systems , ltd. ( “ vaf ” ) . we will continue to actively evaluate acquisition opportunities that are consistent with our business strategy . we maintain a robust pipeline of potential acquisition targets , developed by our management team as well as various outside industry experts and consultants . 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 , imposition of tariffs 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 . changes in costs and availability . we have significant exposures to certain commodities , including steel , caustic , carbon , calcium nitrate and iridium , and volatility in the market price and availability of these commodity input materials has a direct impact on our costs and our business .
| segment results replace_table_token_13_th 71 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_14_th there were no comparable charges incurred in 2017 or 2016 that would impact adjusted ebitda . industrial revenues in the industrial segment increased $ 39.2 million , or 6.5 % , to $ 643.4 million in the year ended september 30 , 2017 from $ 604.2 million in the prior year . the increase in revenue was primarily due to an increase in service revenue 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 hydocarbon 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 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 20.4 % , to $ 110.0 million in the year ended september 30 , 2017 from $ 91.4 million in the prior year . 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 2016 . ebitda in the industrial segment increased $ 19.7 million , or 15.2 % , to $ 149.4 million in the year ended september 30 , 2017 from $ 129.7 million in the prior year .
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md & a includes the following sections : business we are a leading provider of medical device solutions focused on the diagnosis and treatment of central nervous and sensory system disorders for patients of all ages . year 2019 overview our consolidated revenue decreased by $ 35.7 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . this decrease was driven by the exit of gnd and neurocom businesses , the sale of our medix business in argentina , the impact of product discontinuations in our newborn care market , and ship holds within newborn care and hearing & balance markets . net loss was $ 15.7 million , or $ 0.47 per share in the year ended december 31 , 2019 , compared with net loss of $ 22.9 million , or $ 0.69 per share in the prior year . this increase in income was primarily driven by our restructuring initiative announced in 2019. while we experienced a net loss driven by our reorganization efforts , we generated cash flow from operations of $ 60.1 million . reorganization on january 15 , 2019 , we announced the implementation of a new organizational structure designed to improve operational performance and make us a stronger , more profitable company . we consolidated our three business units , neuro , newborn care and hearing & balance , formerly otometrics , into “ one natus . '' this initiative was designed to create a single , unified company with globally led operational teams in sales & marketing , manufacturing , r & d , quality , and general and administrative functions . we expect to continue to see increased transparency , efficiency and cross-functional collaboration across common technologies , processes and customer channels . application of critical accounting policies we prepare our financial statements in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . in so doing , we must often make estimates and use assumptions that can be subjective and , consequently , our actual results could differ from those estimates . for any given individual estimate or assumption we make , there may also be other estimates or assumptions that are reasonable . we believe that the following critical accounting policies require the use of significant estimates , assumptions , and judgments . the use of different estimates , assumptions , and judgments could have a material effect on the reported amounts of assets , liabilities , revenue , expenses , and related disclosures as of the date of the financial statements and during the reporting period . revenue recognition revenue is recognized when obligations under the terms of a contract with a customer are satisfied ; generally this occurs with the transfer of control of devices , supplies , or services . revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services . for the majority of devices and supplies , we transfer control and recognizes revenue when products ship from the warehouse to the customer . we generally do not provide rights of return on devices and supplies . freight charges billed to customers are included in revenue and freight-related expenses are charged to cost of revenue . 30 depending on the terms of the arrangement , we may also defer the recognition of a portion of the consideration received because we have to satisfy a future obligation ( e.g . installation ) . judgment is required to determine the standalone selling price ( “ ssp ” ) for each distinct performance obligation . our estimate of ssp is a point estimate . the estimate is calculated annually for each performance obligation that is not sold separately . in instances where ssp is not directly observable , such as when we do not sell the product or service separately , the ssp is determined using information that may include market conditions and other observable inputs . we sell separately-priced service contracts that extend maintenance coverages for both medical devices and data management systems beyond the base agreements to customers . the separately priced service contracts range from twelve ( 12 ) months to sixty ( 60 ) months . we receive payment at the inception of the contract and recognize revenue ratably over the service period . for products containing embedded software , we determine the hardware and software components function together to deliver the products ' essential functionality and are considered a combined performance obligation . revenue recognition policies for sales of these products are substantially the same as for other tangible products . acquisition accounting we have made a number of acquisitions in the past and may continue to make acquisitions in the future . we account for acquired business combinations using the acquisition method of accounting . the assets acquired and liabilities assumed are recorded based on their respective fair values at the date of acquisition . valuations are generally completed for business acquisitions using a discounted cash flow analysis . the most significant estimates and assumptions inherent in a discounted cash flow analysis include the amount and timing of projected future cash flows , the discounted rate used to measure the risks inherent in the future cash flows , the assessment of the asset 's life cycle , and the competitive and other trends impacting the asset , including consideration of technical , legal , regulatory , economic and other factors . each of these factors and assumptions can significantly affect the value of the intangible asset . the excess of the fair value of consideration transferred over the fair value of the net assets acquired is recorded as goodwill . determining the useful life of an intangible asset also requires judgment , as different types of intangibles assets will have different useful lives and certain assets may even be considered to have indefinite useful lives . story_separator_special_tag the significantly lower effective rate in the year ended december 31 , 2018 compared with the prior year is primarily due to the impacts of the 2017 tax act , including the repatriation tax on accumulated foreign earnings and re-measurement of net deferred tax assets recorded in the prior year , a reduction in withholding taxes from distribution of income , and reduction in the u.s. federal corporate rate from 35 % to 21 % . liquidity and capital resources liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments . in addition , liquidity includes the ability to obtain appropriate financing and to raise capital . therefore , liquidity can not be considered separately from capital resources that consist of our current funds and the potential to increase those funds in the future . we plan to use these resources in meeting our commitments and in achieving our business objectives . we believe that our current cash and cash equivalents and any cash generated from operations will be sufficient to meet our ongoing operating requirements for the foreseeable future . as of december 31 , 2019 , we had cash and cash equivalents outside the u.s. in certain of our foreign operations of $ 51.0 million . we intend to permanently reinvest this cash held by our foreign subsidiaries except for excel-tech and natus ireland subsidiaries , which we intend to repatriate . if , however , a portion of these permanently reinvested funds were needed and distributed to our operations in the united states , we may be subject to additional u.s. income taxes and foreign withholding taxes depending on facts and circumstances at the time of distribution . the amount of taxes due would depend on the amount and manner of repatriation , as well as the location from where the funds were repatriated . on september 23 , 2016 , we entered into a credit agreement with jp morgan chase bank ( “ jp morgan ” ) , citibank , na ( “ citibank ” ) and wells fargo bank , national association ( “ wells fargo ” ) . the credit agreement provides for an aggregate $ 150.0 million of secured revolving credit facility ( the “ credit facility ” ) . on september 15 , 2017 , we exercised our right to increase the amount available under the facility by $ 75.0 million , bringing the aggregate revolving credit facility to $ 225.0 million . the credit agreement contains covenants , including covenants relating to maintenance of books and records , financial reporting and notification , compliance with laws , maintenance of properties and insurance , and limitations on guaranties , 36 investments , issuance of debt , lease obligations and capital expenditures . the credit agreement provides for events of default , including failure to pay any principal or interest when due , failure to perform or observe covenants , bankruptcy or insolvency events and the occurrence of a material adverse effect . we have no other significant credit facilities . as of december 31 , 2019 we had $ 55.0 million outstanding under the credit facility . replace_table_token_17_th replace_table_token_18_th comparison of 2019 , 2018 , and 2017 during 2019 cash generated from operating activities of $ 60.1 million was the result of $ 15.7 million of net loss , non-cash adjustments to net loss of $ 63.2 million , and net cash outflows of $ 12.5 million from changes in operating assets and liabilities . the non-cash adjustments were $ 30.7 million of depreciation and amortization expense , $ 24.6 million of impairment for the sale of medix , $ 8.4 million from share-based compensation , $ 2.9 million of warranty reserves , and $ 1.6 million of accounts receivable reserves , offset by deferred taxes of $ 5.4 million . cash used in investing activities during the period was $ 5.3 million and consisted of cash used to acquire other property and equipment . cash used in financing activities during the year ended december 31 , 2019 was $ 48.5 million and consisted of repayments of $ 50.0 million of our outstanding debt under the credit facility , $ 1.7 million for taxes paid related to net share settlement of equity awards , $ 0.5 million of principal payments of financing lease liability , offset by proceeds from stock option exercises and employee stock purchase program ( “ espp ” ) purchases of $ 3.6 million . during 2018 cash generated from operating activities of $ 33.0 million was the result of $ 22.9 million of net loss , non-cash adjustments to net loss of $ 70.1 million , and net cash outflows of $ 14.1 million from changes in operating assets and liabilities . the non-cash adjustments were $ 33.9 million of depreciation and amortization expense , $ 17.1 million from share-based compensation , a $ 14.8 million goodwill impairment charge related to gnd , $ 8.2 million from intangible impairments , $ 6.9 million of accounts receivable reserves , and $ 2.2 million of warranty reserves , offset by deferred taxes of $ 13.7 million . cash used in investing activities during the period was $ 8.4 million and consisted primarily of cash used to acquire other property and equipment of $ 7.9 million . cash used in financing activities during the year ended december 31 , 2018 was $ 49.5 million and consisted of repayments of $ 50.0 million of our outstanding debt under the credit facility , $ 5.6 million for repurchases of common stock under our share repurchase program , $ 5.2 million for taxes paid related to net share settlement of equity awards , offset by proceeds from stock option exercises and employee stock purchase program purchases of $ 11.5 million .
| results of operations the following table sets forth for the periods indicated selected consolidated statement of income data as a percentage of total revenue . our historical operating results are not necessarily indicative of the results for any future period . 31 replace_table_token_10_th comparison of 2019 and 2018 revenue replace_table_token_11_th for the year ended december 31 , 2019 , neuro revenue increased by 3 % compared to the prior year . devices and systems revenue increased by 10 % compared to the prior year due primarily to growth in eeg sales . supplies revenue for 2019 decreased 1 % , which was driven by declines in our international markets . services revenue from gnd decreased 93 % compared to the prior year due to our exit from this business in january 2019. for the year ended december 31 , 2019 , newborn care revenue decreased by 17 % compared to the prior year . devices and systems revenue decreased by 27 % . the decrease is primarily due to the divestiture of medix , exit from our balance and mobility product line , and planned product line rationalization . supplies revenue decreased 6 % compared to the prior year related to divestiture of medix business and product line rationalization . services revenue decreased by 6 % compared to the prior year 32 primarily due to a lower collection per screen and decrease in screening volume on our peloton hearing screening service , which was exited as of december 31 , 2019. for the year ended december 31 , 2019 , hearing & balance revenue decreased 17 % compared to the prior year . revenue from devices and systems decreased 17 % and revenue from supplies decreased 25 % in 2019 compared to 2018 . the overall decline in hearing & balance was driven by the impact of product rationalization and ship holds on some products .
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on or after february 6 , 2018 and prior to february 6 , 2021 , we may redeem any or all of the original notes in cash story_separator_special_tag the following discussion and analysis should be read together with our consolidated financial statements and the notes to those statements included elsewhere in this form 10-k. this discussion contains forward-looking statements based on our current expectations , assumptions , estimates and projections about fluidigm and our industry . these forward-looking statements involve risks and uncertainties . our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors , as more fully described in “ risk factors ” in item 1a of this form 10-k , in this item 7 , and elsewhere in this form 10-k. except as may be required by law , we undertake no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other events occur in the future . overview we create , manufacture , and market innovative technologies and tools for life sciences research . we sell instruments and consumables , including integrated fluidic circuits , or ifcs , assays and reagents , to academic institutions , clinical research laboratories , and biopharmaceutical , biotechnology , and agricultural biotechnology , or ag-bio , companies and contract research organizations , or cros . our technologies and tools are directed at the analysis of deoxyribonucleic acid , or dna , ribonucleic acid , or rna , and proteins in a variety of different sample types , from individual cells to bulk tissue . we were a pioneer in the application of microfluidics to enable high-throughput and highly-multiplexed polymerase chain reactions , or pcr , for genetic analysis , as well as a field known as single-cell genomics , in which the genetic composition of individual cells is assayed . in february 2014 , we purchased dvs sciences , inc. , whose mass cytometry system enables the highly-multiplexed analysis of cellular surface and intracellular proteins in both blood and tissue . researchers have successfully employed our products to help achieve breakthroughs in a variety of fields , including single-cell gene and protein expression , gene regulation , genetic variation , cellular function and applied genetics . these breakthroughs include using our systems to help detect life-threatening mutations in cancer cells , discover cancer associated biomarkers , analyze the genetic composition of individual stem cells and assess the quality of agricultural products , such as seeds or livestock . we distribute our systems through our direct sales force and support organizations located in north america , europe , and asia-pacific , and through distributors or sales agents in several european , latin american , middle eastern , and asia-pacific countries . our manufacturing operations are located in singapore , canada and south san francisco , california . our facility in singapore manufactures our genomics instruments , several of which are assembled at facilities of our contract manufacturers in singapore , with testing and calibration of the assembled products performed at our singapore facility . all of our ifcs for commercial sale and some ifcs for our research and development purposes are also fabricated at our singapore facility . our mass cytometry instruments for commercial sale , as well as for internal research and development purposes , are manufactured at our facility in canada . we also manufacture assays and reagents at our facilities in the united states . our total revenue was $ 101.9 million in 2017 , $ 104.4 million in 2016 , and $ 114.7 million in 2015 . we have incurred significant net losses since our inception in 1999 and , as of december 31 , 2017 , our accumulated deficit was $ 500.2 million . at the end of 2016 , we began reallocating our resources based on revenue contribution and growth expectations across our target markets , including a reorganization of our sales team and commercial leadership . as part of this shift and due to our negative revenue growth in 2016 and 2015 , we implemented certain operational efficiency and cost-savings initiatives beginning in the first quarter of 2017 intended to align our resources with our product strategy , reduce our operating expenses , and manage our cash flows . in 2017 , we focused on right-sizing our workforce , facilities consolidation , vendor negotiation , and other operating expense reductions . our operating expenses decreased by $ 21.3 million , or 16 % , to $ 110.3 million for 2017 compared to $ 131.6 million for 2016. on august 10 , 2017 , we sold 9.1 million shares of our common stock through an “ at-the-market ” equity offering program , for aggregate net proceeds of approximately $ 28.8 million , which provides us with additional financial flexibility and enables us to reinvest in growth . recent developments in february 2014 , we closed an underwritten public offering of $ 201.3 million in aggregate principal amount of our 2.75 % senior convertible notes due 2034 , which we refer to as our “ original notes. ” in march 2018 , we entered into privately negotiated transactions with certain holders of our original notes to exchange approximately $ 125.0 million in aggregate principal amount of the original notes for approximately $ 125.0 million in aggregate principal amount of our new 2.75 % 46 exchange convertible senior notes due 2034 , which we refer to as our `` exchange notes , '' and collectively with the original notes , the `` notes '' . following the exchange transaction , approximately $ 76.3 million in aggregate principal amount of original notes remained outstanding . story_separator_special_tag our product revenue consists of sales of our mass cytometry , high-throughput genomics and single-cell genomics instruments and consumables , including ifcs , assays , and other reagents . our service revenue consists of post-warranty service contracts , preventive maintenance plans , instrument parts , training , and installation . we also receive revenue from our license agreements with third parties . we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price to the customer is fixed or determinable , and collectability is reasonably assured . revenue from the sales of our products that are not part of multiple element arrangements are recognized when no significant obligation remains undelivered and collection is reasonably assured , which is generally when delivery has occurred . delivery occurs when there is a transfer of title and risk of loss passes to the customer . payments received in advance of revenue recognition are classified as deferred revenue in the consolidated balance sheet . the evaluation of these revenue recognition criteria requires significant management judgment . for instance , we use judgment to assess collectability based on factors such as the customer 's creditworthiness and past collection history , if applicable . if we determine that collection is not reasonably assured , revenue recognition is deferred until receipt of payment . we also use judgment to assess whether a price is fixed or determinable by , among other things , reviewing contractual terms and conditions related to payment . certain of our sales contracts involve the delivery of multiple products or services within contractually binding arrangements . multiple-deliverable sales transactions typically consist of the sale and delivery of one or more instruments and consumables together with one or more of our installation , training and or customer support services . significant judgment is sometimes required to determine the appropriate accounting for such arrangements , including whether the deliverables specified in a multiple element arrangement should be treated as separate units of accounting for revenue recognition purposes and , if so , how the related sales price should be allocated among the elements , when to recognize revenue for each element , and the period over which revenue should be recognized . for sales contracts that include multiple deliverables , we allocate the contract consideration at the inception of the contract to each unit of accounting based upon their relative selling prices . we may use our best estimate of selling price for individual deliverables when vendor specific objective evidence or third-party evidence is unavailable . a delivered item is considered to be a separate unit of accounting when it has value to the customer on a stand-alone basis . our products are typically delivered within a short time frame , generally within one to three months , of the contract date . service contracts are entered into for terms of one to three years , following the expiration of the warranty period . our products are generally sold without the right of return . accruals are provided for estimated warranty expenses at the time the associated revenue is recognized . we use judgment to estimate these accruals and , if we were to experience an increase in warranty claims or if costs of servicing our products under warranty were greater than our estimates , our cost of product revenue could be adversely affected in future periods . license and royalty revenue from license agreements is recognized when received , which is generally in the quarter following the quarter in which the corresponding sales occur . changes in judgments and estimates regarding application of these revenue recognition guidelines as well as changes in facts and circumstances could result in a change in the timing or amount of revenue recognized in future periods . stock-based compensation we recognize compensation costs for all stock-based awards , including stock options , restricted stock units and stock purchased under our employee stock purchase plan ( espp ) , based on the grant date fair value of the award . stock-based compensation cost for restricted stock units granted to employees is measured based on the closing fair market value of our common stock on the date of grant . the fair value of options and stock purchases under espp on the grant date is estimated using the black-scholes option-pricing model , which requires the use of certain subjective assumptions , including expected term , volatility , risk-free interest rate and the fair value of our common stock . these assumptions generally require significant judgment . we determine the expected volatility based on our historical stock price volatility generally commensurate with the estimated expected term of the stock awards . the expected term of an award is based on historical forfeiture experience , exercise activity , and the terms and conditions of the stock awards . the risk-free interest rate is based on the u.s. treasury 48 yield in effect at the time of grant for zero coupon u.s. treasury notes with maturities approximately equal to each grant 's expected term . we account for forfeitures as they occur . our board of directors sets the terms , conditions , and restrictions related to our espp and the grant of stock options and restricted stock units , including the number of shares underlying the grants and the vesting criteria . with respect to performance-based stock awards , depending on the extent to which the vesting criteria are met , our board of directors determines the number of shares that vest under the grants . the resulting compensation costs of our equity awards are recognized over the period during which an employee is required to provide service in exchange for the award , usually a time-based vesting period . we amortize the fair value of stock-based compensation on a straight-line basis over the requisite service periods . for performance-based stock awards , stock-based compensation expense is recognized over the requisite service period when the achievement of each individual performance milestone becomes probable .
| results of operations the following table presents our historical consolidated statements of operations data for the years ended december 31 , 2017 , 2016 , and 2015 , and as a percentage of total revenue for the respective years ( in thousands ) : replace_table_token_4_th revenue we generate revenue primarily from sales of our products and services , and license agreements . our product revenue consists of sales of instruments and consumables , including ifcs , assays and reagents . our service revenue consists of post-warranty service contracts , preventive maintenance plans , instrument parts , installation and training . 51 the following table presents our revenue by source for each period presented ( in thousands ) : replace_table_token_5_th the following table presents our total revenue by geographic area and as a percentage of total revenue by geographic area of our customers for each year presented ( in thousands ) : replace_table_token_6_th our license revenue is generated primarily in the united states . we sell our products and services to leading academic research institutions , clinical research laboratories , and biopharmaceutical , biotechnology and ag-bio companies . revenue from our five largest customers was 14 % , 15 % and 13 % of total revenue in 2017 , 2016 and 2015 , respectively . total revenue total revenue decrease d by $ 2.5 million , or 2 % , to $ 101.9 million for 2017 compared to $ 104.4 million for 2016 , primarily due to a decrease of $ 4.6 million in product revenue , partially offset by a $ 2.1 million increase in service revenue . the revenue decrease was predominantly in the united states , partially offset by increases in europe and asia-pacific .
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when used , the words “ believe , ” “ plan , ” “ intend , ” “ anticipate , ” “ target , ” “ estimate , ” “ expect , ” and the like , and or future-tense or conditional constructions ( “ will , ” “ may , ” “ could , ” “ should , ” etc . ) , or similar expressions , identify certain of these forward-looking statements . these forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this form . our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors . 32 historical results may not indicate future performance . our forward-looking statements reflect our current views about future events , are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements . we undertake no obligation to publicly update or revise any forward-looking statements , including any changes that might result from any facts , events , or circumstances after the date hereof that may bear upon forward-looking statements . furthermore , we can not guarantee future results , events , levels of activity , performance , or achievements . overview we are an educational technology company that is seeking to become a world leading innovator and integrator of interactive products and software for schools , as well as for business and government learning spaces . we currently design , produce and distribute interactive projectors and distribute interactive technologies , including flat panels , projectors , whiteboards and peripherals to the education market . we also distribute science , technology , engineering and math ( or “ stem ” ) products , including a portable science lab . all of our products are integrated into our classroom software suite that provides tools for whole class learning , assessment and collaboration . to date , we have generated substantially all of our revenue from the sale of our software and interactive displays to the k-12 u.s. educational market . we have also implemented a comprehensive plan to reach profitability both from our core business operations and as a result of making strategic business acquisitions . we have already started to implement this strategy as set forth below . highlights of our plan include : ● integrating products of the acquired companies and cross training our sales reps to increase their offerings . the combination of products and cross training has already resulted in increased sales . the synergy we have found between the products of boxlight and mimio are adding opportunities to resellers for both companies to increase their sales . ● hiring new sales representatives with significant education technology sales experience in their respective territories and our current pipeline has reached a record high level . ● seeking to increase demand in the us market for technology sales and have the products and infrastructure in place to handle our expected growth . recent acquisitions effective september 24 , 2020 , the company acquired sahara presentation systems plc , a leader in distributed and manufactured av solutions . headquartered in the united kingdom , sahara is a leader in distributed av products and a manufacturer of multi-award-winning touchscreens and digital signage products , including the globally renowned clevertouch and sedao brands . in consideration for the acquisition , the company paid to the shareholders of sahara a total purchase price of gbp 74.0 million ( approximately usd $ 94.9 million ) in the form of gbp 52.0 million ( approximately usd $ 66.7 million ) in cash and gbp 22.0 million ( approximately usd $ 28.2 million ) in our series b convertible preferred stock and our series c convertible preferred stock . on march 24 , 2021 we entered into a share redemption and conversion agreement with the former sahara shareholders who own approximately 96 % of our series b and series c preferred stock . under the agreement , we agreed to redeem and purchase from such preferred stockholders on or before june 30 , 2021 all of the shares of series b preferred stock for £11.5 million being the stated or liquidation value of the series b preferred stock plus ( b ) accrued dividends from january 1 , 2021 to the date of purchase . in addition , the holders of 96 % of the series c preferred stock agreed to convert those shares into 7.6 million shares of our class a common stock at a conversion price of $ 1.66 per share . in the event for any reason , we do not complete the conversion and redemption by june 30 , 2021 , and the sahara shareholders do not agree to an extension , the agreement will terminate without liability by any party . effective april 17 , 2020 , the company acquired the assets , and assumed certain liabilities of mystemkits and stem education holdings , pty , an australian corporation ( “ stem ” ) , the largest online collection of k-12 stem curriculum for 3d printing . effective march 12 , 2019 , the company entered into an asset purchase agreement with modern robotics inc. ( mri ) , based in miami , florida . mri is engaged in the business of developing , selling and distributing science , technology , engineering and math ( stem ) , robotics and programming solutions to the global education market . 33 on august 31 , 2018 , we purchased 100 % of the membership interest equity of eos , an arizona limited liability company owned by daniel and aleksandra leis . eos is in the business of providing technology consulting , training , and professional development services to create sustainable programs that integrate technology with curriculum in k-12 schools and districts . story_separator_special_tag other expense for the year ended december 31 , 2020 was $ ( 4.3 ) million as compared to $ ( 1.3 ) million for the year ended december 31 , 2019. other expense increased primarily due to an increase in interest expense of $ 1.0 million associated with increased borrowings , and $ 3.1 million of losses incurred on the settlement of certain debt obligations in exchange for issuance of common shares . net loss . net losses were $ 16.2 million and $ 9.4 million for the years ended december 31 , 2020 and 2019 , respectively . the increase in the net loss was primarily due to lower sales volume , increased salaries and bonus expense , and increased interest expense . to provide investors with additional insight and allow for a more comprehensive understanding of the information used by management in its financial and decision-making surrounding operations , we supplement our consolidated financial statements presented on a basis consistent with u.s. generally accepted accounting principles ( “ gaap ” ) with ebitda and adjusted ebitda , both non-gaap financial measures of earnings . ebitda represents net income ( loss ) before income tax expense , interest income , interest expense , depreciation and amortization . adjusted ebitda represents ebitda , plus stock compensation expense and non-recurring expenses and minus changes in fair value of derivative liabilities . our management uses ebitda and adjusted ebitda as financial measures to evaluate the profitability and efficiency of our business model . we use these non-gaap financial measures to assess the strength of the underlying operations of our business . these adjustments , and the non-gaap financial measure that is derived from them , provide supplemental information to analyze our operations between periods and over time . we find this especially useful when reviewing results of operations , which include large non-cash amortizations of intangibles assets from acquisitions . investors should consider our non-gaap financial measures in addition to , and not as a substitute for , financial measures prepared in accordance with gaap . the following table contains reconciliations of net losses to ebitda and adjusted ebitda for the periods presented . reconciliation of net loss for the year ended december 31 , 2020 and 2019 to ebitda replace_table_token_1_th 37 discussion of effect of seasonality on financial condition certain accounts on our balance sheets are subject to seasonal fluctuations . as our business and revenues grow , we expect these seasonal trends to be reduced . the bulk of our products are shipped to our educational customers prior to the beginning of the school year , usually in july , august or september . to prepare for the upcoming school year , we generally build up inventories during the second quarter of the year . therefore , inventories tend to be at the highest levels at that point in time . in the first quarter of the year , inventories tend to decline significantly as products are delivered to customers and we do not need the same inventory levels during the first quarter . accounts receivable balances tend to be at the highest levels in the third quarter , in which we record the highest level of sales . due to travel restrictions and concerns for the safety for our employees during the ongoing covid-19 pandemic , we have temporarily eliminated all face-to-face meetings with customers and attendance at tradeshow events . in addition , we have limitations related to school access as a result of school closures . we are currently assessing the impact these changes will have on our peak season sales . our initial assessment is that funding priority will be given to initiatives that provide for continuity of learning which may result in lower priority on total learning solution sales including hardware , software and teacher training . we have been very proactive , and will continue to be proactive , in obtaining contracts during the fourth and first quarters that will help offset the seasonality of our business . liquidity and capital resources as of december 31 , 2020 , we had cash and cash equivalents of $ 13.5 million , a working capital position of $ 21.0 million , and a current ratio of 1.53. this financial position represents a significant improvement from a year ago at december 31 , 2019 when we had a working capital deficit of $ ( 7.3 ) million and $ 1.2 million of cash and cash equivalents . for the years ended december 31 , 2020 and 2019 , we had net cash used in operating activities of $ 4.7 million and $ 4.3 million , respectively . we had net cash used in investing activities of $ 45.3 million during the year ended december 31 , 2020 , and net cash provided by investing activities of $ 6 thousand for the year ended december 31 , 2019. in addition , we had net cash provided by financing activities of $ 65.6 million and $ 4.5 million during the years ended december 31 , 2020 and 2019 , respectively . in addition to the cash flows generated by our ongoing operating activities we financed our operations during 2020 with a new $ 20.0 million tranche of debt funded by our primary lender , and from a pre-existing accounts receivable financing arrangement with another lender who purchases 85 % of the eligible accounts receivable of the company , up to $ 6.0 million , with the right of recourse . our accounts receivable and our ability to borrow against accounts receivable provides an additional source of liquidity as cash payments are collected from customers in the normal course of business . our accounts receivable balance fluctuates throughout the year based on the seasonality of the business . in the current covid-19 pandemic environment , the availability of capital has been significantly reduced and the cost of capital has increased . increasing our capital through equity issuance at this time could cause significant dilution to our existing stockholders as a result of diminished stock value due to market volatility and uncertainty arising from the covid-19 pandemic .
| general and administrative . general and administrative expense consists of personnel related costs , which include salaries , as well as the costs of professional services , such as accounting and legal , facilities , information technology , depreciation and amortization and other administrative expenses . general and administrative expense may fluctuate as a percentage of revenue , notably in the second and third quarters of our fiscal year when we have historically experienced our highest levels of revenue . other income ( expense ) , net other income ( expense ) , net primarily consists of interest expense associated with our debt financing arrangements , gains ( losses ) on the settlements of debt and trade payable obligations exchanged for common shares , and the effects of changes in the fair value of derivative liabilities . income tax expense we are subject to income taxes in the united states , united kingdom , mexico , sweden , finland , holland , and germany where we do business . the united kingdom , mexico , sweden , finland , holland , and germany have a statutory tax rate different from that in the united states . additionally , certain of our international earnings are also taxable in the united states . accordingly , our effective tax rates will vary depending on the relative proportion of foreign to u.s. income , the absorption of foreign tax credits , changes in the valuation of our deferred tax assets and liabilities and changes in tax laws . we regularly assess the likelihood of adverse outcomes resulting from the examination of our tax returns by the u.s. internal revenue service , or irs , and other tax authorities to determine the adequacy of our income tax reserves and expense . should actual events or results differ from our current expectations , charges or credits to our income tax expense may become necessary . any such adjustments could have a significant impact on our results of operations .
| 6,714 |
in the second quarter of 2010 , we acquired one of the world 's largest producers of flexible intermediate bulk containers . as a result of this acquisition , we created a new reporting segment called the flexible products & services segment . our multiwall bag operations , previously included in the paper packaging segment , have been reclassified and included in the flexible products & services segment for all historical periods . the industrial packaging segment has been renamed the rigid industrial packaging & services segment . business segments we operate in four business segments : rigid industrial packaging & services ; flexible products & services ; paper packaging ; and land management . we are a leading global provider of rigid industrial packaging products , such as steel , fibre and plastic drums , rigid intermediate bulk containers , closure systems for industrial packaging products , transit protection products , water bottles and reconditioned containers , and services , such as container life cycle services , blending , filling and other packaging services , logistics and warehousing . we sell our industrial packaging products to customers in industries such as chemicals , paints and pigments , food and beverage , petroleum , industrial coatings , agricultural , pharmaceutical and mineral , among others . 19 we are a leading global producer of flexible intermediate bulk containers and related services and a north american provider of industrial and consumer shipping sacks and multiwall bag products . our flexible intermediate bulk containers consist of a polypropylene-based woven fabric that is primarily produced at our fully integrated production sites , as well as sourced from strategic regional suppliers . our flexible products are sold globally and service similar customers and market segments as our rigid industrial packaging & services segment . additionally , our flexible products significantly expand our presence in the agricultural and food industries , among others . our industrial and consumer shipping sacks and multiwall bag products are used to ship a wide range of industrial and consumer products , such as seed , fertilizers , chemicals , concrete , flour , sugar , feed , pet foods , popcorn , charcoal and salt , primarily for the agricultural , chemical , building products and food industries . we sell containerboard , corrugated sheets and other corrugated products to customers in north america in industries such as packaging , automotive , food and building products . our corrugated container products are used to ship such diverse products as home appliances , small machinery , grocery products , building products , automotive components , books and furniture , as well as numerous other applications . operations related to our industrial and consumer multiwall bag products have been reclassified to our flexible products & services segment . as of october 31 , 2011 , we owned approximately 267,750 acres of timber properties in the southeastern united states , which were actively managed , and approximately 14,700 acres of timber properties in canada , which are not actively managed . our land management team is focused on the active harvesting and regeneration of our united states timber properties to achieve sustainable long-term yields . while timber sales are subject to fluctuations , we seek to maintain a consistent cutting schedule , within the limits of market and weather conditions . we also sell , from time to time , timberland and special use properties , which consists of surplus properties , higher and better use ( hbu ) properties , and development properties . in 2003 , we implemented the greif business system , a quantitative , systematic and disciplined process to improve productivity , increase profitability , reduce costs and drive shareholder value . the greif business system is directed by the greif way , which embodies the principles that are at the core of our culture : respect for one another , treating others as we want to be treated and respect for our environment . the operating engine for the greif business system is a combination of lean manufacturing ; network alignment and continuous improvement within our facilities ; customer service ; value selling and other commercial initiatives ; maximizing cash flow ; and strategic sourcing and supply chain initiatives to more effectively leverage our global spend . more recently , we have also focused on applying lean principles to back-office activities to streamline and improve transactional processes across our network of business and shared services . at the core supporting the greif business system is our people , using rigorous performance management and robust strategic planning skills to guide our continued growth . critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . the preparation of these consolidated financial statements , in accordance with these principles , require us to make estimates and assumptions that affect the reported amount of assets and liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements . a summary of our significant accounting policies is included in note 1 to the notes to consolidated financial statements included in item 8 of this form 10-k. we believe that the consistent application of these policies enables us to provide readers of the consolidated financial statements with useful and reliable information about our results of operations and financial condition . the following are the accounting policies that we believe are most important to the portrayal of our results of operations and financial condition and require our most difficult , subjective or complex judgments . allowance for accounts receivable . we evaluate the collectability of our accounts receivable based on a combination of factors . story_separator_special_tag our canadian timber properties , which consisted of approximately 14,700 acres as of october 31 , 2011 , did not have any depletion expense since they were not actively managed at this time . we believe that the lives and methods of determining depreciation and depletion are reasonable ; however , using other lives and methods could provide materially different results . as of october 31 , 2011 and 2010 , we recorded capitalized interest costs of $ 3.8 million and $ 5.3 million , respectively . restructuring reserves . restructuring reserves are determined in accordance with appropriate accounting guidance , including asc 420 , exit or disposal cost obligations. under asc 420 , a liability is measured at its fair value and recognized as incurred . income taxes . we record a tax provision for the anticipated tax consequences of our reported results of operations . in accordance with asc 740 , income taxes the provision for income taxes is computed using the asset and liability method , under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , and for operating losses and tax credit carryforwards . deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled . we record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized . our effective tax rate is based on income , statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate . significant judgment is required in determining our effective tax rate and in evaluating our tax positions . the company has been providing valuation allowance against deferred tax assets as required under asc 740. during 2011 , this valuation allowance decreased by $ 23.3 million , primarily due to a decrease related to net operating loss carryforwards outside the u.s. it was determined that the realization of the deferred tax asset was appropriate due to the ability to generate future taxable income of the appropriate nature . the company reevaluates its ability to use net operating losses on an annual basis . in accordance with asc 740 , income taxes , we believe it is more likely than not that forecasted income , including income that may be generated as a result of certain tax planning strategies , together with the tax effects of the deferred tax liabilities , will be sufficient to fully recover the remaining deferred tax assets . in the event that all or part of the net deferred tax assets are determined not to be realizable in the future , an adjustment to the valuation allowance would be charged to earnings , in the period such determination is made . in addition , the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of asc 740 and other complex tax laws . resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our financial condition and operating results . during 2011 , we increased reserves for tax liabilities primarily due to a prior year issue in a non-u.s. jurisdiction where , due to new information , it was determined that a reserve was appropriate . this increase in reserve was substantially offset by the realization of net operating losses and decrease in valuation allowance . refer to note 12 to the notes to consolidated financial statements included in item 8 of this form 10-k for further discussion . a number of years may elapse before a particular matter , for which we have established a reserve , is audited and finally resolved . the number of years with open tax audits varies depending on the tax jurisdiction . while it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter , we believe that our reserves reflect the probable outcome of known tax contingencies . unfavorable settlement of any particular issue would require use of our cash . favorable resolution would be recognized as a reduction to our effective tax rate in the period of resolution . we have estimated the reasonably possible expected net change in unrecognized tax benefits through october 31 , 2011 based on lapses of the applicable statues of limitation on unrecognized tax benefits . the estimated net decrease in unrecognized tax benefits for the next 12 months ranges from $ 0 to $ 48.5 million . actual results may differ from this estimated range . 22 pension and postretirement benefits . pension and post retirement assumptions are significant inputs to the actuarial models that measure pension and post retirement benefit obligations and related effects on operations . two assumptionsdiscount rate and expected return on assets are important elements of plan expense and asset/liability measurement . we evaluate these critical assumptions at least annually on a plan and country-specific basis . at least annually , we evaluate other assumptions involving demographic factors , such as retirement age , mortality and turnover , and update them to reflect our experience and expectations for the future . actual results in any given year will often differ from actuarial assumptions because of economic and other factors . accumulated and projected benefit obligations are measured as the present value of future cash payments . we discount those cash payments using the weighted average of market-observed yields for high quality fixed income securities with maturities that correspond to the payment of benefits . lower discount rates increase present values and subsequent-year pension expense ; higher discount rates decrease present values and subsequent-year pension expense . our discount rates for consolidated pension plans at october 31 , 2011 , 2010 and 2009 were 4.94 % , 5.20 % and 5.72 % , respectively , reflecting market interest rates .
| segment review rigid industrial packaging & services our rigid industrial packaging & services segment offers a comprehensive line of rigid industrial packaging products , such as steel , fibre and plastic drums , rigid intermediate bulk containers , closure systems for industrial packaging products , transit protection products , water bottles and reconditioned containers . in addition , this segment offers a wide variety of services , such as container life cycle management , blending , filling and other packaging services , logistics and warehousing . the key factors influencing profitability in the rigid industrial packaging & services segment are : selling prices , customer demand and sales volumes ; raw material costs , primarily steel , resin and containerboard ; energy and transportation costs ; benefits from executing the greif business system ; restructuring charges ; contributions from recent acquisitions ; divestiture of facilities ; and impact of foreign currency translation . in this segment , net sales were $ 3,014.1 million for 2011 compared with $ 2,587.9 million for 2010. the 17 percent increase in net sales was primarily due to higher sales volumes ( 6 percent ) , which included a 4 percent increase from acquisitions and a 2 percent increase in same-structure volumes , higher selling prices ( 7 percent ) , primarily resulting from the pass-through of higher input costs , and the positive impact of foreign currency translation ( 4 percent ) . gross profit margin declined to 18.7 percent for 2011 from 20.9 percent for 2010. the reduction from last year was primarily due to sales mix and increased market pressure on margins and volumes . operating profit was $ 226.3 million and $ 262.3 million for 2011 and 2010 , respectively . operating profit before special items was $ 261.8 million for 2011 compared to $ 291.1 million for 2010. this decrease was primarily due to the lower gross profit margins and higher depreciation and amortization for this segment . ebitda was $ 307.0
| 6,715 |
accordingly , we classify them as level 3 as follows ( in thousands ) : 75 replace_table_token_31_th financial instruments are categorized in story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes that appear in this annual report on form 10-k ( report ) . in addition to historical consolidated financial information , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and in this report , particularly in item 1a risk factors . overview lending club is the world 's largest online marketplace connecting borrowers and investors . we believe a technology-powered marketplace is a more efficient mechanism to allocate capital between borrowers and investors than the traditional banking system . consumers and small business owners borrow through lending club to lower the cost of their credit and enjoy a better experience than traditional bank lending . investors use lending club to earn attractive risk-adjusted returns from an asset class that has generally been closed to many investors and only available on a limited basis to institutional investors . since beginning operations in 2007 , our marketplace has facilitated over $ 7.6 billion in loan originations . these loans were facilitated through the following investment channels : ( i ) the issuance of notes , ( ii ) the sale of certificates , or ( iii ) the sale of whole loans to qualified investors . approximately $ 2.0 billion of our loan originations since inception were invested in through notes , $ 2.9 billion were invested in through certificates and $ 2.7 billion were invested in through whole loan sales . in the fourth quarter of 2014 , our marketplace facilitated over $ 1.4 billion of loan originations , of which approximately $ 0.2 billion were invested in through notes , $ 0.4 billion were invested in through certificates and $ 0.8 billion were invested in through whole loan sales . our trusted brand , scale and network effect drives significant borrowing and investing activity on our marketplace . we generate revenue from transaction fees from our marketplace 's role in matching borrowers with investors to enable loan originations , servicing fees from investors and management fees from investment funds and other managed accounts . we do not assume credit risk or use our own capital to invest in loans facilitated by our marketplace , except in limited circumstances and in amounts that are not material . the capital to invest in the loans enabled through our marketplace comes directly from investors . our proprietary technology automates key aspects of our operations , including the borrower application process , data gathering , credit decisioning and scoring , loan funding , investing and servicing , regulatory compliance and fraud detection . we operate with a lower cost structure than traditional banks due to our innovative model , online delivery and process automation , without the physical branches , legacy technology or high overhead associated with the traditional banking system . our marketplace is where borrowers and investors engage in transactions relating to unsecured standard or custom program loans including super prime consumer loans , small business loans , and education and patient finance loans . standard program loans are visible through our public website and can be invested in through notes . separately , qualified investors may also invest in standard or customer program loans in private transactions not facilitated through our website . the transaction fees we receive from issuing banks in connection with our marketplace 's role in facilitating loan originations range from 1 % to 6 % of the initial principal amount of the loan as of december 31 , 2014. in addition , for education and patient finance loans , transaction fees may exceed 6 % as they include fees earned from issuing banks and service providers . servicing fees paid to us vary based on investment channel . note investors pay us a servicing fee equal to 1 % of each payment amount received from the borrower ; whole loan purchasers pay a monthly servicing fee up to 1.3 % per annum on the month-end principal balance of loans serviced and certificate holders generally pay a monthly management fee typically ranging from 0.7 % to 1.5 % per annum of the month-end balance of assets under management . loans to qualified borrowers are originated by issuing banks . investors can invest in loans that are offered through our marketplace in one or all of the following channels : notes . pursuant to an effective shelf registration statement , investors who meet the applicable financial suitability requirements and have completed our investor account opening process may purchase unsecured , borrower payment dependent notes that correspond to payments received on an underlying standard program loan selected by the investor . when an investor registers with us , the investor enters into an investor agreement with us that governs the investor 's purchases of notes . our note channel is supported by our website knowledge base and our investor services group who provide basic customer support to these investors . certificates and investment funds . accredited investors and qualified purchasers may establish a relationship with lca or another third-party advisor in order to indirectly invest in certificates , or they may directly purchase a certificate or interests in separate limited partnership entities that purchase certificates . the certificates are unsecured and are settled with cash flows from underlying standard or custom program loans selected by the investor . neither certificates nor limited partnership interests can be purchased through our website . certificate investors typically seek to invest larger amounts as compared to the average note investors and often desire a more hands off approach to investing . investors in certificates generally pay an asset-based management fee instead of cash flow-based servicing fee paid by note investors . story_separator_special_tag for more information regarding the limitations of contributions , contribution margins , adjusted ebitda and adjusted ebitda margin and a reconciliation of net income ( loss ) to adjusted ebitda , see item 7 management 's discussion and analysis of financial condition and results of operations - reconciliations of non-gaap financial measures . effectiveness of scoring models our ability to attract borrowers and investors to our marketplace is significantly dependent on our ability to effectively evaluate a borrower 's credit profile and likelihood of default . we evaluate our marketplace 's credit decisioning and scoring models on a regular basis and leverage the additional data on loan history experience , borrower behavior , economic factors and prepayment trends that we accumulate to continually improve the models . if we are unable to effectively evaluate borrowers ' credit profiles , borrowers and investors may lose confidence in our marketplace . additionally , our ability to effectively segment borrowers into relative risk profiles impacts our ability to offer attractive interest rates for borrowers as well as our ability to offer investors attractive returns , both of which directly relate to our users ' confidence in our marketplace . our credit decisioning and scoring models assign each loan offered on our marketplace a corresponding interest rate and origination fee . our investors ' returns are a function of the assigned interest rates for each particular loan invested in less any defaults over the term of the applicable loan . we believe we have a history of effectively evaluating borrower 's credit profiles and likelihood of defaults , as evidenced by the performance of various loan vintages facilitated through our marketplace . the following charts display the historical lifetime cumulative net charge-off rates through december 31 , 2014 , by booking year , for all grades and 36- and 60-month terms of standard program loans for each of the years shown . 41 product innovation we have made and intend to continue to make substantial investments and incur expenses to research and develop or otherwise acquire new financial products for borrowers and investors . our revenue growth to date has been a function of , and our future success will depend in part on , successfully meeting borrower and investor demand with new and innovative loan and investment options . for example , in early 2014 , we began offering small business loans to qualified investors , bringing the benefit of our innovative marketplace model , online delivery and process automation to small business owners . in the latter part of 2014 we launched super prime consumer loans and a true no interest product for the education and patient finance market . for investors , we have introduced automated investing , api , investment funds and separately managed accounts , or smas , that make investing in loans easier . failure to successfully develop and offer innovative products could adversely affect our operating results and we may not recoup the costs of new products . marketing effectiveness and strategic relationships we intend to continue to dedicate significant resources to our marketing and brand advertising efforts and strategic relationships . our marketing efforts are designed to build awareness of lending club and attract borrowers and investors to our marketplace . we use a diverse array of marketing channels and are constantly seeking to improve and optimize our experience both on- and offline to achieve efficiency and a high level of borrower and investor satisfaction . we also continue to invest in our strategic relationships to raise awareness of our platform and attract borrowers and investors to our marketplace . our operating results and ability to sustain and grow loan volume will depend , in part , on our ability to continue to make effective investments in marketing and the effectiveness of our strategic relationships . regulatory environment the regulatory environment for credit is complex and evolving , creating both challenges and opportunities that could affect our financial performance . we expect to continue to spend significant resources to comply with various federal and state laws and various licensing requirements designed to , among other things , protect borrowers ( such as truth in lending , equal credit opportunity , fair credit reporting and fair debt collections practices ) and investors . our marketplace incorporates a number of automated features to help comply with these laws in an efficient and cost effective manner . while new laws and regulations or changes under existing laws and regulations could make facilitating loans or investment opportunities more difficult to achieve on acceptable terms , or at all , these events could also provide new product and market opportunities . to the extent we seek to grow internationally , we would become subject to additional foreign regulation and related compliance requirements and expense . 42 story_separator_special_tag funds managed by lca . lca typically charges these investors a monthly management fee based on the month-end balance of their assets under management , ranging from 0.7 % to 1.5 % per annum . this fee may be waived or reduced for individual limited partners at the discretion of the general partner . lca does not earn any carried interest from the investment funds . for managed account certificate holders , lca earns a management fee typically ranging from 0.85 % to 1.2 % per annum of the month-end balance of their assets under management . this fee may be waived or reduced at the discretion of lca . 45 management fees were $ 6.0 million and $ 3.1 million for the years ended december 31 , 2014 and 2013 , respectively , an increase of 93 % . the increase in management fees was due primarily to an increase in the total assets under management and outstanding certificate balances . management fees were $ 3.1 million and $ 0.7 million for the fiscal year ended december 31 , 2013 and the nine months ended december 31 , 2012 , respectively , an increase of 328 % .
| results of operations the following tables set forth the consolidated statement of operations data for each of the periods presented ( in thousands ) : replace_table_token_4_th ( 1 ) includes stock-based compensation expense as follows : replace_table_token_5_th 43 total net revenue ( in thousands , except percentages ) replace_table_token_6_th n/m not meaningful our primary sources of net revenue consist of fees charged for transactions through or related to our marketplace . our fees include transaction , servicing and management fees . transaction fees transaction fees are fees paid by issuing banks or service providers to us for the work we perform through our platform and springstone 's platform . the amount of these fees is based upon the terms of the loan , including grade , rate , term and other factors . as of december 31 , 2014 , these fees ranged from 1 % to 6 % of the initial principal amount of a loan . in addition , for education and patient finance loans , transaction fees may exceed 6 % as they include fees earned from issuing banks and service providers . these fees are recognized as a component of operating revenue at the time of loan issuance . effective july 1 , 2013 , we elected to account for loans we intend to sell to whole loan purchasers at fair value . under this election , the purchase of such loans is recorded at fair value and all related transactions fees and costs are recorded when earned or incurred , respectively . prior to this change , from december 1 , 2012 through june 30 , 2013 , transaction fees and costs were included in the computation of the gain or loss on the sale of the loan , which was recorded in other revenue in the consolidated statement of operations . as such , transaction fees are now reflected in transaction fees and not in other revenue on the statement of operations .
| 6,716 |
a portion of the outstanding long-term notes is denominated in foreign currency ( comprised of 4,700 million ) and is remeasured into u.s. dollars at each balance sheet date ( with remeasurement gain totaling $ 46 million for the year ended december 31 , 2019 ) . the following table provides a summary of the company 's outstanding long-term debt and the fair values based on quoted market prices in less active markets as of december 31 , 2019 and december 31 , 2018 : replace_table_token_38_th ( 1 ) debt is denominated in euro with a 1,300 million principal amount . total proceeds were $ 1,421 million . ( 2 ) debt is denominated in euro with a 1,100 million principal amount . total proceeds were $ 1,262 million . ( 3 ) debt is denominated in euro with a 1,200 million principal amount . total proceeds were $ 1,343 million . ( 4 ) debt is denominated in euro with a 1,100 million principal amount . total proceeds were $ 1,226 million . the expected timing of principal and interest payments for these notes are as follows : replace_table_token_39_th each of the notes are repayable in whole or in part upon the occurrence of a change of control , at the option of the holders , at a purchase price in cash equal to 101 % of the principal plus accrued interest . the company may redeem the notes prior to maturity in whole or in part at an amount equal to the principal amount thereof plus accrued and unpaid interest and an applicable premium . the notes include , among other terms and conditions , limitations on the company 's ability to create , 55 incur or allow certain liens ; enter into sale and lease-back transactions ; create , assume , incur or guarantee additional indebtedness of certain of the company 's subsidiaries ; and consolidate or merge with , or convey , transfer or lease all or substantially all of the company 's and its subsidiaries assets , to another person . as of december 31 , 2019 and december 31 , 2018 , the company was in compliance with all related covenants . revolving credit facility in july 2017 , the company story_separator_special_tag this section of this form 10-k generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this form 10-k can be found in `` management 's discussion and analysis of financial condition and results of operations '' in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018. story_separator_special_tag to our consolidated financial statements included in part ii , item 8 , `` financial statements and supplementary data '' of this annual report on form 10-k for further detail of our long-term debt obligations . 23 replace_table_token_14_th interest expense for the year ended december 31 , 2019 consists primarily of $ 614 million of interest on our notes . the increase in interest expense for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 is due to the increase in long-term debt . interest and other income ( expense ) interest and other income ( expense ) consists primarily of foreign exchange gains and losses on foreign currency denominated balances and interest earned on cash and cash equivalents . replace_table_token_15_th interest and other income ( expense ) for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 increased primarily due to a $ 30 million increase in interest income earned on cash balances , coupled with foreign exchange gains . the foreign exchange gain of $ 7 million in the year ended december 31 , 2019 was primarily driven by the $ 46 million gain from the remeasurement of our senior notes denominated in euros , partially offset by the remeasurement of cash and content liability positions in currencies other than the functional currencies of our european and u.s. entities . provision for ( benefit from ) income taxes replace_table_token_16_th in connection with the tax cuts and jobs act of 2017 , we simplified our global corporate structure , effective april 1 , 2019. the tax impacts of such simplifications were not material to the financial statements taken as a whole . during the fourth quarter of 2019 , the united states treasury issued final regulations with respect to certain aspects related to the tax cuts and jobs act of 2017. additional guidance provided in these regulations resulted in a tax adjustment in the fourth quarter of 2019. we paid u.s. federal taxes for the full year inclusive of this fourth quarter adjustment . the increase in our effective tax rate for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 is primarily due to the global corporate structure simplification , lower benefit from the recognition of excess tax benefits of stock-based compensation , and a lower benefit on a percentage basis from federal and california research and development ( `` r & d '' ) credits . the one-time transition tax benefit under staff accounting bulletin no . 118 ( `` sab 118 '' ) that provided a measurement period to address the u.s. gaap impacts associated with the tax cuts and jobs act of 2017 is no longer applicable in 2019. in 2019 , the difference between our 9 % effective tax rate and the federal statutory rate of 21 % was primarily due to the recognition of excess tax benefits of stock-based compensation , federal and california r & d credits , and the international provisions from the u.s. tax reform enacted in 2017 , partially offset by state taxes , foreign taxes , and non-deductibleexpenses . story_separator_special_tag contractual obligations for the purpose of this table , contractual obligations for purchases of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms , including : fixed or minimum quantities to be purchased ; fixed , minimum or variable price provisions ; and the approximate timing of the transaction . the expected timing of the payment of the obligations discussed below is estimated based on information available to us as of december 31 , 2019 . timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations . the following table summarizes our contractual obligations at december 31 , 2019 : replace_table_token_18_th ( 1 ) as of december 31 , 2019 , streaming content obligations were comprised of $ 4.4 billion included in `` current content liabilities '' and $ 3.3 billion of `` non-current content liabilities '' on the consolidated balance sheets and $ 11.8 billion of obligations that are not reflected on the consolidated balance sheets as they did not then meet the criteria for recognition . 26 streaming content obligations include amounts related to the acquisition , licensing and production of streaming content . an obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements and other production related commitments . an obligation for the acquisition and licensing of content is incurred at the time we enter into an agreement to obtain future titles . once a title becomes available , a content liability is recorded on the consolidated balance sheets . certain agreements include the obligation to license rights for unknown future titles , the ultimate quantity and or fees for which are not yet determinable as of the reporting date . traditional film output deals , or certain tv series license agreements where the number of seasons to be aired is unknown , are examples of these types of agreements . the contractual obligations table above does not include any estimated obligation for the unknown future titles , payment for which could range from less than one year to more than five years . however , these unknown obligations are expected to be significant and we believe could include approximately $ 1 billion to $ 4 billion over the next three years , with the payments for the vast majority of such amounts expected to occur after the next twelve months . the foregoing range is based on considerable management judgments and the actual amounts may differ . once we know the title that we will receive and the license fees , we include the amount in the contractual obligations table above . ( 2 ) long-term debt obligations include our notes consisting of principal and interest payments . see note 4 long-term debt in the accompanying notes to our consolidated financial statements included in part ii , item 8 , `` financial statements and supplementary data '' of this annual report on form 10-k for further details . ( 3 ) see note 3 leases in the accompanying notes to our consolidated financial statements for further details regarding leases . as of december 31 , 2019 , the company has additional operating leases for real estate that have not yet commenced of $ 699 million which has been included above . total lease obligations as of december 31 , 2019 increased $ 1,049 million from $ 1,708 million as of december 31 , 2018 to $ 2,757 million as of december 31 , 2019 due to growth in facilities to support our growing headcount and growing number of original productions . ( 4 ) other purchase obligations include all other non-cancelable contractual obligations . these contracts are primarily related to streaming delivery and cloud computing costs , as well as other miscellaneous open purchase orders for which we have not received the related services or goods . as of december 31 , 2019 , we had gross unrecognized tax benefits of $ 67 million which was classified in “ other non-current liabilities ” and a reduction to deferred tax assets which was classified as `` other non-current assets '' in the consolidated balance sheets . at this time , an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits can not be made . off-balance sheet arrangements we do not have transactions with unconsolidated entities , such as entities often referred to as structured finance or special purpose entities , whereby we have financial guarantees , subordinated retained interests , derivative instruments , or other contingent arrangements that expose us to material continuing risks , contingent liabilities , or any other obligation under a variable interest in an unconsolidated entity that provides financing , liquidity , market risk , or credit risk support to us . indemnifications the information set forth under note 6 guarantees - indemnification obligations in the accompanying notes to our consolidated financial statements included in part ii , item 8 , `` financial statements and supplementary data '' of this annual report on form 10-k is incorporated herein by reference . critical accounting policies and estimates the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosures of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reported periods . the securities and exchange commission ( `` sec '' ) has defined a company 's critical accounting policies as the ones that are most important to the portrayal of a company 's financial condition and results of operations , and which require a company to make its most difficult and subjective judgments .
| results of operations the following represents our consolidated performance highlights : replace_table_token_5_th consolidated revenues for the year ended december 31 , 2019 increased 28 % as compared to the year ended december 31 , 2018 . the increase in our consolidated revenues was due to the 23 % growth in average paying memberships and a 5 % increase in average monthly revenue per paying membership . the increase in average monthly revenue per paying membership resulted from our price changes and plan mix , partially offset by unfavorable fluctuations in foreign exchange rates . the increase in operating margin is due primarily to increased revenues , partially offset by increased content expenses as we continue to acquire , license and produce content , including more netflix originals , as well as increased marketing expenses and headcount costs to support continued improvements in our streaming service , our international expansion , and our growing content production activities . streaming revenues we derive revenues from monthly membership fees for services related to streaming content to our members . we offer a variety of streaming membership plans , the price of which varies by country and the features of the plan . as of december 31 , 2019 , pricing on our plans ranged from the u.s. dollar equivalent of $ 3 to $ 22 per month . we expect that from time to time the prices of our membership plans in each country may change and we may test other plan and price variations . the following tables summarize streaming revenue and other streaming membership information by region for the years ended december 31 , 2019 , 2018 and 2017 .
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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 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 . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report and in other reports we file with the securities and exchange commission , particularly those under “ risk factors. ” dollars in tabular format are presented in thousands , except per share data , or otherwise indicated . - 70 - overview we are a clinical-stage biopharmaceutical company focused on creating value through ( i ) the streamlined development under section 505 ( b ) ( 2 ) of the federal food , drug and cosmetic act , or fdca of our lead product candidate , mat9001 , a highly purified , prescription-only omega-3 free fatty acid formulation specifically designed for the treatment of cardiovascular and metabolic conditions and ( ii ) the application of our lipid nano-crystal ( lnc ) platform delivery technology to solve complex challenges relating to the delivery of small molecules , gene therapies , vaccines , proteins and peptides , including mat2203 , our lead product candidate based on the lnc technology . in general , the development timeline for a 505 ( b ) ( 2 ) new drug application , or nda , is shorter and less expensive than an nda developed under section 505 ( b ) ( 1 ) for new chemical entities that have never been approved in the united states . based upon mat9001 's unique mixture of highly purified omega-3 free fatty acids and our observations of mat9001 's enhanced bioavailability and potency as compared to amarin corporation 's vascepa® ( icosapent ethyl ) in our initial head-to-head pharmacokinetic ( pk ) and pharmacodynamic ( pd ) , or pk/pd , clinical study , we believe that the results of our forthcoming targeted clinical development activities and related clinical investigations may yield an improved therapeutic profile compared to currently-existing therapies . we are focused on creating value through the streamlined and strategic development of mat9001 for the treatment of cardiovascular and metabolic conditions and the application of our lnc platform delivery technology to solve complex challenges relating to the delivery of small molecules , gene therapies , proteins/peptides , and vaccines . key elements of our strategy include : ● strategically advancing mat9001 into clinical development toward an initial indication for the treatment of severe hypertriglyceridemia ( ≥500 mg/dl ) ( shtg ) with the goal of creating additional data further demonstrating the differentiation of mat9001 from other prescription omega-3 drugs being used to treat a mixed dyslipidemic patient population in a rapidly emerging and expanding omega-3 market . ● expanding application of our lipid nano-crystal ( lnc ) delivery platform into the gene therapy space through collaborations with sophisticated and well-resourced biotech and pharmaceutical companies in innovative areas of medicine . ● driving mat2203 to efficacy data in the treatment of cryptococcal meningitis , an area of significant unmet medical need , with the non-dilutive financial support of the nih we have incurred losses for each period from inception . our net loss was approximately $ 14.1 million and $ 15.5 million for the fiscal years ended december 31 , 2018 and 2017 , respectively . we expect to incur significant expenses and operating losses over the next several years . accordingly , we will need additional financing to support our continuing operations . we will seek to fund our operations through public or private equity offerings , debt financings , government or other third party funding , collaborations and licensing arrangements . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would impact our going concern and would have a negative impact on our financial condition and our ability to pursue our business strategy and continue as a going concern . we will need to generate significant revenues to achieve profitability , and we may never do so . financial operations overview revenue during the year ended december 31 , 2018 and 2017 , we generated approximately $ .1 million and $ .1 million , respectively , in contract research revenues , resulting from a grant with the cystic fibroses foundation . story_separator_special_tag we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments as necessary . examples of estimated accrued research and development expenses include : ● fees paid to contractors in connection with the development of manufacturing processes for products in development ; ● fees paid to cros in connection with preclinical and clinical development activities ; ● fees paid to contractors in connection with preparation of regulatory submissions ; and ● fees paid to vendors related to product manufacturing , development and distribution of clinical study supplies . - 73 - we base our expenses related to pre-clinical and human studies on our estimates of the services received and efforts expended pursuant to contracts with multiple development contractors that conduct and manage development work and studies on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense . payments under some of these contracts may depend on factors such as the successful enrollment of subjects and the completion of specific study milestones . in accruing service fees , we will estimate the time period over which services will be performed , the completion of certain tasks , enrollment of subjects , study center activation and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we will adjust the accrual or prepayment accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period . based on limited historical experience , actual results have not been materially different from our estimates . identifiable intangible assets identifiable intangible assets are measured at their respective fair values and are not amortized until commercialization . once commercialization occurs , these intangible assets will be amortized over their estimated useful lives . the fair values assigned to our intangible assets are based upon reasonable estimates and assumptions given available facts and circumstances . unanticipated events or circumstances may occur that may require us to review the assets for impairment . events or circumstances that may require an impairment assessment include negative clinical trial results , material delays in our development program or sustained decline in market capitalization . indefinite-lived intangible assets are not subject to periodic amortization . rather , indefinite-lived intangibles are reviewed for impairment by applying a fair value based test on an annual basis or more frequently if events or circumstances indicate impairment may have occurred . events or circumstances that may require an interim impairment assessment are consistent with those described below . we perform our annual impairment test in december of each year . research and development expenses research and development expenses are charged to operations as they are incurred . stock-based compensation option grants we account for all share-based compensation payments issued to employees , directors , and non-employees using an option pricing model for estimating fair value . accordingly , share-based compensation expense is measured based on the estimated fair value of the awards on the date of grant . we recognize compensation expense for the portion of the award that is ultimately expected to vest over the period during which the recipient renders the required services to us using the straight-line single option method . in accordance with authoritative guidance , we re-measure the fair value of non-employee share-based awards as the awards vest , and recognize the resulting value , if any , as expense during the period the related services are rendered . the company accounts for forfeitures of all share-based awards as they occur . significant factors , assumptions and methodologies used in determining fair value we apply the fair value recognition provisions of asc topic 718 , compensation-stock compensation , which we refer to as asc 718. we recognize share-based compensation expense ratably over the requisite service period , which in most cases is the vesting period of the award . calculating the fair value of share-based awards requires that we make highly subjective assumptions . - 74 - we use the black-scholes option pricing model to value our stock option awards . use of this valuation methodology requires that we make assumptions as to the volatility of our common stock , the expected term of our stock options , the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield . as a publicly-held company , we utilized our historical data to estimate expected stock price volatility . we use the simplified method as prescribed by the securities and exchange commission staff accounting bulletin no . 107 , share-based payment , to calculate the expected term of stock option grants to employees as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees . we recognize compensation expense for stock option awards on a straight-line basis over the applicable service period of the award . the service period is generally the vesting period , with the exception of options granted subject to a consulting agreement , whereby the option vesting period and the service period defined pursuant to the terms of the consulting agreement may be different . stock options issued to consultants are revalued quarterly until fully vested , with any change in fair value expensed .
| results of operations years ended december 31 , 2018 and 2017 the following table summarizes our operating expenses for the years ended december 31 , 2018 and 2017 : replace_table_token_4_th research and development expenses . research and development ( r & d ) expense for the year ended december 31 , 2018 was approximately $ 6.8 million , a decrease of approximately $ 2.2 million over the prior year . r & d expenses decreased mainly due to lower clinical development and compensation expenses partially offset by higher preclinical expenses and a full year of costs associated with operating the new laboratory & manufacturing facility . general and administrative expenses . general and administrative expense for the year ended december 31 , 2018 was approximately $ 8.0 million , an increase of approximately $ 0.3 million over prior year . the increase in general and administrative expense was primarily due to higher compensation and insurance expense partially offset by lower professional fees . - 76 - liquidity and capital resources sources of liquidity we have funded our operations since inception primarily through private placements of our preferred stock and our common stock and common stock warrants . as of december 31 , 2018 , we have raised a total of approximately $ 67.7 million in gross proceeds and $ 60.8 million , net , from sales of our equity securities . as of december 31 , 2018 , we had cash and cash equivalents totaling $ 12.4 million . 2019 common stock offering on march 19 , 2019 , the company closed an underwritten public offering of its common stock . the offering resulted in the sale of 27,272,727 shares to the public at a price of $ 1.10 per share . the company generated net proceeds of approximately $ 28.2 million .
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note 3. loans and related allowance for loan losses during the third quarter of 2015 , the company terminated the shared-loss agreement with the fdic relating story_separator_special_tag the following discussion and analysis of the financial condition at december 31 , 2015 and results of operations for the year ended december 31 , 2015 of community bankers trust corporation ( the “ company ” ) should be read in conjunction with the company 's consolidated financial statements and the accompanying notes to consolidated financial statements included in this report . general community bankers trust corporation ( the “ company ” ) is a bank holding company that was originally incorporated in 2005. on january 1 , 2014 , the company completed a reincorporation from delaware , its original state of incorporation , to virginia . the form of the reincorporation was the merger of the then existing delaware corporation into a newly created virginia corporation . the company retained the same name and conducts business in the same manner as before the reincorporation . the company is headquartered in richmond , virginia and is the holding company for essex bank ( the “ bank ” ) , a virginia state bank with 21 full-service offices in virginia and maryland . the bank also operates two loan production offices in virginia . the bank engages in a general commercial banking business and provides a wide range of financial services primarily to individuals and small businesses , including individual and commercial demand and time deposit accounts , commercial and industrial loans , consumer and small business loans , real estate and mortgage loans , investment services , on-line and mobile banking products , and safe deposit box facilities . prior to november 8 , 2013 , the bank also had four full-service offices in georgia . the bank sold those offices and related deposits to community & southern bank on november 8 , 2013. see note 30 for additional information . the company generates a significant amount of its income from the net interest income earned by the bank . net interest income is the difference between interest income and interest expense . interest income depends on the amount of interest earning assets outstanding during the period and the interest rates earned thereon . the company 's cost of funds is a function of the average amount of interest bearing deposits and borrowed money outstanding during the period and the interest rates paid thereon . the quality of the assets further influences the amount of interest income lost on nonaccrual loans and the amount of additions to the allowance for loan losses . additionally , the bank earns noninterest income from service charges on deposit accounts and other fee or commission-based services and products . other sources of noninterest income can include gains or losses on securities transactions , mortgage loan income , gains from loan sales , and income from bank owned life insurance ( boli ) policies . the company 's income is offset by noninterest expense , which consists of salaries and benefits , occupancy and equipment costs , professional fees , transactions involving bank-owned property , the amortization of intangible assets and other operational expenses . the provision for loan losses and income taxes may materially affect income . caution about forward-looking statements the company makes certain forward-looking statements in this report that are subject to risks and uncertainties . these forward-looking statements include statements regarding our profitability , liquidity , allowance for loan losses , interest rate sensitivity , market risk , growth strategy , and financial and other goals . these forward-looking statements are generally identified by phrases such as “ the company expects , ” “ the company believes ” or words of similar import . 25 these forward-looking statements are subject to significant uncertainties because they are based upon or are affected by factors , including , without limitation , the effects of and changes in the following : · the quality or composition of the company 's loan or investment portfolios , including collateral values and the repayment abilities of borrowers and issuers ; · assumptions that underlie the company 's allowance for loan losses ; · general economic and market conditions , either nationally or in the company 's market areas ; · the interest rate environment ; · competitive pressures among banks and financial institutions or from companies outside the banking industry ; · real estate values ; · the demand for deposit , loan , and investment products and other financial services ; · the demand , development and acceptance of new products and services ; · the performance of vendors or other parties with which the company does business ; · time and costs associated with de novo branching , acquisitions , dispositions and similar transactions ; · the realization of gains and expense savings from acquisitions , dispositions and similar transactions ; · assumptions and estimates that underlie the accounting for purchased credit impaired loans ; · consumer profiles and spending and savings habits ; · levels of fraud in the banking industry ; · the level of attempted cyber attacks in the banking industry ; · the securities and credit markets ; · costs associated with the integration of banking and other internal operations ; · the soundness of other financial institutions with which the company does business ; · inflation ; · technology ; and · legislative and regulatory requirements . these factors and additional risks and uncertainties are described in the “ risk factors ” discussion in part i , item 1a , of this report . although the company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations , there can be no assurance that actual results , performance or achievements of the company will not differ materially from any future results , performance or achievements expressed or implied by such forward-looking statements . story_separator_special_tag the company 's acquired loans from the suburban federal savings bank ( sfsb ) transaction ( the “ pci loans ” ) , subject to fasb asc topic 805 , business combinations ( formerly sfas 141 ( r ) ) , are recorded at fair value and no separate valuation allowance was recorded at the date of acquisition . fasb asc 310-30 , loans and debt securities acquired with deteriorated credit quality ( formerly sop 03-3 ) , applies to loans acquired in a transfer with evidence of deterioration of credit quality for which it is probable , at acquisition , that the investor will be unable to collect all contractually required payments receivable . the company is applying the provisions of fasb asc 310-30 to all loans acquired in the sfsb transaction . the company has grouped loans together based on common risk characteristics including product type , delinquency status and loan documentation requirements among others . 27 the pci loans are subject to credit review standards described above for loans . if and when credit deterioration occurs subsequent to the acquisition date , a provision for credit loss for pci loans will be charged to earnings . the company has made an estimate of the total cash flows it expects to collect from each pool of loans , which includes undiscounted expected principal and interest . the excess of that amount over the fair value of the pool is referred to as accretable yield . accretable yield is recognized as interest income on a constant yield basis over the life of the pool . the company also determines each pool 's contractual principal and contractual interest payments . the excess of that amount over the total cash flows that it expects to collect from the pool is referred to as nonaccretable difference , which is not accreted into income . judgmental prepayment assumptions are applied to both contractually required payments and cash flows expected to be collected at acquisition . over the life of the loan or pool , the company continues to estimate cash flows expected to be collected . subsequent decreases in cash flows expected to be collected over the life of the pool are recognized as an impairment in the current period through the allowance for loan loss . subsequent increases in expected or actual cash flows are first used to reverse any existing valuation allowance for that loan or pool . any remaining increase in cash flows expected to be collected is recognized as an adjustment to the accretable yield with the amount of periodic accretion adjusted over the remaining life of the pool . fdic indemnification asset during the third quarter of 2015 , the company terminated the shared-loss agreement relating to the single family , residential 1-4 family mortgage assets . as part of this termination , the fdic paid the company $ 3.1 million as consideration for the early termination of the shared-loss agreement . all rights and obligations of the parties under the shared-loss agreements , including the provision to reimburse recoveries received related to the agreement that terminated in march 2014 , have been eliminated under the termination agreement . the proceeds from the fdic were first applied to the outstanding fdic receivable of $ 775,000. the remaining fdic indemnification asset balance of $ 13.1 million was charged-off as additional fdic indemnification asset amortization expense . the company accounted for the shared-loss agreements with the fdic as an indemnification asset pursuant to the guidance in fasb asc 805 , business combinations . the fdic indemnification asset was required to be measured in the same manner as the asset or liability to which it related . the fdic indemnification asset was measured separately from the acquired loans and other real estate owned assets ( oreo ) because it was not contractually embedded in the acquired loan and oreo and was not transferable had the company chosen to dispose of them . fair value was estimated using projected cash flows available for loss sharing based on the credit adjustments estimated for each loan pool and other real estate owned and the loss sharing percentages outlined in the shared-loss agreements . these cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the fdic . income taxes deferred income tax assets and liabilities are determined using the liability ( or balance sheet ) method . under this method , the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws . positions taken in the company 's tax returns may be subject to challenge by the taxing authorities upon examination . uncertain tax positions are initially recognized in the consolidated financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities . such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with the tax authority , assuming full knowledge of the position and all relevant facts . the company provides for interest and , in some cases , penalties on tax positions that may be challenged by the taxing authorities . interest expense is recognized beginning in the first period that such interest would begin accruing . penalties are recognized in the period that the company claims the position in the tax return . interest and penalties on income tax uncertainties are classified within income tax expense in the consolidated statement of income . the company had no interest or penalties during the years ended december 31 , 2015 , 2014 or 2013. under fasb asc 740 , income taxes , a valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized .
| results of operations net income net loss was $ 2.5 million for the year ended december 31 , 2015 , compared with net income of $ 7.5 million and net income available to common shareholders of $ 7.3 million for the same period in 2014. the $ 10.0 million , or 133.2 % , reduction year over year was primarily driven by a $ 13.4 million increase in noninterest expense . of this $ 13.4 million increase , $ 13.1 million related to the termination of the fdic shared-loss agreement during the third quarter of 2015. the company estimates that the elimination of the fdic indemnification asset will result in an increase in net income of approximately $ 3.0 million over the 12 month period following its termination due to the elimination of the related amortization expense . earnings/ ( loss ) per common share , basic and fully diluted , were $ ( 0.11 ) for the year ended december 31 , 2015 versus $ 0.33 for the same period in 2014 . 29 net income was $ 7.5 million for the year ended december 31 , 2014 , compared with $ 5.9 million for the 2013 fiscal year . the $ 1.6 million , or 27.3 % , improvement year over year was primarily driven by a $ 2.5 million reduction in noninterest expenses . net income available to common shareholders was $ 7.3 million for the year ended december 31 , 2014 , compared with $ 4.8 million for fiscal year 2013 , an increase of 51.8 % . earnings per common share , basic and fully diluted , were $ 0.33 per share and $ 0.22 per share for the respective time frames . net interest income the company 's operating results depend primarily on its net interest income , which is the difference between interest income on interest earning assets , including securities and loans , and interest expense incurred on interest bearing liabilities , including deposits and other borrowed funds .
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the fasb also permitted early adoption of the standard , but not before the original effective date of december 15 , 2016. we are evaluating the impact of adopting this guidance to our combined and consolidated story_separator_special_tag you should read the following discussion in conjunction with the combined and consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. this management 's discussion and analysis of financial condition and results of operations contains forward-looking statements . the forward-looking statements contained herein include , without limitation , statements regarding trends , seasonality , cyclicality and growth in , and drivers of , the markets we sell into , our strategic direction , our future effective tax rate and tax valuation allowance , earnings from our foreign subsidiaries , remediation activities , new product and service introductions , the ability of our products to meet market needs , changes to our manufacturing processes , the use of contract manufacturers , the impact of local government regulations on our ability to pay vendors or conduct operations , our liquidity position , our ability to generate cash from operations , growth in our businesses , our investments , the potential impact of adopting new accounting pronouncements , our financial results , our purchase commitments , our contributions to our pension plans , the selection of discount rates and recognition of any gains or losses for our benefit plans , our cost-control activities , savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives , and other regulatory approvals , the integration of our acquisitions and other transactions , our transition to lower-cost regions , and the existence of economic instability , that involve risks and uncertainties . our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors , including those discussed in item 1a and elsewhere in this form 10-k. basis of presentation and separation from agilent keysight technologies , inc. ( `` we , '' `` us , '' `` keysight '' or the `` company '' ) , incorporated in delaware on december 6 , 2013 , is a measurement company providing core electronic design and test solutions to communications and electronics industries . our fiscal year end is october 31. unless otherwise stated , all years and dates refer to our fiscal year . 25 on november 1 , 2014 , keysight technologies , inc. ( “ we , ” `` our , '' “ keysight ” or `` the company ” ) became an independent publicly-traded company through the distribution by agilent technologies , inc. ( `` agilent '' ) of 100 percent of the outstanding common stock of keysight to agilent 's shareholders ( the `` separation '' ) . each agilent shareholder of record as of the close of business on october 22 , 2014 , received one share of keysight common stock for every two shares of agilent common stock held on the record date . keysight was incorporated in delaware on december 6 , 2013 and is comprised of agilent 's former electronic measurement business . keysight 's registration statement on form 10 was declared effective by the u.s. securities and exchange commission on october 6 , 2014. keysight 's common stock began trading `` regular-way '' under the ticker symbol `` keys '' on the new york stock exchange on november 3 , 2014. agilent transferred substantially all of the assets and liabilities and operations of the electronic measurement business to keysight in august 2014 ( `` the capitalization '' ) . combined f inancial statements prior to the capitalization were prepared on a stand-alone basis derived from agilent 's consolidated financial statements and accounting records , including expenses that were allocated to us using estimates that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by us . following the capitalization , the consolidated financial statements include the accounts of the company and our subsidiaries . for the first half of fiscal year 2015 , agilent provided some services on a transitional basis for a fee , which were partially offset by other operating income from keysight services provided to agilent . these services were received or provided under a transition services agreement . the net costs associated with the transition services agreement were not materially different than the historical costs that were allocated to us related to these same services . we are incurring other incremental costs as an independent , publicly traded company as compared to the costs historically allocated to us by agilent . these incremental costs are estimated to be approximately $ 15 million on an annual pre-tax basis . in addition , for the years ended october 31 , 2015 and 2014 , we recognized non-recurring separation and related costs of $ 20 million and $ 78 million , respectively . we expect to recognize additional non-recurring separation and related costs , which are currently estimated to range from $ 12 million to $ 17 million through fiscal 2016. these costs are expected to include primarily costs related to infrastructure resizing and optimization . story_separator_special_tag acquisition and are reported in the measurement solutions segment . we financed the acquisition with available cash . for additional detail related to the acquisition of anite , see note 3 , `` acquisitions . '' acquisition of electroservices . on august 28 , 2015 , we acquired all share capital of electroservices enterprises limited for a cash purchase price of $ 16 million , net of $ 1 million cash acquired . electroservices is a u.k.-based company , specializing in test equipment service and solutions . electroservices provides a broad range of electrical , mechanical and physical/dimensional calibration , repair and asset management services to defense , telecom and industrial customers . the electroservices acquisition supports our initiative to grow keysight services . electroservices results are included in keysight 's consolidated financial statements from the date of acquisition and are reported in the customer support and services segment . story_separator_special_tag in 2014 , communications market revenue , representing approximately 34 percent of total revenue , contributed 1 percentage point to the total revenue increase as compared to 2013 with increases in wireless manufacturing and the broadband communications business , partially offset by modest declines in wireless r & d . aerospace and defense market revenue , representing approximately 23 percent of total revenue for the year ended october 31 , 2015 , increased 1 percent year-over-year with growth in americas and asia pacific excluding japan , partially offset by declines in europe and japan . in 2014 , aerospace and defense market revenue , representing approximately 22 percent of total revenue , contributed a 1 percentage point decline in total revenue as compared to 2013 , with declines in all regions , however we saw positive growth in the last half of fiscal 2014. industrial , computer and semiconductor market revenue , representing approximately 44 percent of total revenue for the year ended october 31 , 2015 , contributed 1 percentage point to the total revenue decline as compared to 2014. declines in japan and asia pacific excluding japan were partially offset by growth in the americas and europe . in 2014 , industrial , computer and semiconductor market revenue , representing approximately 44 percent of the total revenue , contributed 2 percentage points to the year-over-year increase compared to 2013. the computer and semiconductor increase was driven by investment in capacity growth and the overall strength in the semiconductor market . the industrial test business grew for the year with particular strength in the last fiscal quarter driven by growth in the americas and asia pacific , excluding japan . 29 backlog backlog represents the amount of revenue expected from orders that have already been booked , including orders for goods and services that have not been delivered to customers , orders invoiced but not yet recognized as revenue , and orders for goods that were shipped but not invoiced , awaiting acceptance by customers . at october 31 , 2015 , our unfilled backlog was approximately $ 779 million as compared to approximately $ 781 million at october 31 , 2014. for the measurement solutions business , our backlog was approximately $ 653 million at october 31 , 2015 as compared to approximately $ 627 million at october 31 , 2014. within our customer services and support business , our backlog was approximately $ 126 million at october 31 , 2015 as compared to approximately $ 154 million at october 31 , 2014. the reduction in the customer services and support business backlog in fiscal 2015 was primarily due to a change in our standard warranty term , which increased from one to three years for most of our products in the second quarter of fiscal 2013. revenue associated with extended warranties , which provide coverage beyond the standard warranty term , is deferred and amortized over the extended period of coverage . as a result of the extension of the standard warranty term , backlog associated with extended warranties has declined . three-year warranty is now included as part of the total solution , and the value is captured as part of the initial sales price . we expect that a majority of the backlog will be recognized as revenue within six months . on average , our backlog represents approximately three months ' of revenue . we believe backlog on any particular date , while indicative of short-term revenue performance , is not necessarily a reliable indicator of medium or long-term revenue performance . costs and expenses replace_table_token_8_th replace_table_token_9_th gross margin remained flat in 2015 compared to 2014 primarily due to lower depreciation , warranty and inventory charges , offset by lower volume . gross margin declined 1 percentage point in 2014 compared to 2013 on slightly higher revenue . higher inventory charges and pricing pressure in the wireless manufacturing market were the primary reasons for the lower gross margin . excess and obsolete inventory charges were $ 28 million in 2015 , $ 33 million in 2014 and $ 21 million in 2013. sales of previously written-down inventory were $ 2 million in 2015 and $ 1 million in 2014 and 2013. research and development expense increased 7 percent in 2015 compared to 2014. the increased expenditure was due to our continued investment in research and development programs and increased costs due to the acquisitions , partially offset by the favorable impact of currency movements . as a percentage of total revenue , research and development expenses increased 2 percentage points to 14 percent in 2015 from 12 percent in 2014. we expect investment in research and development to continue at current levels and have focused our development efforts on strategic growth opportunities . research and development expenses declined 4 percent in 2014 compared to 2013 primarily due to lower infrastructure-related expenses . reductions in development spending , variable and incentive pay , and infrastructure-related expenses , and the favorable impact of currency movements were partially offset by investments in acquisitions and wage increases . selling , general and administrative expenses were flat in 2015 when compared to 2014 , primarily driven by lower separation costs and favorable impact of currency movements , offset by increases in share-based compensation , restructuring programs and increased costs due to acquisitions , primarily anite . selling , general and administrative expenses increased 5 percent in 2014 compared to 2013 primarily due to higher costs related to non-recurring pre-separation transaction costs and an increase in marketing expenses , partially offset by reductions in infrastructure costs and the favorable impact of currency movements . 30 other operating expense ( income ) , net for 2015 was $ ( 18 ) million , which includes primarily rental income . operating margins declined 1 percentage point in 2015 compared to 2014 on lower revenue volume and increases in research and development expenses , restructuring programs , acquisition and integration related expenses , offset by decline in separation costs and the favorable impact of foreign currency .
| overview and executive summary we provide electronic measurement instruments and systems and related software , software design tools , and related services that are used in the design , development , manufacture , installation , deployment and operation of electronics equipment . related services include start-up assistance , instrument productivity and application services and instrument calibration and repair . we also offer customization , consulting and optimization services throughout the customer 's product lifecycle . we plan to invest in product development to address the changing needs of the market and facilitate growth . we are investing in research and development to design measurement solutions that will satisfy the changing needs of our customers . these opportunities are being driven by the need for faster data rates and new form factors , and by evolving technology standards . we have two reportable operating segments , measurement solutions and customer support and services . the measurement solutions segment is primarily the hardware and associated software businesses serving the electronic measurement market . the customer support and services segment provides repair and calibration of the hardware measurement solutions and the resale of used instrument equipment . years ended october 31 , 2015 , 2014 and 2013 total orders in 2015 were $ 2,853 million , a decrease of 4 percent when compared to 2014. order declines in aerospace and defense and communications markets were partially offset by a slight increase in industrial , computer , and semiconductor market . foreign currency movements had an unfavorable impact of 4 percentage points on the year‑over‑year comparison . orders associated with acquisitions accounted for 1 percentage point of order growth for the year ended october 31 , 2015 when compared to 2014. orders of $ 2,963 million in 2014 increased 3 percent when compared to 2013 with growth in all markets .
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the company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds . the company has no off-balance sheet concentrations of credit risk , such as foreign currency exchange contracts , option contracts or other hedging arrangements . adoption of recent accounting pronouncements in august 2014 , the fasb issued accounting standards update ( “ asu ” ) 2014-15 , disclosure of uncertainties about an entity 's ability to continue as a going concern 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 related notes thereto and other financial information appearing elsewhere in this form 10-k. the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth in this form 10-k under “ item 1a . risk factors. ” overview we are a biotechnology company advancing two innovative platform programs : a new class of oral therapeutics for the treatment of hepatitis b virus ( hbv ) infection and novel class of oral synthetic live biotherapeutics , which are designed to restore health to a dysbiotic microbiome . the company 's hbv-cure program is aimed at increasing the current low cure rate for patients with hbv and is pursuing multiple drug candidates that inhibit multiple steps of the hbv lifecycle . assembly has discovered several novel core protein allosteric modulators ( cpams ) , which are small molecules that directly target and allosterically modulate hbc protein . the lead product candidate from this platform , abi-h0731 , has completed a phase 1a human clinical trial , with the phase 1b/2a portion of the trial expected to commence in the second quarter of 2017. the company 's microbiome program consists of a fully integrated platform that includes a disease targeted strain identification and selection process , methods for strain isolation and growth under cgmp conditions , and a patent pending delivery system , that we call gemicel ® , which allows for targeted oral delivery of live biologic and conventional therapies to the lower gastrointestinal , or gi tract . the lead product candidate from this platform , abi-m101 is in development for the treatment of clostridium difficile infections ( cdi ) . using its microbiome platform , the company is developing additional product candidates . 37 on july 11 , 2014 , assembly biosciences merged with a private company assembly pharmaceuticals , inc. ( the merger ) . the merger resulted in a shift in strategic focus , the addition of a new lead drug development program , and changes in personnel . in connection with the merger , our board of directors and stockholders approved a 1-for-5 reverse stock split of our common stock . the reverse stock split became effective on july 11 , 2014. all share and per share amounts in the consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverses stock split , including reclassifying an amount equal to the reduction in par value of common stock to the additional paid-in capital . in connection with the merger , the shares of common stock issued and outstanding of assembly pharmaceuticals , inc. were converted into an aggregate of 4,008,848 shares of our common stock . also pursuant to the terms of the merger , the outstanding options to purchase shares of assembly pharmaceuticals , inc. 's common stock were assumed by us and became exercisable for an aggregate of 621,651 shares of our common stock . effective upon the consummation of the merger , assembly acquisition , inc. , our wholly owned subsidiary , merger sub was merged with and into assembly pharmaceuticals , inc. , with assembly pharmaceuticals , inc. being the surviving entity and becoming our wholly owned subsidiary . we accounted for the acquisition of assembly pharmaceuticals , inc. as a business combination under accounting standards codification ( asc ) 805 with ventrus biosciences , inc. as the accounting acquirer . we determined ventrus biosciences , inc. was the accounting acquirer in accordance with asc 805-10-25-5 as ventrus biosciences , inc. gained control of assembly pharmaceuticals , inc. upon completion of the merger . to make this determination , we considered factors as indicated in asc 805-10-55 , including which entity issued equity interest to effect the combination , board of directors ' composition , shareholder ownership , voting control , restrictions on shareholder voting rights , anticipated management positions and the relative size of the two companies . we have not derived any revenue from product sales to date as we currently have no approved products . our clinical strategy for the hbv product candidates encompasses testing cpams as a monotherapy , as required by regulatory agencies , to demonstrate their antiviral activity . thereafter , all subsequent clinical trials in patients are anticipated to be in combination with other classes of hbv therapies . we completed nonclinical studies on our lead hbv product candidate , abi-h0731 , and initiated a combined phase 1a/1b trial in november 2016. in february 2017 , we completed the phase 1a dose ranging portion of the trial , in which we assessed the safety , tolerability and pharmacokinetics of abi-h0731 at trial sites in new zealand in 48 healthy volunteers . we plan to amend the trial protocol in order to characterize the next portion of the trial as a phase 1b/2a clinical trial and initiate that portion of the trial at sites outside the united states in the second quarter of 2017. we expect that the phase 1b/2a portion of the trial will assess the safety , tolerability and pharmacokinetics , as well as preliminary antiviral efficacy , of abi-h0731 in patients with chronic hbv infection and will evaluate abi-h0731 as monotherapy and in combination with other approved therapies during 28 days of dosing . story_separator_special_tag this is due to the numerous risks and uncertainties associated with developing medicines , including the uncertainty of : the timing , progress and success of our phase 1 clinical development of abi-h0731 and our nonclinical and planned clinical development activities for other product candidates we may identify in each of the hbv and microbiome programs ; establishing an appropriate safety profile with ind-enabling toxicology studies sufficient to advance additional product candidates into clinical development ; successful enrollment in , and completion of , clinical trials ; receipt of marketing approvals from applicable regulatory authorities ; establishing internal commercial manufacturing capabilities or making arrangements with third-party manufacturers ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; launching commercial sales of the products , if and when approved , whether alone or in collaboration with others ; and maintaining a continued acceptable safety profile of the products following approval and wide use . a change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect research and development costs to increase significantly for the foreseeable future as our product candidate development programs progress . however , we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of any of our product candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control will impact our clinical development programs and plans . 39 general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , business development , legal and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters and fees for accounting and consulting services . we anticipate that our general and administrative expenses will increase in the future to support continued research and development activities , potential commercialization of our product candidates and increased costs of operating as a public company . these increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants , lawyers and accountants , among other expenses . additionally , we anticipate increased costs associated with being a public company including expenses related to services associated with maintaining compliance with exchange listing and sec requirements , insurance , and investor relations costs . interest income interest income consists of interest earned on our cash and cash equivalents and available-for-sale securities . 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 we have prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported amounts of revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including those described in greater detail below . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . 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 included elsewhere in this annual report on form 10-k , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations . marketable securities we have designated marketable securities as of december 31 , 2016 as available-for-sale securities and measure these securities at their respective fair values . marketable securities are classified as short-term or long-term based on the maturity date and their availability to meet current operating requirements . marketable securities that mature in one year or less are classified as short-term available-for-sale securities and are reported as a component of current assets . marketable securities that are not considered available for use in current operations are classified as long-term available-for-sale securities and are reported as a component of long-term assets . securities that are classified as available-for-sale are measured at fair value with temporary unrealized gains and losses reported in other comprehensive loss , and as a component of stockholders ' equity until their disposition . we review all available-for-sale securities at each period end to determine if they remain available-for-sale based on then current intent and ability to sell the security if it is required to do so . the cost of securities sold is based on the specific identification method . marketable securities are subject to a periodic impairment review . we may recognize an impairment charge when a decline in the fair value of investments below the cost basis is determined to be other-than-temporary . there were no marketable securities deemed to be impaired as of december 31 , 2016 or 2015 .
| results of operations general to date , we have not generated any revenues from operations and , at december 31 , 2016 , we had an accumulated deficit of approximately $ 208.2 million primarily as a result of research and development expenses , purchases of in-process research and development and general and administrative expenses . while we may in the future generate revenue from a variety of sources , including license fees , milestone payments , research and development payments in connection with strategic partnerships and or product sales , our product candidates are at an early stage of development and may never be successfully developed or commercialized . accordingly , we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever generate significant revenues . comparison of the years ended december 31 , 2016 and december 31 , 2015 research and development expense research and development expense , excluding stock-based compensation expense , was approximately $ 30.1 million for the year ended december 31 , 2016 , an increase of approximately $ 15.0 million or 99.1 % , from approximately $ 15.1 million for the same period in 2015. the net increase in research and development expenses was primarily due to an increase of $ 9.2 million in research expenses for our hbv program which was started in july 2014 , and an increase of approximately $ 5.7 million for nonclinical development of our microbiome program .
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goodwill will be amortized over a period of 15 years for income tax purposes . the balance of the acquired intangibles , net of amortization , is stated story_separator_special_tag the statements included herein that are not based solely on historical facts are forward looking statements. such forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties . our actual results could differ materially from those anticipated by us in these forward-looking statements as a result of various factors , including those discussed below and under part i , item 1a . risk factors. overview we are a cloud-based provider of payroll and human capital management or hcm software solutions for medium-sized organizations , which we define as those having between 20 and 1,000 employees . our comprehensive and easy-to-use solutions enable our clients to manage their workforces more effectively . our solutions help drive strategic human capital decision-making and improve employee engagement by enhancing the hr , payroll and finance capabilities of our clients . effective management of human capital is a core function in all organizations and requires a significant commitment of resources . medium-sized organizations operating without the infrastructure , expertise or personnel of larger enterprises are uniquely pressured to manage their human capital effectively . our solutions were specifically designed to meet the payroll and hcm needs of medium-sized organizations . we designed our cloud-based platform to provide a unified suite of applications using a multi-tenant architecture . our solutions are highly flexible and configurable and feature a modern , intuitive user experience . our platform offers automated data integration with over 200 related third-party systems , such as 401 ( k ) , benefits and insurance provider systems . our paylocity web pay product is our core payroll solution and was the first of our current offerings introduced into the market . we believe payroll is the most critical system of record for medium-sized organizations and an essential gateway to other hcm functionality . we have invested in , and we intend to continue to invest in , research and development to expand our product offerings and advance our platform . we believe there is a significant opportunity to grow our business by increasing our number of clients and we intend to invest in our business to achieve this purpose . we market and sell our solutions primarily through our direct sales force . we have increased our sales and marketing expenses as we have added sales representatives and related sales and marketing personnel . we intend to continue to grow our sales and marketing organization across new and existing geographic territories . in addition to growing our number of clients , we intend to grow our revenue over the long term by increasing the number and quality of products that clients purchase from us . to do so , we must continue to enhance and grow the number of solutions we offer to advance our platform . we believe that delivering a positive service experience is an essential element of our ability to sell our solutions and retain our clients . we seek to develop deep relationships with our clients through our unified service model , which has been designed to meet the service needs of medium-sized organizations . we expect to continue to invest in and grow our implementation and client service organization as our client base grows . we believe we have the opportunity to continue to grow our business over the long term , and to do so we have invested , and intend to continue to invest , across our entire organization . these investments include increasing the number of personnel across all functional areas , along with improving our solutions and infrastructure to support our growth . the timing and amount of these investments vary based on the rate at which we add new clients , add new personnel and scale our application development and other activities . many of these investments will occur in advance of experiencing any direct benefit from them which will make it difficult to determine if we are effectively allocating our resources . we expect these investments to increase our costs on an absolute basis , but as we grow our number of clients and our related revenues , we anticipate that we will gain economies of scale and increased operating leverage . as a result , we expect our gross and operating margins will improve over the long term . as our business has grown , we have become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions . if general economic conditions were to deteriorate further , including declines in private sector employment growth and business productivity , increases in the unemployment rate and changes in interest rates , we may experience delays in our sales cycles , increased pressure from prospective customers to offer discounts and increased pressure from existing customers to renew expiring recurring revenue agreements for lower amounts . our interest income on funds held for clients continues to be adversely impacted by historically low interest rates . 33 our operating subsidiary paylocity corporation was incorporated in july 1997 as an illinois corporation . in november 2013 , we formed paylocity holding corporation , a delaware corporation , of which paylocity corporation is now a wholly-owned subsidiary . paylocity holding corporation had no operations prior to the restructuring . all of our business operations have historically been , and are currently , conducted by paylocity corporation , and the financial results presented herein are attributable to the results of its operations . key metrics we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . recurring revenue growth our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results and cash flow from operations . story_separator_special_tag replace_table_token_6_th for a further discussion of adjusted gross profit , adjusted recurring gross profit and adjusted ebitda , including a reconciliation of adjusted gross profit , adjusted recurring gross profit and adjusted ebitda to gaap , see part ii , item 6 : consolidated selected financial data. basis of presentation revenues recurring fees we derive the majority of our revenues from recurring fees attributable to our cloud-based payroll and hcm software solutions . recurring fees for each client generally include a base fee in addition to a fee based on the number of client employees and the number of products a client uses . we also charge fees attributable to our preparation of w-2 documents and annual required filings on behalf of our clients . over the past three years , our client size has been on average over 100 employees . we derive revenue from a client based on the solutions purchased by the client , the number of client employees as well as the amount , type and timing of services provided in respect of those client employees . as such , the number of client employees on our system is not a good indicator of our financial results in any period . recurring fees attributable to our cloud-based payroll and hcm solutions accounted for approximately 92 % , 93 % and 94 % of our total revenues during the years ended june 30 , 2014 , 2015 and 2016 , respectively . our agreements with clients do not have a specified term and are generally cancellable by the client on 60 days ' or less notice . our agreements do not include general rights of return and do not provide clients with the right to take possession of the software supporting the services being provided . we recognize recurring fees in the period in which services are provided and when collection of fees is reasonably assured and the amount of fees is fixed or determinable . interest income on funds held for clients we earn interest income on funds held for clients . we collect funds for employee payroll payments and related taxes in advance of remittance to employees and taxing authorities . prior to remittance to employees and taxing authorities , we earn interest on these funds through financial institutions with which we have automated clearing house , or ach , arrangements . implementation services and other implementation services and other revenues primarily consist of implementation fees charged to new clients for professional services provided to implement and configure our payroll and hcm solutions . implementations of our payroll solutions typically require only three to four weeks at which point the new client 's payroll is first run using our solution , our implementation services are deemed completed , and we recognize the related revenue . we implement additional hcm products as requested by clients and leverage the data within our payroll solution to accelerate our implementation processes . implementation services and other revenues may fluctuate significantly from quarter to quarter based on the number of new clients , pricing and the product utilization . 35 cost of revenues cost of recurring revenues costs of recurring revenues are generally expensed as incurred , and include costs to provide our payroll and other hcm solutions primarily consisting of employee-related expenses , including wages , stock-based compensation , bonuses and benefits , relating to the provision of ongoing client support , payroll tax filing and distribution of printed checks and other materials . these costs also include third-party reseller costs , delivery costs , computing costs and amortization of capitalized internal-use software costs , as well as bank fees associated with client fund transfers . we expect to realize cost efficiencies over the long term as our business scales , resulting in improved operating leverage and increased margins . we capitalize a portion of our internal-use software costs , which are then all amortized as a cost of recurring revenues . we amortized $ 2.2 million , $ 2.6 million and $ 5.4 million of capitalized internal-use software costs in fiscal 2014 , 2015 and 2016 , respectively . cost of implementation services and other cost of implementation services and other consists primarily of employee-related expenses , including wages , stock-based compensation , bonuses and benefits involved in the implementation of our payroll and other hcm solutions for new clients . implementation costs are generally fixed in the short-term and exceed associated implementation revenue charged to each client . we intend to grow our business through acquisition of new clients , and doing so will require increased personnel to implement our solutions . therefore our cost of implementation services and other is expected to increase in absolute dollars for the foreseeable future . operating expenses sales and marketing sales and marketing expenses consist primarily of employee-related expenses for our direct sales and marketing staff , including wages , commissions , stock-based compensation , bonuses and benefits , marketing expenses and other related costs . commissions are primarily earned and recognized in the month when implementation is complete and the client first utilizes a service , typically by running its first payroll . bonuses paid to sales staff for attainment of certain performance criteria are accrued in the fiscal year in which they are earned and are subsequently paid annually in the first fiscal quarter of the following year . we will seek to grow our number of clients for the foreseeable future and therefore our sales and marketing expense is expected to continue to increase in absolute dollars as we grow our sales organization and expand our marketing activities . research and development research and development expenses consist primarily of employee-related expenses for our research and development and product management staff , including wages , stock-based compensation , bonuses and benefits . additional expenses include costs related to the development , maintenance , quality assurance and testing of new technologies and ongoing refinement of our existing solutions . research and development expenses , other than internal-use software costs qualifying for capitalization , are expensed as incurred .
| results of operations the following table sets forth our statements of operations data for each of the periods indicated . replace_table_token_8_th 37 the following table sets forth our statements of operations data as a percentage of total revenue for each of the periods indicated . replace_table_token_9_th comparison of fiscal years ended june 30 , 2014 , 2015 and 2016 revenues ( $ in thousands ) replace_table_token_10_th recurring fees recurring fees for the year ended june 30 , 2016 increased by $ 75.2 million , or 53 % , to $ 217.4 million from $ 142.2 million for the year ended june 30 , 2015. recurring fees increased primarily as a result of incremental revenues from new and existing clients , including revenue related to our affordable care act ( aca ) compliance solution offered to new and existing clients , which we launched in fiscal year 2016. our client count at june 30 , 2016 increased by 21 % to approximately 12,500 from approximately 10,350 at june 30 , 2015. recurring fees for the year ended june 30 , 2015 increased by $ 41.8 million , or 42 % , to $ 142.2 million from $ 100.4 million for the year ended june 30 , 2014. recurring fees increased primarily as a result of the continued growth of our client base in fiscal 2015 , as well as increased revenue per client . our client count at june 30 , 2015 increased by 22 % to approximately 10,350 from approximately 8,500 at june 30 , 2014 .
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we account for income taxes in accordance with financial story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with item 6 . “ selected financial data ” of this report and our financial statements and the related notes thereto included in this report . this discussion contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results including those set forth in item 1a . “ risk factors ” of this report . we call your attention to the discussion of forward-looking statements on page 1 of part i of this report , which is incorporated into , and is intended to accompany , this item 7. overview stamps.com® is a leading provider of internet-based mailing and shipping solutions in the united states and europe . under the stamps.com and endicia® brands , customers use our united states postal service ( usps ) only solutions to mail and ship a variety of mail pieces and packages through the usps . customers using our solutions can receive discounted postage rates compared to usps.com and usps retail locations on certain mail pieces such as first class letters and domestic and international priority mail® and priority mail express® packages . stamps.com was the first ever usps-approved pc postage vendor to offer a software only mailing and shipping solution in 1999. endicia became a usps-approved pc postage vendor in 2000. under the metapack tm , shippingeasy® , shipstation® , and shipworks® brands , customers use our multi-carrier solutions to ship packages through multiple carriers such as canada post , dhl , fedex , royal mail , ups , usps , and others . our customers include individuals , small businesses , home offices , medium-size businesses , large enterprises , e-commerce merchants , large retailers , and warehouse shippers . mailing and shipping business references when we refer to our `` mailing and shipping business , '' we are referring to our mailing and shipping products and services including our usps and multi-carrier mailing and shipping solutions , mailing and shipping integrations , mailing and shipping supplies stores , and branded insurance offerings . we do not include our customized postage business when we refer to our mailing and shipping business . when we refer to our `` mailing and shipping revenue , '' we are referring to our service , product , and insurance revenue generated by our mailing and shipping customers . we do not include our customized postage revenue generated by our customized postage business in our `` mailing and shipping revenue . '' acquisitions metapack on august 15 , 2018 , we , through our wholly owned subsidiary pacific shelf 1855 limited , completed our acquisition of metapack limited . the net purchase price totaled approximately £171 million , or $ 217.7 million using the august 15 , 2018 gbp to usd exchange rate , and was funded from current cash and investment balances . in connection with the acquisition , we granted inducement stock options for an aggregate of 320,250 shares of stamps.com common stock to 72 metapack employees . please see note 3 – “ acquisitions ” in our notes to consolidated financial statements for further description . shippingeasy on july 1 , 2016 , we completed our acquisition of shippingeasy . the net purchase price including adjustments for net working capital totaled approximately $ 55.4 million and was funded from current cash and investment balances . in connection with the acquisition , we issued performance based inducement equity awards to the general manager and the then chief technology officer of shippingeasy . these inducement awards cover an aggregate of up to 87,134 common shares if earnings targets for shippingeasy are achieved over a two and one-half year period which began july 1 , 2016. the awards are subject to proration if at least 75 % of the applicable target is achieved and are subject to forfeiture or acceleration based on changes in employment circumstances over the performance period . 44 we also issued inducement stock option grants for an aggregate of 62,000 shares of stamps.com common stock to 48 new employees in connection with our acquisition of shippingeasy . please see note 3 – “ acquisitions ” in our notes to consolidated financial statements for further description . story_separator_special_tag costs and expenses , and customer misprints that do not qualify for reimbursement from the usps . cost of product revenue principally consists of the cost of products sold through our supplies stores and the related costs of shipping and handling . for the periods presented prior to october 1 , 2018 , the cost of insurance revenue principally consists of parcel insurance offering costs through our third party insurance providers as described in the previous section . cost of customized postage revenue principally consists of the face value of postage , customer service , image review costs , and printing and fulfillment costs . cost of service revenue increased 96 % to $ 101.9 million in 2018 from $ 51.9 million in 2017 . the increase was primarily attributable to ( 1 ) a $ 29.9 million increase in vendor costs and expenses in connection with services for which we include such costs and expenses both in revenue and in cost of service revenue ; ( 2 ) higher system operating and customer service costs , which increased by $ 7.3 million , to support our growing business ; ( 3 ) metapack cost of service revenue of $ 6.5 million ; and ( 4 ) higher credit card processing fees , which increased by $ 5.7 million , directly related to our higher revenue . promotional expenses were not material in 2018 or 2017 . cost of service revenue as a percent of service revenue increased from 13 % in 2017 to 19 % in 2018 . story_separator_special_tag the decrease in interest expense is primarily attributable to the lower outstanding debt balance under our credit facility , partially offset by higher interest rates . see note 7 – “ debt ” in our notes to consolidated financial statements for further discussion . provision for income taxes for the years ended december 31 , 2018 and 2017 , income tax expense was $ 22.3 million and $ 9.6 million , respectively . the increase in income tax expense in the current year period is primarily due to reduced excess tax benefits related to the exercise of fewer employee stock options as compared to the prior period . as of december 31 , 2018 and 2017 , we had net deferred tax assets of approximately $ 11.2 million and $ 43.1 million , respectively . we evaluated the appropriateness of our deferred tax assets and related valuation allowance in accordance with asc 740 , income taxes based on all available positive and negative evidence , including our recent earnings trend and expected future income . 50 trend analysis we expect our mailing and shipping revenue to decrease in 2019 compared to 2018 primarily due to the elimination of certain compensation arrangements with the usps , partially offset by an increase due to metapack results being included for the full fiscal year in 2019 , compared to the period from august 15 through year end in 2018. our mailing and shipping revenue is also dependent on our ability to increase our sales and marketing spend to acquire new customers and to retain our existing customers . to the extent we are not able to achieve our target increase in spending and acquire or retain customers , this would further negatively impact our 2019 mailing and shipping revenue growth expectations . our expectations of mailing and shipping revenue reflect the discontinuation of certain important financial compensation arrangements with the usps . see “ risk factors -- risks related to our industry -- the discontinuation of certain financial compensation arrangements with the usps will have an adverse effect on our revenues and operating results , unless we are successful in replacing the lost revenue and profit with similar compensation from the usps or other potential partners , of which there is no assurance. ” as a result , and as previously disclosed , our revenue and operating results will be adversely affected unless we are successful in timely replacing the lost revenue with similar compensation from the usps or other potential partners . while we have strategies to replace these revenues with new carrier relationships , these plans are in various stages , and we do not expect any material replacement of such revenues to occur during the 2019 fiscal year . further , there is no assurance as to when , if or to what extent we may ultimately succeed in implementing such strategies , all of which carry negotiation and execution risks . unless and until we replace these lost revenues and associated profit margins , our operating results in 2019 and beyond may be materially less than in 2018. we expect customized postage revenue to decline in 2019 compared to 2018 , due to certain high volume business purchases occurring in 2018 , which may not be repeated in 2019 . high volume business orders for customized postage can fluctuate significantly from quarter to quarter and therefore historical trends may not be indicative of future results for customized postage revenue . we expect our sales and marketing expenses to be higher in 2019 as compared to 2018 and we expect the percent increase in sales and marketing expense in 2019 to be greater than the percent increase in 2018 . the increases are as a result of the inclusion of metapack , the annualized effect of our headcount investments in 2018 , and our plan to increase our investments in headcount resources in 2019 to drive growth . we will continue to monitor our customer metrics and the state of the economy and adjust our level of spending accordingly . sales and marketing spend is expensed in the period incurred , while the revenue and profits associated with the acquired customers are earned over the customers ' lifetimes . as a result , increased sales and marketing spend in future periods could result in a reduction in operating profit and cash flow compared to past periods . we expect research and development expenses to be higher in 2019 as compared to 2018 and we expect the percent increase in research and development expense in 2019 to be greater than the percent increase in 2018 . the increases are a result of the inclusion of metapack , the annualized effect of our headcount investments in 2018 , and our plan to increase our investments in headcount resources in 2019 to drive growth . we expect general and administrative expenses to be higher in 2019 as compared to 2018 . the increase is a result of the inclusion of metapack , the annualized effect of our headcount investments in 2018 , and our plan to increase our investments in headcount resources in 2019. we expect the percent increase in general and administrative expense in 2019 to be less than the percent increase in 2018 . we expect our stock-based compensation expense to be higher in 2019 compared to 2018 . we expect our interest expense in 2019 to be lower than 2018 due to lower outstanding debt balances under our credit facility . we expect our effective tax rate for 2019 to be higher than 2018 as we benefited from excess tax benefits related to the exercise of stock options in 2018 which we do not expect to recur at the same levels in 2019 , and due to exposure to higher tax rate jurisdictions with metapack . there are other factors that impact taxable income compared to book income which can be difficult to predict and can change from quarter-to-quarter .
| results of operations the results of our operations during the year ended december 31 , 2018 include metapack 's operations beginning on the august 15 , 2018 acquisition date . the results of our operations during the year ended december 31 , 2017 do not include the operations of metapack . please see note 3 – “ acquisitions ” in our notes to consolidated financial statements for further description . accordingly , care should be used in comparing periods that include the operations of metapack with those that do not include such operations . years ended december 31 , 2018 and 2017 total revenue increased 25 % to $ 586.9 million in 2018 from $ 468.7 million in 2017 . mailing and shipping revenue , which includes service revenue , product revenue , and insurance revenue , was $ 567.3 million in 2018 , an increase of 26 % from $ 449.4 million in 2017 . customized postage revenue increased 2 % to $ 19.6 million in 2018 from $ 19.2 million in 2017 . the following table sets forth the breakdown of revenue for 2018 and 2017 and the resulting percent change ( revenue in thousands ) : replace_table_token_5_th we define “ paid customers ” for the quarter as ones from whom we successfully collected service fees or otherwise earned revenue at least once during that quarter , and we define arpu as mailing and shipping revenue divided by paid customers . we define lost paid customers ( lost paid customers ) as customers from whom we successfully collected service fees or otherwise earned revenue at least once during the previous quarter but not during the current quarter , less recaptured paid customers .
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dd & a expense related to the partnership 's producing oil and natural gas properties was $ 81.3 million , $ 109.0 million , and $ 122.5 million story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto presented elsewhere in this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions . actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under “ cautionary note regarding forward-looking statements ” and “ part i , item 1a . risk factors. ” this discussion includes a comparison of our results of operations and liquidity and capital resources for 2020 and 2019. for the discussion of changes from 2018 to 2019 and other financial information related to 2018 , refer to “ part ii , item 7. management 's discussion and analysis of financial condition and results of operations '' in our 2019 annual report on form 10-k , which was filed with the sec on february 25 , 2020. overview we are one of the largest owners and managers of oil and natural gas mineral interests in the united states . our principal business is maximizing the value of our existing portfolio of mineral and royalty assets through active management and expanding our asset base through acquisitions of additional mineral and royalty interests . we maximize value through marketing our mineral assets for lease , creatively structuring the terms on those leases to encourage and accelerate drilling activity , and selectively participating alongside our lessees on a working interest basis . we believe our large , diversified asset base and long-lived , non-cost-bearing mineral and royalty interests provide for stable to growing production and reserves over time , allowing the majority of generated cash flow to be distributed to unitholders . as of december 31 , 2020 , our mineral and royalty interests were located in 41 states in the continental united states including all of the major onshore producing basins . these non-cost-bearing interests include ownership in over 70,000 producing wells . we also own non-operated working interests , a significant portion of which are on our positions where we also have a mineral and royalty interest . we recognize oil and natural gas revenue from our mineral and royalty and non-operated working interests in producing wells when control of the oil and natural gas produced is transferred to the customer and collectability of the sales price is reasonably assured . our other sources of revenue include mineral lease bonus and delay rentals , which are recognized as revenue according to the terms of the lease agreements . recent developments asset sales in july 2020 , we closed two separate divestitures of certain mineral and royalty properties in the permian basin for total proceeds , after final closing adjustments , of $ 150.6 million . the proceeds were used to reduce outstanding borrowings under our credit facility . one of these transactions , effective may 1 , 2020 , involved the sale of our mineral and royalty interests in specific tracts in midland county , texas for net proceeds of approximately $ 54.5 million . the other transaction , effective july 1 , 2020 , involved the sale of an undivided interest across parts of our delaware basin and midland basin positions for net proceeds of approximately $ 96.1 million . we estimate the production associated with the properties sold , in total , to be approximately 1,800 boe per day at the time of the sale . covid-19 pandemic and commodity prices the covid-19 pandemic has adversely affected the global economy , disrupted global supply chains and created significant volatility in the financial markets . in addition , the pandemic has resulted in travel restrictions , business closures and the institution of quarantining and other restrictions on movement in many communities . to protect the health and well-being of our workforce in the wake of covid-19 , we have implemented remote work arrangements for all employees . we do not expect these arrangements to impact our ability to maintain operations . we will continue to prioritize the health and safety of our workforce when employees return to the office through frequent cleaning of common spaces , appropriate social distancing measures , and other best practices as recommended by state and local officials . the impact of the covid-19 pandemic has negatively affected the oil and natural gas business environment , primarily by causing a reduction in commercial activity and travel worldwide thereby lowering energy demand . this , in turn , has resulted in significantly lower market prices for oil , natural gas , and natural gas liquids ( `` ngls '' ) . while we use derivative instruments to partially mitigate the impact of commodity price volatility , our revenues and operating results depend significantly upon the 51 prevailing prices for oil and natural gas . the current price environment has caused many of our operators to reduce their drilling and completion activity on our acreage , and caused some of our operators to temporarily shut-in production from existing wells , both of which negatively impact our production volumes . while we believe most of the shut-in production has been brought back on-line , drilling and completion activity remains depressed relative to pre-pandemic levels . story_separator_special_tag the eia forecasts that wti oil prices will average approximately $ 49.70 per bbl in 2021 and $ 49.81 per bbl in 2022. during the year ended december 31 , 2020 , the wti oil spot price reached a high of $ 63.27 per bbl on january 6 , 2020 , but decreased to a low of $ 8.91 per bbl on april 21 , 2020. this excludes the period in april 2020 when wti briefly traded in negative territory . the eia forecasts that the henry hub spot natural gas price will average $ 3.01 per mmbtu for 2021 and $ 3.27 per mmbtu for 2022. during the year ended december 31 , 2020 , henry hub spot natural gas prices ranged from a high of $ 3.14 per mmbtu on october 26 , 2020 to a low of $ 1.33 per mmbtu on september 21 , 2020. to manage the variability in cash flows associated with the projected sale of our oil and natural gas production , we use various derivative instruments , which have recently consisted of fixed-price swap contracts and costless collar contracts . the following table reflects commodity prices at the end of each quarter presented : replace_table_token_16_th 1 source : eia rig count as we are not the operator of record on any producing properties , drilling on our acreage is dependent upon the exploration and production companies that lease our acreage . in addition to drilling plans that we seek from our operators , we also monitor rig counts in an effort to identify existing and future leasing and drilling activity on our acreage . the following table shows the rig count at the end of each quarter presented : replace_table_token_17_th 1 source : baker hughes incorporated natural gas storage a substantial portion of our revenue is derived from sales of oil production attributable to our interests ; however , the majority of our production is natural gas . natural gas prices are significantly influenced by storage levels throughout the year . accordingly , we monitor the natural gas storage reports regularly in the evaluation of our business and its outlook . historically , natural gas supply and demand fluctuates on a seasonal basis . from april to october , when the weather is warmer and natural gas demand is lower , natural gas storage levels generally increase . from november to march , storage levels typically decline as utility companies draw natural gas from storage to meet increased heating demand due to colder weather . in 53 order to maintain sufficient storage levels for increased seasonal demand , a portion of natural gas production during the summer months must be used for storage injection . the portion of production used for storage varies from year to year depending on the demand from the previous winter and the demand for electricity used for cooling during the summer months . the eia forecasts that inventories will conclude the withdrawal season , which is the end of march 2021 , at almost 1.6 tcf , or 12 % lower than the five-year average . the eia expects inventories will reach almost 3.6 tcf at the end of october 2021 , which would be 5 % lower than the five-year average . the following table shows natural gas storage volumes by region at the end of each quarter presented : replace_table_token_18_th 1 source : eia 54 how we evaluate our operations we use a variety of operational and financial measures to assess our performance . among the measures considered by management are the following : volumes of oil and natural gas produced ; commodity prices including the effect of derivative instruments ; and adjusted ebitda and distributable cash flow . volumes of oil and natural gas produced in order to track and assess the performance of our assets , we monitor and analyze our production volumes from the various basins and plays that constitute our extensive asset base . we also regularly compare projected volumes to actual reported volumes and investigate unexpected variances . commodity prices factors affecting the sales price of oil and natural gas the prices we receive for oil , natural gas , and ngls vary by geographical area . the relative prices of these products are determined by the factors affecting global and regional supply and demand dynamics , such as economic conditions , production levels , availability of transportation , weather cycles , and other factors . in addition , realized prices are influenced by product quality and proximity to consuming and refining markets . any differences between realized prices and nymex prices are referred to as differentials . all our production is derived from properties located in the united states . oil . the substantial majority of our oil production is sold at prevailing market prices , which fluctuate in response to many factors that are outside of our control . nymex light sweet crude oil , commonly referred to as wti , is the prevailing domestic oil pricing index . the majority of our oil production is priced at the prevailing market price with the final realized price affected by both quality and location differentials . the chemical composition of oil plays an important role in its refining and subsequent sale as petroleum products . as a result , variations in chemical composition relative to the benchmark oil , usually wti , will result in price adjustments , which are often referred to as quality differentials . the characteristics that most significantly affect quality differentials include the density of the oil , as characterized by its api gravity , and the presence and concentration of impurities , such as sulfur . location differentials generally result from transportation costs based on the produced oil 's proximity to consuming and refining markets and major trading points . natural gas . the nymex price quoted at henry hub is a widely used benchmark for the pricing of natural gas in the united states .
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table shows our production , revenue , and operating expenses for the periods presented : replace_table_token_20_th 1 as a mineral and royalty interest owner , we are often provided insufficient and inconsistent data on ngl volumes by our operators . as a result , we are unable to reliably determine the total volumes of ngls associated with the production of natural gas on our acreage . accordingly , no ngl volumes are included in our reported production ; however , revenue attributable to ngls is included in our natural gas revenue and our calculation of realized prices for natural gas . 2 not meaningful . revenue total revenue for the year ended december 31 , 2020 decreased compared to the year ended december 31 , 2019. the decrease in total revenue from the corresponding period is primarily due to a decrease in oil and condensate sales and natural gas and ngl sales as a result of lower realized commodity prices and lower production volumes , and a decrease in lease bonus and other income . the overall decrease was partially offset by a gain on commodity derivative instruments in 2020 compared to a loss in 2019 . 58 oil and condensate sales . oil and condensate sales for the year ended december 31 , 2020 were lower than the corresponding period in 2019 due to decreased production volumes and lower realized commodity prices . the decrease in oil and condensate production was primarily driven by lower production in the permian basin and the bakken/three forks . our mineral and royalty interest oil and condensate volumes accounted for 92 % of total oil and condensate volumes for each of the years ended december 31 , 2020 and 2019. natural gas and natural gas liquids sales .
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research and development research and development costs are expensed as incurred story_separator_special_tag cautionary statement for “ safe harbor ” purposes under the private securities litigation reform act of 1995 the private securities litigation reform act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the company . this report contains statements that the company believes may be “ forward-looking statements ” within the meaning of section 21e of the securities exchange act of 1934 , particularly statements relating to the company 's objectives , plans or goals , future actions , future performance or results of current and anticipated products , sales efforts , expenditures , and financial results . from time to time , the company also provides forward-looking statements in other publicly-released materials , both written and oral . forward-looking statements provide current expectations and forecasts of future events such as new products , revenues and financial performance , and are not limited to describing historical or current facts . they can be identified by the use of words such as “ believes , ” “ expects , ” “ plans , ” “ intends , ” “ anticipates , ” and other words and phrases of similar meaning . forward-looking statements are necessarily based on assumptions , estimates and limited information available at the time they are made . a broad variety of risks and uncertainties , both known and unknown , as well as the inaccuracy of assumptions and estimates , can affect the realization of the expectations or forecasts in these statements . many of these risks and uncertainties are difficult to predict or are beyond the company 's control . consequently , no forward-looking statements can be guaranteed . actual future results may vary materially . significant factors affecting the expectations and forecasts are set forth under “ item 1a — risk factors ” in this annual report on form 10-k. the company undertakes no obligation to update any forward-looking statements to reflect events or circumstances that arise after the date hereof . investors should refer to the company 's subsequent filings under the securities exchange act of 1934 for further disclosures . executive summary worldwide sales increased 8 % in 2018 to $ 1.808 billion as compared with $ 1.676 billion in 2017. consolidated income from operations increased 5 % to $ 255.9 million as compared with $ 244.4 million in the prior year . included in income from operations for 2018 were restructuring and other items of $ 2.5 million and included in income from operations in the previous year were restructuring and other costs of $ 15.0 million . net income was $ 169.0 million , as compared to $ 195.1 million in the prior year . during the fourth quarter of 2017 , the company recorded a provisional $ 47 million income tax benefit from the u.s. tax cuts and job acts legislation . this benefit was comprised of an $ 82 million benefit which related primarily to the re-measurement of the company 's u.s. deferred tax liabilities at a lower u.s. tax rate of 21 % , partially offset by tax expense of $ 35.1 million for the deemed repatriation of unremitted earnings of foreign subsidiaries . during 2018 , the company recorded a benefit of $ 4.4 million as a measurement period adjustment for the deemed repatriation of unremitted earnings of foreign subsidiaries . the company reported diluted earnings of $ 4.75 per share in 2018 as compared with $ 5.48 per share in the prior year . in 2018 , the company continued to execute on its growth strategies of geographic expansion , new product innovation and acquisitions . we continued our expansion and penetration efforts in the metalcasting and paper pcc markets in asia . during 2017 and 2018 , the company signed contracts for over 400,000 tons of additional pcc capacity in asia , of which 165,000 tons were secured in 2018. in 2018 , we commercialized 35 new value-added products and we continue to have a robust pipeline of innovative new products with a focus on increased speed of development . the company also successfully closed on the acquisition of sivomatic , a leading european supplier of premium pet litter products . long term debt as of december 31 , 2018 was $ 907.8 million . during 2018 , we repaid $ 66 million of our long-term debt . since the acquisition of amcol in 2014 , we repaid approximately $ 647 million of our term loan debt . we continue to strengthen our balance sheet . cash , cash equivalents and short-term investments were $ 212.6 million as of december 31 , 2018. cash flow from operations for 2018 was $ 203.6 million . our intention is to maintain a balanced approach to capital deployment , by using excess cash flow for investments in growth , continued debt reduction and selective share repurchases . 30 outlook the company will continue to focus on innovation and new product development and other opportunities for sales growth in 2019 from its existing businesses , as follows : ● develop multiple high-filler technologies under the fulfill® platform of products , to increase the fill rate in freesheet paper and continue to progress with commercial discussions and full-scale paper machine trials . ● develop products and processes for waste management and recycling opportunities to reduce the environmental impact of the paper mill , reduce energy consumption and improve the sustainability of the papermaking process , including our newyield ® and envirofil ® products . ● further penetration into the packaging segment of the paper industry . ● increase our sales of pcc for paper by further penetration of the markets for paper filling at both freesheet and groundwood mills , particularly in emerging markets . ● expand the company 's pcc coating product line using the satellite model . ● increase our presence and gain penetration of our bentonite-based foundry customers for the metalcasting industry in emerging markets , such as china and india . story_separator_special_tag income from operations decreased $ 2.9 million to $ 116.8 million in 2018 and represented 14.1 % of net sales as compared to $ 121.1 million and 17.7 % of sales in 2017 , primarily due to higher raw material , logistics and energy costs , which were partially offset by increased selling prices and higher volume . 2017 v 2016 net sales in the performance materials segment in 2017 of $ 734.8 million increased $ 48.7 million from 2016. metalcasting 's sales increased $ 36.3 million or 14 percent primarily due to higher volumes in asia and north america . basic minerals sales increased $ 21.1 million or 20 percent primarily due to higher sales of chromite and drilling products . these sales increases were partially offset by lower environmental products sales and lower fabric care sales which impacted household , personal care & specialty products . income from operations decreased $ 1.4 million to $ 119.7 million in 2017 and represented 16.3 % of net sales compared to $ 121.1 million and 17.7 % of sales in 2016. specialty minerals segment replace_table_token_10_th 2018 v 2017 net sales in the specialty minerals segment increased 1 percent to $ 589.3 million in 2018 from $ 584.8 million in 2017. worldwide sales of pcc products were up slightly to $ 445.4 million as higher sales in asia were partially offset by reduced sales in north america due to customer paper machine shutdowns in late 2017 and early 2018. sales of processed minerals products rose 2 percent to $ 143.9 million . ground calcium carbonate sales grew 4 percent , driven by higher volumes in the construction market , while talc sales decreased 2 percent . income from operations increased $ 6.5 million to $ 95.4 million in 2018 and represented 16.2 % of net sales compared to $ 88.9 million and 15.2 % of sales in the prior year . this increase was primarily due to $ 12.4 million in restructuring and bad debt costs recorded in the prior year . excluding the impact of the restructuring and bad debt costs recorded in the prior year , there was a decrease in operating income due to paper machine shutdowns in north america , and higher logistics and energy costs . included in income from operations for 2018 were restructuring and impairment charges of $ 0.7 million . 35 2017 v 2016 net sales in the specialty minerals segment decreased 1 percent to $ 584.8 million in 2017 from $ 591.5 million in 2016. higher sales in our processed minerals product line , stemming from increased ground calcium carbonate volumes , were offset by declines in paper pcc . worldwide net sales of pcc products , which are primarily used in the manufacturing process of the paper industry , decreased $ 8.5 million , or 2 percent . the decrease in paper pcc sales was primarily due to the closure of several paper mills in north america , which offset growth in asia , europe and latin america . income from operations decreased $ 13.8 million to $ 88.9 million in 2017 and represented 15.2 % of net sales compared to $ 102.7 million and 17.4 % of sales in prior year . included in income from operations were restructuring and impairment charges of $ 10.3 million and provision for bad debt related to a customer bankruptcy in malaysia for $ 2.1 million . refractories segment replace_table_token_11_th 2018 v 2017 net sales in the refractories segment increased 12 percent to $ 311.9 million in 2018 , driven by higher volumes of refractory products and from increased pricing to offset higher raw material costs . income from operations increased $ 5.6 million to $ 45.4 million and represented 14.6 % of net sales in 2018 compared to $ 39.8 million or 14.2 % of sales in 2017 . 2017 v 2016 net sales in the refractories segment of $ 279.4 million increased $ 4.9 million in 2017 or 2 percent . higher equipment sales were partially offset by lower sales in metallurgical products . income from operations increased $ 2.8 million in 2017 to $ 39.8 million and represented 14.2 % of net sales compared to $ 37.0 million or 13.5 % of sales in 2016. the increase in income from operations relates primarily to higher refractory and equipment sales and lower refractory operating costs . energy services segment replace_table_token_12_th * not meaningful 2018 v 2017 net sales in the energy services segment increased $ 1.6 million in 2018 or 2 percent , driven by higher filtration activity in the gulf of mexico and in the north sea . the segment recorded income from operations of $ 4.5 million in 2018 as compared to $ 6.1 million in the prior year . included in income from operations was $ 1.8 million of additional restructuring charges relating to the exit of certain businesses in 2016 . 36 2017 v 2016 net sales in the energy services segment declined $ 9.2 million in 2017. the sales decrease was due to continued weak market conditions in the oil and gas sector and the shutdown of u.s. on-shore service lines , including nitrogen and pipeline , in the second quarter of 2016. the segment recorded income from operations of $ 6.1 million in 2017. included in income from operations was $ 1.7 million of additional restructuring charges relating to the exit of certain businesses in 2016 , which was offset by a $ 1.1 million gain on sale of previously impaired assets . liquidity and capital resources cash provided from continuing operations in 2018 was $ 203.6 million , compared with $ 207.6 million in prior year . cash flows provided from operations in 2018 were principally use to repay debt , fund the company 's pension plans , fund capital expenditures , repurchase shares and to pay the company 's dividend to common shareholders . the company 's intention is to use excess cash flow for investments in growth , continued debt reduction and selective share repurchases .
| results of operations consolidated income statement review replace_table_token_7_th * not meaningful net sales replace_table_token_8_th worldwide net sales in 2018 increased 8 % from the previous year to $ 1,807.6 million . foreign exchange had a favorable impact on sales of approximately $ 13.0 million or 1 percentage point . the company 's results include $ 61.8 million of sales from sivomatic . net sales in the united states increased 2.4 % to $ 961.6 million in 2018 and represented 53 % of consolidated net sales . international sales increased to 14.9 % to $ 846.0 million from $ 736.4 million and represented 47 % of consolidated net sales . 32 worldwide net sales in 2017 increased 2 % from the previous year to $ 1,675.7 million . net sales in the united states increased slightly to $ 939.3 million in 2017 and represented 56 % of consolidated net sales . international sales increased to $ 736.4 million from $ 701.8 million and represented 44 % of consolidated net sales . operating costs and expenses consolidated cost of sales was $ 1,346.2 million , $ 1,208.5 million and $ 1,177.6 million in 2018 , 2017 and 2016 , respectively . production margin as a percentage of net sales was 25.5 % in 2018 , 27.9 % in 2017 and 28.1 % in 2016. the decrease in production margin was primarily due to higher raw material , logistics and energy costs . marketing and administrative costs were $ 178.6 million , $ 180.7 million and $ 176.4 million in 2018 , 2017 and 2016 , respectively . marketing and administrative costs as a percentage of net sales were 9.9 % in 2018 , 10.7 % in 2017 and 10.8 % in 2016. research and development expenses were $ 22.7 million , $ 23.7 million and $ 23.8 million in 2018 , 2017 and 2016 , respectively .
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these amounts are accounted for as compensation expense in conjunction with the recognition of the related performance fee revenue and , until paid , are recognized as a component of the accrued compensation and benefits liability . accordingly , upon a reversal of performance fee revenue , the related compensation expense , if any , is also reversed story_separator_special_tag the carlyle group l.p. ( the “ partnership ” ) is a delaware limited partnership formed on july 18 , 2011. the partnership is a holding partnership and its sole material assets are equity interests through wholly owned subsidiary entities representing partnership units in carlyle holdings i l.p. , carlyle holdings ii l.p. and carlyle holdings iii l.p. ( collectively , ” carlyle holdings ” ) . through wholly owned subsidiary entities , the partnership is the sole general partner of carlyle holdings and operates and controls all of the business and affairs of carlyle holdings and , through carlyle holdings and its subsidiaries , continues to conduct the business now conducted by these subsidiaries . carlyle group management l.l.c . is the general partner of the partnership . as the sole general partner of carlyle holdings , the partnership consolidates the financial position and results of operations of carlyle holdings into its financial statements , and the ownership interests of the limited partners of the carlyle holdings partnerships are reflected as a non-controlling interest in the partnership 's financial statements . the following discussion should be read in conjunction with the consolidated financial statements and the related notes included in this annual report on form 10-k. overview we conduct our operations through four reportable segments : corporate private equity , real assets , global market strategies , and investment solutions . corporate private equity — our corporate private equity segment advises our 20 buyout and 10 growth capital funds , which seek a wide variety of investments of different sizes and growth potentials . as of december 31 , 2016 , our corporate private equity segment had approximately $ 51 billion in aum and approximately $ 36 billion in fee-earning aum . real assets — our real assets segment advises our ten u.s. and internationally focused real estate funds , our infrastructure fund , our two power funds , our international energy fund , as well as our four legacy energy funds ( funds that we jointly advise with riverstone ) . the segment also includes five ngp management fee funds and three carry funds advised by ngp . as of december 31 , 2016 , our real assets segment had approximately $ 34 billion in aum and approximately $ 27 billion in fee-earning aum . global market strategies — our global market strategies segment advises a group of 57 funds that pursue investment opportunities across structured credit , distressed debt , corporate and energy mezzanine debt , middle-market and senior debt . as of december 31 , 2016 , our global market strategies segment had approximately $ 29 billion in aum and approximately $ 24 billion in fee-earning aum . investment solutions — our investment solutions segment advises global private equity and real estate fund of funds programs and related co-investment and secondary activities across 168 fund vehicles . as of december 31 , 2016 , our investment solutions segment had approximately $ 43 billion in aum and approximately $ 27 billion in fee-earning aum . we earn management fees pursuant to contractual arrangements with the investment funds that we manage and fees for transaction advisory and oversight services provided to portfolio companies of these funds . we also typically receive a performance fee from an investment fund , which may be either an incentive fee or a special residual allocation of income , which we refer to as a carried interest , in the event that specified investment returns are achieved by the fund . under u.s. generally accepted accounting principles ( “ u.s . gaap ” ) , we are required to consolidate some of the investment funds that we advise . however , for segment reporting purposes , we present revenues and expenses on a basis that deconsolidates these investment funds . accordingly , our segment revenues primarily consist of fund management and related advisory fees , performance fees ( consisting of incentive fees and carried interest allocations ) , investment income , including realized and unrealized gains on our investments in our funds and other trading securities , as well as interest and other income . our segment expenses primarily consist of compensation and benefits expenses , including salaries , bonuses , performance payment arrangements , and equity-based compensation excluding awards granted in our initial public offering or in connection with acquisitions and strategic investments , and general and administrative expenses . while our segment expenses include depreciation and interest expense , our segment expenses exclude acquisition-related charges and amortization of intangibles and impairment . refer to note 18 to the consolidated financial statements included in this annual report on form 10-k for more information on the differences between our financial results reported pursuant to u.s. gaap and our financial results for segment reporting purposes . 86 trends affecting our business our results of operations , particularly our quarterly results , are affected by a variety of factors , including global economic , market and financial conditions , particularly in the united states , europe and asia . in general , a climate of stable interest rates and liquidity in the debt and equity capital markets provides a positive environment for us to invest , create value and exit investments at attractive returns . periods of volatility and dislocation in the capital markets also can present us with opportunities to invest in companies at reduced prices and at operating levels that are positioned for future revenue growth . story_separator_special_tag taking advantage of the strong financial market conditions in the period before and after the u.s. election , we were able to sell several portfolio companies on beneficial terms in 2016 and realized $ 29.6 billion for our carry fund investors during the year . we also liquidated a large portion of the public portfolio in our cpe , real assets and gms carry funds at attractive prices over the course of the year , which decreased the portion of remaining fair value held in public securities to 17 % as of december 31 , 2016 , from 26 % as of december 31 , 2015. as we had a record year in overall exits and returned $ 30 billion in realized proceeds to our carry fund investors in 2016 , we anticipate that our level of exit activity may decline in 2017 as compared to 2016 , which could affect the amount of distributable earnings available for distributions to our unitholders in 2017. buoyed by strong equity markets and an active m & a environment , our largest carry funds appreciated significantly in 2016. our latest vintage u.s. buyout and asia buyout funds appreciated by 29 % and 31 % , respectively , and our opportunistic u.s. real estate funds collectively appreciated by 21 % . the increase in oil prices had a positive effect on the latest fund sponsored by ngp , which also had exceptional performance during the year . while cpe funds currently generate a large percentage of our performance fees , we believe that over time our other business units will meaningfully contribute to our performance fees and earnings and we will decrease our reliance on these funds . the same trends that bolster asset prices of our existing portfolio companies and foster attractive exit opportunities , can also create headwinds for investment activity due to high valuation multiples and rising interest rates that may increase the cost of financing if not offset by higher growth opportunities . despite these conditions , during 2016 we were able to identify and close on many investments with strong underlying business fundamentals that met our strategic objectives and investment criteria and which we believe also have the potential to generate attractive returns for our fund investors . we made many of these investments in demographic driven industries such as consumer and healthcare , though our total mix of investments continues to span a diverse set of asset classes , industries and geographies . in 2016 , we put $ 17.9 billion in capital to work through our carry funds , an increase over the $ 14.0 billion we invested in 2015. although interest rates for corporate borrowing in the united states continued to rise modestly during the year , we were often able to obtain financing on better terms than were originally anticipated due primarily to the strong underlying fundamentals of the investments we made . we expect that 2017 will be a transition year for our funds since many of our largest funds-in-carry have been harvesting their assets over the past few quarters and , during 2017 , we expect that they will be in the final stages of selling down their portfolios . as a result , our net accrued carry balance has declined from $ 1.8 billion as of december 31 , 2014 , to $ 1.1 billion as of december 31 , 2016. during 2017 , we will seek to continue to invest capital through our current generation of large funds , including cp vi , cep iv , cap iv and crp , as well as ngp x , to the generate strong returns that will facilitate the replenishment of our accrued carry balance . at the same time as we are completing the investment cycle for several of our large buyout funds , we will continue to work diligently to create value in the remaining investments in the portfolio and to move these funds ( as well as others ) into carry positions . while we continue to invest in new transactions and monetize our existing portfolio and create value for our investors , during 2017 another significant element of the transition will be our increased focus on fundraising for the next generation of our large buyout funds and several of our real assets funds , as well as for new fund strategies . in 2016 , we commenced a four-year fundraising cycle ( the pace of which we expect will accelerate through 2019 ) during which we are targeting to raise approximately $ 100 billion in new capital commitments . our ability to raise these funds and replenish our dry powder and the timing of such raises , will depend on our pace of capital deployment and the performance of our investments . at different parts of this fundraising cycle , some of our largest funds may overlap in terms of raising capital for their next generation of funds , which could impact our financial performance in various ways . for example , as we are raising these new funds , the current generation of our funds will continue to realize existing investments and as a result , we could see a further reduction in our fee-earning aum until fees on these new funds are activated . we also expect to see an increase in fundraising costs associated with these new capital commitments which will impact our earnings as we generally expense fundraising costs upon raising new capital . recent transactions distribution in february 2017 , the board of directors of our general partner declared a quarterly distribution of $ 0.16 per common unit to common unitholders of record at the close of business on february 21 , 2017 , payable on february 28 , 2017. transaction with claren road on december 12 , 2016 , the partnership signed an agreement with the founders of claren road asset management , llc and its subsidiaries ( collectively , “ claren road ” ) , to transfer the partnership 's 63 % ownership interest in claren road to 88 its founders .
| consolidated results of operations the following table and discussion sets forth information regarding our consolidated results of operations for the years ended december 31 , 2016 , 2015 and 2014. our consolidated financial statements have been prepared on substantially the same basis for all historical periods presented ; however , the consolidated funds are not the same entities in all periods shown due to changes in u.s. gaap , changes in fund terms and the creation and termination of funds . as further described below , the consolidation of these funds primarily had the impact of increasing interest and other income of consolidated funds , interest and other expenses of consolidated funds , and net investment gains ( losses ) of consolidated funds in the year that the fund is initially consolidated . the consolidation of these funds had no effect on net income attributable to the partnership for the periods presented . 100 replace_table_token_13_th 101 year ended december 31 , 2016 compared to year ended december 31 , 2015 and year ended december 31 , 2015 compared to year ended december 31 , 2014. revenues total revenues decreased $ 731.9 million , or 24 % , for the year ended december 31 , 2016 as compared to 2015 and decreased $ 874.1 million , or 23 % , for the year ended december 31 , 2015 as compared to 2014. the following table provides the components of the changes in total revenues for the years ended december 31 , 2016 and 2015 : replace_table_token_14_th fund management fees .
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the bettwork note bears interest at 12 % per year and matured on february 28 , 2019. all interest and the principal balance are due and payable on the maturity date . the bettwork note includes a “ story_separator_special_tag the following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this filing . in addition to historical consolidated financial information , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . these statements involve risks and uncertainties and our actual results could differ materially from those discussed below . see the “ forward-looking statements ” disclosure above for a discussion of the uncertainties , risks and assumptions associated with these statements . see also the disclosures under “ part i ” – “ item 1a . risk factors ” , above for additional discussion of such risks . growth opportunities and trends our ability to further grow our revenue will depend largely on increasing the number of distributors , the number of paid listings , increasing revenue per listing and increasing revenue from other products and services through our marketplace . our achievement of these objectives will further depend on our ability to successfully enable more online bookable listings . achieving growth in the number of distributors and the number of listings involves our ability to ( i ) increase our listing renewal rates , ( ii ) reach new distributors , property managers and owners through marketing activities , and or ( iii ) obtain new listings through geographic expansion , strategic acquisitions or investments . increasing revenue per listing and revenue from other products and services will involve our ability to successfully drive more bookings and to successfully introduce new products to our marketplace . in the future , we believe it will become more important to increase marketing investments to grow and further advertise our brand and products to distributors and travelers . we have seen other companies launch online businesses offering alrs or other alternatives to hotels and we believe this growing favorable awareness of alternatives to hotels will support growth in our business . however , we have also seen a trend of increased government regulation and taxation of the industry . we continue to monitor the effects of these trends and will take actions as necessary to mitigate their effects . 39 recent significant funding transactions on october 2 , 2018 , the company closed the transactions contemplated by the securities purchase agreement , described in greater detail above under “ part i ” – “ item 1. business ” – “ recent events through year-end ” – “ 2018 registered offering ” . the aggregate net proceeds from the offering , after deducting the placement agent 's fees payable in cash and other estimated offering expenses , were approximately $ 1.7 million . on april 29 , 2019 , we sold 1,005,000 shares of common stock in an underwritten offering in consideration for net proceeds of approximately $ 1.785 million , described in greater detail above under “ part i ” – “ item 1. business ” – “ recent transactions which occurred after year end 2018 ” – “ underwritten offering ” . we also raised various funds throughout the year from borrowings from our officers and directors , and through proceeds raised from the exercise of outstanding warrants , as described in greater detail above under “ part i ” – “ item 1. business ” – “ recent events through year-end ” and “ recent transactions which occurred after year end 2018 ” . key financial highlights key financial highlights for the fiscal year end ( fye ) february 28 , 2019 include the following : ● travel and commission revenue was approximately $ 505,000 compared to $ 431,000 for fye february 28 , 2018 , or an increase of 17 % ; ● net income attributable to monaker group , inc. was approximately $ 4.3 million , or $ 0.50 per basic and diluted share for fye february 28 , 2019 , compared to a net loss of approximately $ 10.0 million , or $ 1.61 per diluted share , in fye february 28 , 2018 , or an increase of 143 % ; ● cash used in operating activities was approximately $ 3.55 million for fye february 28 , 2019 compared to approximately $ 3.72 million for fye february 28 , 2018 , or a decrease of 4.6 % ; ● cash provided by financing activities was approximately $ 2.5 million for fye february 28 , 2019 compared to approximately $ 4.8 million for fye february 28 , 2018 ; ● there was a net decrease in cash of approximately $ 1,571,000 for fye february 28 , 2019 , compared to an increase in cash of approximately $ 597,000 for fye february 28 , 2018 ; and ● cash and cash equivalents as of february 28 , 2018 was approximately $ 33,000. story_separator_special_tag times new roman , times , serif '' > additional information regarding our notes receivable , investments in equity instruments , acquisitions and dispositions and line of credit can be found under “ part ii ” – “ item 15. exhibits , financial statement schedules ” – “ note 3 – notes receivable ” , “ note 4 – investment in equity instruments ” , “ note 5 – acquisitions and dispositions ” and “ note 8 – line of credit ” . we have very limited financial resources . we currently have a monthly cash requirement of approximately $ 320,000 , exclusive of capital expenditures . we will need to raise substantial additional capital to support the on-going operation and increased market penetration of our products including the development of national advertising relationships , increases in operating costs resulting from additional staff and office space until such time as we generate revenues sufficient to support ourselves . story_separator_special_tag in evaluating the level of established loss reserves , we make judgments regarding our customers ' ability to make required payments , economic events and other factors . as the financial condition of these parties change , circumstances develop or additional information becomes available , and adjustments to the allowance for doubtful accounts may be required . we maintain reserves for potential credit losses , and such losses traditionally have been within our expectations . as of february 28 , 2019 and february 28 , 2018 , we had no accounts receivable , therefore , our allowance for doubtful accounts was $ 0. impairment of long-lived assets in accordance with accounting standards codification 360-10 , “ property , plant and equipment ” , we periodically review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable . we recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset . the amount of impairment is measured as the difference between the asset 's estimated fair value and its book value . as of february 28 , 2019 , we had not impaired any long-lived assets . website development costs we account for website development costs in accordance with accounting standards codification 350-50 “ website development costs ” . accordingly , all costs incurred in the planning stage are expensed as incurred , costs incurred in the website application and infrastructure development stage that meet specific criteria are capitalized subject to straight-line amortization over a three-year period and costs incurred in the day to day operation of the website are expensed as incurred . goodwill and other intangible assets in accordance with asc 350-30-65 “ goodwill and other intangible assets ” , we assess the impairment of identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important , which could trigger an impairment review include the following : 1. significant underperformance to historical or projected future operating results ; 2. significant changes in the manner or use of the acquired assets or the strategy for the overall business ; and 3. significant negative industry or economic trends . 43 when we determine that the carrying value of an intangible asset may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset can not be recovered from projected undiscounted cash flow , we record an impairment charge . we measure any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent to the current business model . significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows . we evaluated the remaining useful life of the intangibles and did not record an impairment of intangible assets during the years ended february 28 , 2019 and february 28 , 2018. intellectual properties that have finite useful lives are amortized over their useful lives . we incurred amortization expense of $ 293,804 and $ 211,115 for the years ended february 28 , 2019 and february 28 , 2018 , respectively , which is included in general and administrative expenses . also , $ 1,485,000 of website development costs and $ 600,000 of rights to purchase land were impaired as of february 28 , 2018. the impairment of the website development costs were reversed when the shares of the company 's common stock issued to exponential , inc. ( “ xpo ” ) were cancelled and the impairment of the rights to own such shares was reversed when the bettwork promissory note was converted to shares of bettwork common stock . see “ part ii ” – “ item 15. exhibits , financial statement schedules ” – “ note 5 – acquisitions and dispositions ” “ exponential , inc ( xpo ) ” . convertible promissory notes upon issuance of convertible promissory senior notes , we separated the notes into liability and equity components . we record debt net of debt discount for beneficial conversion features and warrants , on a relative fair value basis . beneficial conversion features are recorded pursuant to the beneficial conversion and debt topics of the fasb accounting standards codification . the carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature . the carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the notes as a whole . the excess of the principal amount of the liability component over its carrying amount ( “ debt discount ” ) is amortized to interest expense over the term of the notes using the effective interest rate method . the equity component is not re-measured as long as it continues to qualify for equity classification . the balance of convertible promissory senior notes , as of february 28 , 2019 and february 28 , 2018 , was $ 0 and $ 0 , respectively . in accounting for the transaction costs related to the note issuance , we allocated the total amount incurred to the liability and equity components based on their relative values . transaction costs attributable to the liability component are being amortized to expense over the term of the notes using the effective interest rate method , and transaction costs attributable to the equity component were netted with the equity component in stockholders ' equity . derivative instruments we enter into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features .
| results of operations results of operations for the fiscal year ended february 28 , 2019 compared to the fiscal year ended february 28 , 2018 revenues total travel and commission revenues increased 17.3 % to $ 505,187 for the fiscal year ended ( fye ) february 28 , 2019 ( consisting of $ 493,208 of travel sales revenues and $ 12,979 of commission revenues ) , compared to $ 430,797 for the fye february 28 , 2018 ( consisting of $ 423,468 of travel sales revenues and $ 7,329 of commission revenues ) , an increase of $ 74,390. this increase is mainly attributable to repeat business and the marketing efforts undertaken throughout the 2019 fiscal year . cost of revenues we had cost of revenues of $ 400,814 for the year ended february 28 , 2019 , compared to $ 328,335 for the year ended february 28 , 2018 , which increase mainly corresponded to the increase in revenues over the same period . operating expenses our operating expenses , including cost of revenues , technology and development , salaries and benefits , selling and promotion , amortization of intangibles , impairment of intangibles and general and administrative expenses , decreased 32.0 % to $ 5,332,153 for the fye february 28 , 2019 , compared to $ 7,826,115 for the fiscal year ended february 28 , 2018 , a decrease of $ 2,493,962. the main reasons for the decrease in operating expenses was a $ 707,005 decrease in general and administrative expenses due to decreases in bad debt expense , investor relations , litigation fees , and professional / consulting fees and a $ 2,085,000 decrease in impairment loss relating to the impairment of various assets during the 2018 fiscal year , offset by a $ 565,214 increase in technology and development expenses in connection with the company 's development of the technology platforms and websites .
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all stock options under the 2003 equity plan and 2009 equity plan were granted story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under “ cautionary note regarding forward-looking statements ” and under “ risk factors ” herein . overview caladrius biosciences , inc. ( “ we , ” “ us , ” `` our , '' “ caladrius ” or the “ company ” ) is a company developing cellular therapeutics to treat certain diseases . we leverage specialized clinical development expertise to selectively advance therapeutic product candidates to their next significant development milestone and , if appropriate , partner such candidates . our most advanced product candidate , clbs03 , is an autologous polyclonal regulatory t cell ( `` treg '' ) clinical phase 2 therapy targeting children aged 8-17 with recent-onset type 1 diabetes mellitus ( `` t1d '' ) . we also have phase studies either underway or due to commence shortly involving our cd34 cell therapy for ischemic repair . immunomodulation ( treg technology ) we are developing strategically , through the utilization of our core development expertise , a product candidate ( clbs03 ) that has the potential to be an innovative therapy for t1d . this therapy is based on a proprietary platform technology for immunomodulation . we have selected as an initial target the unmet medical need of patients who are newly diagnosed with t1d , most of whom will be under the age of 18. this program is based on the use of tregs to treat diseases caused by imbalances in an individual 's immune system . this novel approach seeks to restore immune balance by enhancing treg number and function . tregs are a natural part of the human immune system and regulate the activity of effector t cells , the cells that are responsible for protecting the body from pathogens and foreign antigens . when tregs function properly , only harmful foreign materials are attacked by effector t cells . in autoimmune disease , however , it is thought that deficient treg activity and numbers permit the effector t cells to attack the body 's own beneficial cells . in the case of t1d , the beta cells in the pancreas are attacked , thereby reducing and or eliminating over time the patient 's ability to produce insulin . insulin is necessary to regulate sugar metabolism and maintain proper sugar levels in the blood . inconsistent or unnatural insulin levels can lead to many complications , including blindness , vascular disease and , if no insulin supplement is provided , even death . there are currently no curative treatments for tid , only lifelong insulin therapy , which often does not prevent serious co-morbidities . two phase 1 clinical trials of treg technology in t1d , taken together demonstrated safety and tolerance , feasibility of manufacturing , an implied durability of effect as well as an early indication of potential therapeutic effect through the preservation of beta cell function . in the first quarter of 2016 , we commenced patient enrollment in the first of two cohorts in the sanford project : t-rex study , a phase 2 prospective , randomized , placebo-controlled , double-blind clinical trial ( the `` trex study '' ) to evaluate the safety and efficacy of clbs03 in adolescents with recent onset tid . we entered into a strategic collaboration with sanford research to support the execution of this trial . sanford research is a u.s.-based non-profit research organization that supports an emerging translational research center focused on finding a cure for t1d . on february 23 , 2017 , the california institute for regenerative medicine ( `` cirm '' ) awarded us funds of up to $ 12.2 million to support the t-rex study . the funding will be based upon the achievement of certain milestones related to the proportion of subjects enrolled in california , as well as manufacturing and development costs incurred in california . we received $ 5.7 million in initial funding on may 4 , 2017. clbs03 has been granted fast track and orphan drug designations from the u.s. food and drug administration ( `` fda '' ) as well as advanced therapeutic medicinal product ( `` atmp '' ) classification from the european medicines agency ( `` ema '' ) . in october 2016 , we received a satisfactory safety evaluation by our independent data safety monitoring board based on safety data then available from the first 19 patients enrolled in the trial . a subsequent interim analysis was conducted after approximately 50 % of patients reached the six -month follow-up milestone , the results of which were publicly released on march 8 , 2018 that the therapy continued to be well tolerated and was deemed non-futile for therapeutic effect . on january 18 , 2018 , we announced completion of enrollment ( 110 patients ) in the trex study . ischemic repair ( cd34 cell technology ) our cd34 cell technology has led to the development of therapeutic product candidates designed to address diseases and conditions caused by ischemia . ischemia occurs when the supply of oxygenated blood to healthy tissue is restricted . through the administration of cd34 cells , we seek to promote the development and formation of new blood vessels and thereby increase blood flow to the impacted area . we believe that conditions caused by underlying ischemic injury can be improved through our cd34 cell technology , including critical limb ischemia ( `` cli '' , coronary microvascular disfunction ( `` cmd ' ) and refractory angina ( `` rfa ' ) . story_separator_special_tag net cash provided by or used in operating , investing and financing activities from continuing operations were as follows ( in thousands ) : 39 index replace_table_token_5_th operating activities - continuing operations our cash used in operating activities in the year ended december 31 , 2017 totaled approximately $ 20.2 million , which is the sum of ( i ) our net income of $ 22 million , less income from discontinued operations of $ 38.4 million , and adjusted for non-cash income and expenses totaling $ 9.2 million ( which includes adjustments for equity-based compensation , depreciation and amortization , loss on disposal of assets , deferred taxes , tax benefit , and amortization/accretion of marketable securities ) , and ( ii ) changes in operating assets and liabilities of approximately $ 5.1 million . our cash used in operating activities in the year ended december 31 , 2016 totaled approximately $ 28.2 million , which is the sum of ( i ) our net loss of $ 33.3 million , less loss from discontinued operation of $ 2.1 million , and adjusted for non-cash income and expenses totaling $ 2.8 million ( which includes adjustments for equity-based compensation , depreciation and amortization , and loss on disposal of assets ) , and ( ii ) changes in operating assets and liabilities of approximately $ 0.2 million . investing activities - continuing operations our cash provided by investing activities in the year ended december 31 , 2017 totaled approximately $ 41.5 million . in 2017 , we received $ 74.6 million in net proceeds in connection with the sale of our 80.1 % ownership interest in pct to hitachi , less $ 6.7 million of cash held by our pct subsidiary on the date of the acquisition . we also invested $ 26.3 million in marketable securities ( net ) , and spent approximately $ 0.1 million for property and equipment . our cash used in investing activities in the year ended december 31 , 2016 totaled approximately $ 1.1 million , representing property and equipment purchases . financing activities - continuing operations during the year ended december 31 , 2017 , our financing activities consisted of the following : we paid $ 5.7 million in principal payments on our long-term debt to oxford finance , which was fully repaid and retired on may 18 , 2017. we raised gross proceeds of approximately $ 4.4 million through the issuance of approximately 932,204 shares of our common stock under the conditions of the second closing ( achievement of the enrollment of 70 subjects in our phase 2 clbs03 clinical trial ) , relating to the september 2016 private placement offering . we raised gross proceeds of approximately $ 1.2 million through the issuance of approximately 210,506 shares of our common stock under the provisions of our common stock purchase agreement with aspire which expired in november 2017. we received proceeds of $ 0.4 million from the issuance of notes payable relating to certain insurance policies and equipment financings , less repayments of $ 1.0 million . during the year ended december 31 , 2016 , our financing activities consisted of the following : hitachi purchased a 19.9 % membership interest in pct for $ 19.4 million , of which $ 15.0 million of proceeds was distributed to caladrius from pct and $ 4.4 million remained at pct . we raised $ 4.0 million in a registered direct offering through the issuance of 847,458 shares of our common stock , and $ 6.6 million in concurrent private placement offerings through the issuance of 1,398,305 shares of our common stock . we paid $ 6.3 million in principal payments on our long term debt to oxford finance upon our sale of a 19.9 % membership interest in pct to hitachi , and , in september 2016 , we paid an additional $ 3.0 million in principal payments on our long term debt to oxford finance . we raised $ 1.0 million in a private placement through the issuance of 141,844 shares of our common stock and two-year warrants to purchase up to an aggregate of 141,844 shares our common stock , at an exercise price of $ 10.00 per share . 40 index we received proceeds of $ 0.8 million from the issuance of notes payable relating to certain insurance policies and equipment financings , less repayments of $ 1.0 million . liquidity and capital requirements outlook to meet our short and long-term liquidity needs , we expect to use existing cash balances and a variety of other means . other sources of liquidity could include additional potential issuances of debt or equity securities in public or private financings , partnerships and or collaborations and or sale of assets . our history of operating losses and liquidity challenges may make it difficult for us to raise capital on acceptable terms or at all . the demand for the equity and debt of biopharmaceutical companies like ours is dependent upon many factors , including the general state of the financial markets . during times of extreme market volatility , capital may not be available on favorable terms , if at all . our inability to obtain such additional capital could materially and adversely affect our business operations . we will also continue to seek , as appropriate , grants for scientific and clinical studies from various governmental agencies and foundations . we believe that our cash on hand will enable us to fund the development of clbs03 and other operating expenses for at least the next 12 months following the issuance of our financial statements . on february 8 , 2018 , we entered into a common stock sales agreement with h.c. wainwright & co. , llc , as sales agent , in connection with an “ at the market offering ” under which we from time to time may offer and sell shares of our common stock , having an aggregate offering price of up to $ 12 million .
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 net loss from continuing operations for the year ended december 31 , 2017 was approximately $ 16.2 million compared to net loss from continuing operations of $ 31.3 million for the year ended december 31 , 2016 . overall net income for the year ended december 31 , 2017 was approximately $ 22.2 million , which included income from discontinued operations of $ 38.4 million , driven by the gain on sale of pct of $ 51.7 million . overall , net loss for the year ended december 31 , 2016 was approximately $ 33.3 million , which included loss from discontinued operations of $ 2.1 million . operating expenses for the year ended december 31 , 2017 , operating expenses totaled $ 27.6 million compared to $ 29.5 million for the year ended december 31 , 2016 , representing a decrease of $ 1.9 million or 6 % . operating expenses were comprised of the following : research and development expenses were approximately $ 15.8 million for the year ended december 31 , 2017 compared to $ 16.7 million for the year ended december 31 , 2016 , representing a decrease of approximately $ 0.9 million , or 5 % . ◦ immune modulation - immune modulation expenses , primarily related to expenses associated with our phase 2 study of clbs03 in t1d , were $ 13.4 million for the year ended december 31 , 2017 , representing an increase of $ 2.9 million compared to the year ended december 31 , 2016 . the higher expenses are due to higher clinical trial and manufacturing costs in the current year period compared to the prior year period .
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giles 's options were cancelled and , in replacement thereof 212,500 options , which were fully vested upon grant , were issued . the value of the replacement stock option award was estimated using the black-scholes option pricing model and totaled $ 97,000 . the aggregate number of shares issuable upon exercise of option awards outstanding at december 31 , 2020 for mr. giles was 740,000 , of which 704,000 were fully vested . ( 6 ) the aggregate number of shares issuable upon exercise of option awards outstanding at december 31 , 2020 for dr. stevens was 378,750 , of which 342,750 were fully vested . 63 item 11. executive compensation . executive compensation named executive officers for our fiscal year ended december 31 , 2020 , our named executive officers were : ( i ) michael macaluso , our ceo , who has served as our ceo since january 2012 , ( ii ) daniel g. stokely , our cfo , who has served as our cfo and secretary since july 2019 , and ( iii ) holli cherevka , our current coo , who has served as our coo since september 2017. we had no other executive officers serving during the year ended december 31 , 2020. the following table shows , for the fiscal years ended december 31 , 2020 and december 31 , 2019 , compensation awarded to , paid to , or earned by our named executive officers . summary compensation of named executive officers replace_table_token_6_th ( 1 ) the amounts reported under “ option awards ” in the above table reflect the grant date fair value of these awards as determined in accordance with the financial accounting standards board 's accounting standards codification topic 718 , compensation – stock compensation , rather than amounts paid to or realized by the named individual . the value of the option awards was estimated using the black-scholes option pricing model . the valuation assumptions used in the valuation of options granted may be found in note 12 to our financial statements included in this annual report on form 10-k for the year ended december 31 , 2020 . ( 2 ) mr. macaluso received a $ 150,000 bonus related to his performance for the year ended december 31 , 2020 . ( 3 ) mr. macaluso entered into an employment agreement with the company , effective january 2020 , to continue his position as ceo , at an annual salary of $ 300,000 . in connection with mr. macaluso 's employment , he was awarded 200,000 options . the aggregate value of the stock option award was estimated using the black-scholes option pricing model and totaled $ 118,000 . in addition , pursuant to an option repricing program undertaken by the company in july 2020 , 300,000 of mr. macaluso 's options were cancelled and , in replacement thereof 255,000 options , which were fully vested upon grant , were issued . the incremental value of the replacement stock option award was estimated using the black-scholes option pricing model and totaled $ 117,000 . in december 2020 , mr. macaluso was also awarded 50,000 options . the aggregate value of the stock option award was estimated using the black-scholes option pricing model and totaled $ 76,000 . ( 4 ) each of the named executive officers received a $ 7,000 and $ 5,000 holiday bonus , respectively , during the years ended december 31 , 2020 and december 31 , 2019 . ( 5 ) mr. stokely received a $ 50,000 bonus related to his performance for the year ended december 31 , 2020 . ( 6 ) in january 2020 , mr. stokely was awarded 30,000 options . the aggregated value of the stock option awards was estimated using the black-scholes option pricing model and totaled $ 15,000 . in december 2020 , mr. stokely story_separator_special_tag . you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this report . some of the information contained in this discussion and analysis , including information with respect to our plans and strategy for our business and related financings , includes forward-looking statements that involve risks and uncertainties . you should read 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 the forward-looking statements contained in the following discussion and analysis . story_separator_special_tag statement as of december 31 , 2020 ( see note 11 to the financial statements ) . however , we can not be certain that we will be able to secure additional financing or that any funding , or securities offered pursuant to the shelf registration statement or otherwise , will be adequate to execute our business strategy . even if we are able to obtain additional financing , such additional financing may be costly and may require us to agree to covenants or other provisions that favor new investors over existing stockholders . replace_table_token_1_th even though the company has 88.4 million shares of common stock authorized and available for future issuance , the company 's ability to raise additional funds by issuing securities pursuant to its current shelf registration statement is limited by the $ 77.3 million remaining on such shelf registration statement . significant accounting policies and estimates our financial statements were prepared in accordance with gaap . the preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses incurred during the reporting period . story_separator_special_tag the consecutive year increases are consistent with increases experienced by the overall market for public biopharmaceutical companies . stock-based compensation stock-based compensation increased $ 560,000 , or 141.4 % , due to the issuance of discretionary stock options to certain employees and an option repricing program undertaken by the company related to previously awarded stock options to non-employee directors and executive officers during the 2020 period . the option repricing program contributed $ 277,000 to the increase in stock-based compensation . 46 cash flows cash flows for the respective periods are as follows : replace_table_token_4_th net cash used in operating activities during the 2020 period our operating activities used approximately $ 14.7 million in cash , which was less than our net loss of $ 15.9 million primarily as a result of the non-cash charges related to depreciation and amortization , stock-based compensation , warrant derivative and issuance of common stock for services totaling $ 3.1 million ; partially offset by an increase in working capital totaling $ 2.0 million , resulting primarily from the decrease in accounts payable/accrued liabilities attributable to the pause of the ap-013 study in april 2020 . during the 2019 period our operating activities used approximately $ 15.4 million in cash , which was more than our net loss of $ 13.6 million primarily as a result of the non-cash adjustment for the warrant derivative of $ 4.9 million ; partially off-set by non-cash charges related to depreciation and amortization , stock-based compensation and issuance of common stock for services totaling $ 1.8 million , along with the increase in working capital of $ 1.3 million . net cash used in investing activities during the 2020 period , $ 63,000 in cash was used to acquire manufacturing machinery and equipment . during the 2019 period , $ 22,000 in cash was used to acquire manufacturing machinery and equipment . net cash from financing activities during the 2020 period , we received gross proceeds of $ 26.2 million from the sale of 32.1 million shares of common stock pursuant to the atm equity offering program , which was partially offset by offering related costs of $ 1.4 million . in addition , we also received proceeds of $ 785,000 from investor warrant exercises representing 1,962,500 shares of common stock . during the 2019 period , we received gross proceeds from the sale of common stock in a public offering of $ 12.0 million , which was partially offset by offering related costs of $ 1.2 million . in addition , we also received gross proceeds of $ 3.9 million from investor warrant exercises representing 17,266,667 shares of common stock , which was partially offset by related offering costs of $ 277,000 . contractual obligations and commitments information regarding contractual obligations and commitments is contained in note 8 to the financial statements . liquidity and capital resources we have not generated operating revenue or profits . our primary activities since inception have been focused on research and clinical development activities for the advancement of ampion towards multiple bla submissions , which has required raising capital . as of december 31 , 2020 , we do not have a fixed and determinable committed source of liquidity to meet our expected obligations for the next twelve months . specifically , we had $ 17.3 million of cash and cash equivalents as of december 31 , 2020 . in january 2021 , we received gross proceeds of $ 2.7 million from the sale of 1.8 million shares of common stock pursuant to the atm equity offering program , which was offset by offering related costs of $ 0.1 million . 47 we anticipate using the atm equity offering program to raise additional funds in the near term , as needed , and may seek to supplement the funds raised with separate private or public equity offering ( s ) . based on our current cash position , projection of operating expenses and expected access to the atm and or other equity financing programs , we believe we will have sufficient liquidity to fund operations through the first quarter of 2022. our projection is based on many assumptions that may prove to be incorrect . for example , despite the historically successful use of the atm equity offering program , due to the inherent uncertainties associated with raising capital in the public markets and the fact that the atm equity offering program is not deemed a fixed and determinable committed source of liquidity , our management is unable to conclude that it is probable that future capital will be available to satisfy our future liquidity needs as they arise and in a manner that will be sufficient to fund operations . as such , it is possible that we could exhaust our available cash and cash equivalents earlier than presently anticipated . in addition , as the global covid-19 pandemic continues to rapidly evolve , its effect on our business operations , financial condition and results of operations is highly uncertain and subject to change . we anticipate that we will seek to raise additional capital investments in both the near and long-term to enable us to primarily support ( i ) clinical development of ampion , ( ii ) bla preparation and submission , ( iii ) existing base business operations and ( iv ) commercial development activities for ampion . we intend to continue our close evaluation of the overall capital markets to determine the appropriate timing for any such capital raising activity , which will primarily depend on our stock price and existing market conditions relative to our need for funds at such time . the audit report on our financial statements for the fiscal year ended december 31 , 2020 contains an explanatory paragraph indicating that there was substantial doubt about our ability continue as a going concern . in order to address the going concern , we have prepared
| executive summary we are a biopharmaceutical company focused on the development and advancement of immunology-based therapies for prevalent inflammatory conditions . we have not generated operating revenue to date , and our operations have been substantially funded through equity raises , which have occurred from time to time since inception . the pharmaceutical market is a highly competitive industry with strict regulations that are unpredictable in nature , time intensive and costly . we are committed to offering a compelling therapeutic option for patients most in need of new treatments for inflammatory conditions , including , but not limited to oak and the treatment of serious complications arising from covid-19 , including ards and ali . 42 moving forward , we will continue to place a disciplined focus on maintaining our business operations in a manner that is streamlined and efficient while continuing to allocate a requisite level of our liquidity , human capital and other operational resources towards the advancement of key immunology-based therapies with the ultimate goal of achieving fda marketing approval and subsequent commercialization of ampion for these conditions . discussion regarding our business is contained in part i , item 1. business . recent financing activities information regarding our recent financing activities is contained in note 11 to the financial statements . known trends or future events ; outlook we are a pre-revenue stage biopharmaceutical company that has incurred an accumulated deficit of $ 200.5 million as of december 31 , 2020. we expect to generate continued operating losses for the foreseeable future as we continue the ongoing development and advancement of immunological-based therapies with the ultimate goal of achieving fda marketing approval and subsequent commercialization of ampion for the indications noted above .
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overview we offer property and casualty insurance products to small businesses and individuals in new york state through our subsidiary , kingstone insurance company ( “ kico ” ) . kico 's insureds are located primarily in downstate new york , consisting of new york city , long island and westchester county . we derive 99 % of our revenue from kico , which includes revenues from earned premiums , ceding commissions from quota share reinsurance , net investment income generated from our portfolio , and net realized gains and losses on investment securities . all of our policies are for a one year period . earned premiums represent premiums received from insureds , which are recognized as revenue over the period of time that insurance coverage is provided ( i.e. , ratably over the one year life of the policy ) . a significant period of time normally elapses between the receipt of insurance premiums and the payment of insurance claims . during this time , kico invests the premiums , earns investment income and generates net realized and unrealized investment gains and losses on investments . 20 our expenses include the insurance underwriting expenses of kico and other operating expenses . insurance companies incur a significant amount of their total expenses from policyholder losses , which are commonly referred to as claims . in settling policyholder losses , various loss adjustment expenses ( “ lae ” ) are incurred such as insurance adjusters ' fees and litigation expenses . in addition , insurance companies incur policy acquisition expenses . policy acquisition costs include commissions paid to producers , premium taxes , and other expenses related to the underwriting process , including employees ' compensation and benefits . other operating expenses include the corporate expenses of our holding company , kingstone companies , inc. these expenses include legal and auditing fees , occupancy costs related to our corporate office , executive employment costs , and other costs directly associated with being a public company . principal revenue and expense items net premiums earned . net premiums earned is the earned portion of our written premiums , less that portion of premium that is ceded to third party reinsurers under reinsurance agreements . the amount ceded under these reinsurance agreements is based on a contractual formula contained in the individual reinsurance agreement . insurance premiums are earned on a 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 have a term of one year . accordingly , for a one-year policy written on july 1 , 2011 , we would earn half of the premiums in 2011 and the other half in 2012. ceding commission revenue . commissions on reinsurance premiums ceded are earned in a manner consistent with the recognition of the direct acquisition costs of the underlying insurance policies , generally on a pro-rata basis over the terms of the policies reinsured . net investment income and net realized gains ( losses ) on investments . we invest our statutory surplus funds and the funds supporting our insurance liabilities primarily in cash and cash equivalents , short-term investments , fixed maturity and equity securities . our net investment income includes interest and dividends earned on our invested assets , less investment expenses . 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 costs or amortized costs , as applicable . net realized losses occur when our investment securities are sold for less than their costs or amortized costs , as applicable , or are written down as a result of other-than-temporary impairment . we classify equity securities and our fixed maturity securities as available-for-sale . net unrealized gains ( losses ) on those securities classified as available-for-sale are reported separately within accumulated other comprehensive income on our balance sheet . other income . we recognize installment fee income and fees charged to reinstate a policy after it has been cancelled for non-payment . we also recognize premium finance fee income on loans financed by a third party finance company . loss and loss adjustment expenses incurred . loss and loss adjustment expenses ( “ lae ” ) incurred represent our largest expense item and , for any given reporting period , include estimates of future claim payments , changes in those estimates from prior reporting periods and costs associated with investigating , defending and servicing claims . these expenses fluctuate based on the amount and types of risks we insure . we record loss and lae 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 certain claims to take several years to settle and we revise our estimates as we receive additional information from the claimants . our ability to estimate loss and lae accurately at the time of pricing our insurance policies is a critical factor in our profitability . 21 commission expenses and other underwriting expenses . other underwriting expenses include acquisition costs and other underwriting expenses . acquisition costs represent the costs of writing business that vary with , and are primarily related to , the production of insurance business ( principally commissions , premium taxes and certain underwriting salaries ) . policy acquisition costs are deferred and recognized as expense as the related premiums are earned . other underwriting expenses represent general and administrative expenses . general and administrative expenses are comprised of other costs associated with our insurance activities such as regulatory fees , telecommunication and technology costs , occupancy costs , employment costs , and legal and auditing fees . other operating expenses . story_separator_special_tag other operating expenses , related to the corporate expenses of our holding company , were $ 1,000,000 in 2012 compared to $ 1,203,000 in 2011. the $ 203,000 decrease in 2012 , or 16.9 % , was primarily due to decreases in executive bonuses , occupancy costs , professional fees , and amortization of stock options as a result of more stock options being fully vested prior to 2012. interest expense was $ 82,000 in 2012 compared to $ 121,000 in 2011. the $ 39,000 decrease in interest expense , or 32.2 % , was due to the partial redemption of $ 703,000 of our 2009/2010 notes during the quarter ended september 30 , 2011 , and effective july 11 , 2011 , a reduction in the interest rate to 9.5 % per annum from the previous 12.625 % per annum . the decrease in interest expense from our 2009/2010 notes was offset by $ 11,000 of interest paid on our bank line of credit which was opened in december 2011. income tax expense in 2012 was $ 303,000 , which resulted in an effective tax rate of 28.3 % . income tax expense in 2011 was $ 1,089,000 , which resulted in an effective tax rate of 30.3 % . income before taxes was $ 1,070,000 in 2012 compared to $ 3,592,000 in 2011. the decrease in the effective tax rate by 2.0 % in 2012 is a result of permanent differences from nontaxable investment income and the dividends received deduction having a greater impact on the effective tax rate in 2012 due to a lesser amount of book income in 2012 compared to 2011. the decrease in the effective tax rate from the impact of permanent differences was offset by recording a valuation allowance in 2012 against our state net operating loss carryovers compared to no such allowance in 2011. kingstone companies , inc. generates operating losses for state income tax purposes and has prior year net operating loss carryovers available . kico , our insurance underwriting subsidiary is subject to a state tax based on premiums and is not included in our consolidated state income tax return . a valuation allowance of $ 42,000 was recorded by us in december 2011 and an additional valuation allowance of $ 105,000 was recorded in 2012. the valuation allowance was established due to the uncertainty of generating enough state taxable income to utilize 100 % of our available state net operating loss carryovers over their remaining lives which expire between 2022 and 2027. net income was $ 767,000 in 2012 compared to $ 2,503,000 in 2011. the decrease in net income of $ 1,736,000 was due to the circumstances described above that caused the increase in our net loss ratio , decrease in contingent ceding commission revenues , and increases in other commission expense and underwriting expenses related to premium growth , offset by increases in our net premiums earned . 26 insurance underwriting business on a standalone basis our insurance underwriting business reported on a standalone basis for the years ended december 31 , 2012 and 2011 follows : replace_table_token_10_th the effect of catastrophes by line of business on our net premiums earned and our direct , ceded and net loss and loss adjustment expenses included in our results of operations for the years ended december 31 , 2012 and 2011 follows : replace_table_token_11_th 27 an analysis of our direct , assumed and ceded earned premiums , loss and loss adjustment expenses , and loss ratios is shown below : replace_table_token_12_th 28 the key measures for our insurance underwriting business for the years ended december 31 , 2012 and 2011 are as follows : replace_table_token_13_th ( 1 ) the effect of catastrophes reduced contingent ceding commission revenue by $ 1,918,871 and $ 200,516 for the years ended december 31 , 2012 and 2011 , respectively . a provision in our quota share reinsurance treaty , which expired june 30 , 2011 , limited the maximum contingent ceding commission that could be paid to us , with the unused benefit carried forward to the treaty year which began july 1 , 2011. the carry forward of the unused benefit resulted in additional contingent ceding commission revenue of approximately $ 264,000 for the year ended december 31 , 2011 . ( 2 ) includes ( a ) the sum of direct catastrophe losses and loss adjustment expenses and ( b ) the sum of net catastrophe losses and loss adjustment expenses of $ 13,260,964 and $ 1,143,022 , respectively , for the year ended december 31 , 2012. includes ( x ) the sum of direct catastrophe losses and loss adjustment expenses and ( y ) the sum of net catastrophe losses and loss adjustment expenses of $ 1,796,117 and $ 449,029 , respectively , for the year ended december 31 , 2011 . 29 investments portfolio summary the following table presents a breakdown of the amortized cost , aggregate fair value and unrealized gains and losses by investment type as of december 31 , 2012 and 2011 : available for sale securities replace_table_token_14_th replace_table_token_15_th 30 held to maturity securities december 31 , 2012 cost or gross gross unrealized losses % of amortized unrealized less than 12 more than 12 fair fair categor y cos t gains months months value value u.s. treasury securities $ 606,281 $ 172,745 $ - $ - $ 779,026 100.0 % december 31 , 2011 cost or gross gross unrealized losses % of amortized unrealized less than 12 more than 12 fair fair categor y cos t gains months months value value u.s. treasury securities $ 606,234 $ 171,719 $ - $ - $ 779,953 100.0 % all held to maturity securities are held in trust pursuant to the new york state department of financial services ' minimum funds requirement . contractual maturities of all held to maturity securities are greater than ten years .
| consolidated results of operations the following table summarizes the changes in the results of our operations ( in thousands ) for the periods indicated : replace_table_token_8_th ( 1 ) for the year ended december 31 , 2012 , includes direct catastrophe losses and loss adjustment expenses of $ 13,261,000 , and net catastrophe losses and loss adjustment expenses of $ 1,143,000 , incurred on october 29 , 2012 from superstorm sandy . the computation to arrive at contingent ceding commission revenue includes direct catastrophe losses and loss adjustment expenses incurred from superstorm sandy . such losses increased our ceded loss ratio which reduced our contingent ceding commission revenue by $ 1,919,000. for the year ended december 31 , 2011 , includes direct catastrophe losses and loss adjustment expenses of $ 1,796,000 , and net catastrophe losses and loss adjustment expenses of $ 449,000 , incurred from august 27 , 2011 to august 29 , 2011 from tropical storm irene . the computation to arrive at contingent ceding commission revenue includes direct catastrophe losses and loss adjustment expenses incurred from tropical storm irene . such losses increased our ceded loss ratio which reduced our contingent ceding commission revenue by $ 200,000. we define a “ catastrophe ” as an event that involves multiple first party policyholders , or an event that produces a number of claims in excess of a preset , per-event threshold of average claims in a specific area , occurring within a certain amount of time constituting the event . catastrophes are caused by various natural events including high winds , excessive rain , winter storms , tornadoes , hailstorms , wildfires , tropical storms , and hurricanes . 24 direct written premiums during the year ended december 31 , 2012 ( “ 2012 ” ) were $ 49,252,000 compared to $ 40,735,000 during the year ended december 31 , 2011 ( “ 2011 ” ) . the increase of $ 8,517,000 , or 20.9 % , was primarily due to an increase in policies in-force during 2012 as compared to 2011.
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our broad product offerings include radiators and radiator cores , condensers , oil coolers , charge air coolers , heat-transfer modules and assemblies , exhaust gas recirculation ( “ egr ” ) coolers , building hvac equipment , and coils . 20 table of content company strategy during fiscal 2016 , we launched our strengthen , diversify and grow strategic transformation in order to position our business for long-term success . our main objectives under this platform include : · strengthen : we will strengthen our business by right-sizing our cost structure by , among other things , implementing a more global , product-based organization . we believe this new organization will allow us to capture synergies among our vehicular , building hvac , and coils businesses and improve our speed to market . we aim to optimize our manufacturing footprint and drive cost reductions throughout our business , including reducing costs for materials and services through adjustments and negotiations with our supply base . · diversify : we will invest significant financial and human resources in our industrial businesses , which includes our building hvac segment and our coils business . our objective is to create a more balanced exposure to our end markets and decrease our customer concentration , while achieving better market recognition for these businesses . · grow : we are focused on aggressively pursuing acquisitions in industrial markets and expanding our market share in high-growth engine and powertrain cooling areas . our strengthen , diversify and grow objectives are harmonized with , and designed to lead us toward , the following established enduring goals , which continue to guide our day-to-day actions : · growth : to grow our business and achieve a 10 percent average annual revenue growth rate ; · return on capital : to attain a 15 percent consolidated return on average capital employed ( “ roace ” ) , which helps ensure selectiveness of growth opportunities and avoidance of low-margin or value-destroying business ; · diversification : to build a more diversified business model in order to be less vulnerable to market cyclicality and commercial pressures ; and · fastest improving : to become the fastest improving company in our industry by building on our culture of trust and continuous improvement . 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 can form the basis for multiple products and product lines . we own two global , state-of-the-art technology centers , dedicated to the development and testing of products and technologies . the centers are located in racine , wisconsin and bonlanden , germany . our reputation for providing high quality products and technologies has been a company strength valued by our customers . 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 objectives include leveraging our strong balance sheet position to build a more balanced portfolio of thermal management products and services , reduce exposure to market cycles within our vehicular business , and decrease customer concentration . to accomplish these objectives , we are actively pursuing higher-margin organic- and inorganic-growth opportunities , primarily in the building hvac and coils markets . we will also continue to focus significant attention on growing strategically important aspects of our vehicular business . during fiscal 2016 , we formed and assumed the controlling share of a joint venture , modine puxin thermal systems ( jiangsu ) co. , ltd. , in china . we expect this joint venture will , among other benefits , expedite our introduction of stainless steel heat exchangers for commercial vehicle markets in china . 21 table of content 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 competitiveness 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 americas , europe , and building hvac segments and at corporate . 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 country sourcing , when appropriate , and enter into contracts with some of our customers that provide for rising costs to be passed through to them 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 . we place particular emphasis on working capital improvement and prioritization of our capital investments . our executive management incentive compensation ( annual cash incentive ) plan for fiscal 2016 was based upon consolidated roace and operating income growth . these performance goals drive alignment of management and shareholders ' interests in both our asset management decisions and earnings growth targets . in addition , we provide a long-term incentive compensation plan for officers and certain employees to attract , retain , and motivate employees who directly impact the long-term performance of our company . the plan is comprised of stock options , restricted stock , and performance-based stock awards . story_separator_special_tag our manufacturing facility in shanghai , china is continuing to ramp up production of aluminum oil coolers , and the production level at our manufacturing facility in chennai , india has increased . we expect this trend to continue in fiscal 2017. our technology , performance , quality , and reputation have enabled us to win new engine products business in asia . emissions standards in china and india have generally lagged behind those in north america and europe . as a result , some local on- and off-highway powertrain cooling customers focus on price more than technology . due to the evolution of emission standards , we expect to benefit from additional powertrain and engine cooling opportunities ; however , we expect the asia markets to remain price-focused in the near term . in january 2016 , we assumed the controlling share of a newly-formed joint venture , modine puxin thermal systems ( jiangsu ) co. , ltd. , in china . we expect this joint venture will expedite our introduction of stainless steel heat exchangers for the commercial vehicle market in china and expand opportunities for our egr coolers in china as well . our strategy in this segment is to accelerate sales growth and achieve sustained profitability . our focus is on securing new business and further diversifying our product offering and customer base , while controlling costs and increasing our asset utilization and manufacturing capabilities . we believe we are well positioned for growth and new programs in the future . 23 table of content building hvac ( 13 percent of fiscal 2016 net sales ) our building hvac segment manufactures and distributes a variety of hvac products , primarily for commercial buildings and related applications in north america , europe , the middle east , asia , and africa . we sell our heating , ventilation and cooling products through various channels to 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 , electric , oil and hydronic unit heaters , low-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 for data center cooling applications , air- and water-cooled chillers , ceiling cassettes , and geothermal heat pump products 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 . in fiscal 2016 , sales volume for our north america ventilation products improved with demand . our north america heating sales volume remained relatively flat , as compared with the prior year . during fiscal 2016 , our airedale business in the u.k. relocated into its new facility , which was rebuilt after a fire destroyed it in fiscal 2014. during fiscal 2016 , unfavorable currency conditions negatively impacted sales at our airedale u.k. business and resulted in increased competition from other mainland european suppliers . we expect growth in each of the hvac markets we serve during fiscal 2017 , although at varied rates . the markets that we serve are heavily impacted by construction activity , building regulations , and owner/occupant comfort requirements . growth rates in these markets have strengthened recently , as manufacturing , housing , and business investment have increased . we also anticipate modest growth in the north america heating market during fiscal 2017. our building hvac segment has grown through strategic acquisitions in recent years , such as barkell , a manufacturer of custom air handling units located in the u.k. , which we acquired in late fiscal 2014. we will continue to pursue acquisitions in line with the growth objective of our strengthen , diversify and grow strategic transformation . story_separator_special_tag in fiscal 2016 , compared with a provision for income taxes of $ 19 million in fiscal 2015. this $ 28 million change was primarily due to $ 16 million of income tax benefits related to pension settlement losses in the current year , a decrease in pre-tax operating earnings , and a $ 3 million income tax benefit related to the reversal of a deferred tax asset valuation allowance in the current year . year ended march 31 , 2015 compared with year ended march 31 , 2014 : fiscal 2015 net sales increased $ 18 million , or 1 percent , from the prior year , primarily due to sales increases in our building hvac and asia segments , partially offset by lower sales in our americas segment , as economic conditions in brazil were weak , and in our europe segment , where sales increases were more than offset by a $ 35 million unfavorable impact of foreign currency exchange rate changes . in total , our fiscal 2015 sales were negatively affected by a $ 43 million unfavorable impact of foreign currency exchange rate changes , primarily associated with the strengthening of the u.s. dollar . gross profit increased $ 9 million to $ 247 million in fiscal 2015 and gross margin increased 40 basis points to 16.5 percent , primarily due to sales volume improvements and lower warranty costs . fiscal 2015 sg & a expenses increased $ 2 million from the prior year , primarily due to increased engineering and development costs and sg & a expenses at our barkell business , which we acquired in the fourth quarter of fiscal 2014 , partially offset by $ 5 million of recoveries from business interruption insurance during fiscal 2015 related to the airedale fire .
| consolidated results of operations during fiscal 2016 , we announced our new strengthen , diversify and grow strategic transformational framework . guided by this framework , we have commenced initiatives to , among other things , achieve global procurement savings and efficiencies , optimize our manufacturing footprint , implement a new global organizational structure , and reduce personnel costs . we also formed and assumed the controlling share of a joint venture , modine puxin thermal systems ( jiangsu ) co. , ltd. , in china with jiangsu puxin heat exchange system co. , ltd. , in order to increase sales of certain products in china . fiscal 2016 net sales decreased $ 143 million , or 10 percent , from the prior year , primarily due to a $ 110 million unfavorable impact of foreign currency exchange rate changes associated with the strengthening of the u.s. dollar , and lower sales volume to off-highway customers , partially offset by higher sales volume to automotive customers . during fiscal 2016 , we completed a voluntary lump-sum payout program offered to certain eligible former employees participating in our u.s. pension plans . see note 17 of the notes to consolidated financial statements for additional information . as a result of lump-sum payouts during the fiscal year , we recorded $ 42 million of non-cash pension settlement losses to costs of sales ( $ 9 million ) and sg & a expenses ( $ 33 million ) . during fiscal 2016 , we recorded $ 17 million of restructuring expenses for activities , including strengthen , diversify and grow initiatives , intended to optimize our cost structure and improve the efficiency of our operations . we also recorded a $ 10 million asset impairment charge related to a manufacturing facility in germany . during fiscal 2016 , our operating loss was $ 8 million , compared with operating income of $ 53 million in the prior year .
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the mortgage loans mature between 2014 and 2021. as of december 31 , 2013 , the company had nine mortgage loans payable totaling approximately $ 108.3 million , which bear interest at a weighted average fixed annual rate of 4.5 % . as of december 31 , 2012 , the company had nine mortgage loans payable totaling approximately $ 111.6 million , which bore interest at a weighted average fixed annual interest rate of 4.6 % . as of december 31 , 2013 and 2012 , the total net investment book value of the properties securing the debt was $ 218.0 million and $ 219.5 million , respectively . during the years ended december 31 , 2013 , 2012 and 2011 , the company capitalized story_separator_special_tag you should read the following discussion in conjunction with the sections of this annual report on form 10-k entitled risk factors , forward-looking statements , business and our audited consolidated financial statements and the related notes thereto included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties . actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors , including those discussed in the section entitled risk factors and elsewhere in this annual report on form 10-k. overview we acquire , own and operate industrial real estate in six major coastal u.s. markets : los angeles ; northern new jersey/new york city ; san francisco bay area ; seattle ; miami ; and washington , d.c./baltimore . we invest in several types of industrial real estate , including warehouse/distribution ( approximately 86.4 % of our total portfolio square footage as of december 31 , 2013 ) , flex ( including light industrial and r & d ) ( approximately 11.1 % ) and trans-shipment ( approximately 2.5 % ) . we target functional buildings in infill locations that may be shared by multiple tenants and that cater to customer demand within the various submarkets in which we operate . as of december 31 , 2013 , we owned 96 buildings aggregating approximately 6.8 million square feet , which we purchased for an aggregate purchase price of approximately $ 615.8 million , including the assumption of mortgage loans payable of approximately $ 55.1 million , which includes mortgage premiums of approximately $ 1.5 million . as of december 31 , 2013 , our properties were approximately 92.8 % leased to 214 tenants , the largest of which accounted for approximately 7.2 % of our total annualized base rent . we are an internally managed maryland corporation and elected to be taxed as a reit under sections 856 through 860 of the code , commencing with our taxable year ended december 31 , 2010. our investment strategy we invest in industrial properties in six major coastal u.s. markets : los angeles ; northern new jersey/new york city ; san francisco bay area ; seattle ; miami ; and washington , d.c./baltimore . we invest in several types of industrial real estate , including warehouse/distribution , flex ( including light industrial and r & d ) and trans-shipment . we target functional buildings in infill locations that may be shared by multiple tenants and that cater to customer demand within the various submarkets in which we operate . 29 we selected our target markets by drawing upon the experiences of our management team investing and operating in over 50 global industrial markets located in north america , europe and asia and also in anticipation of trends in logistics patterns resulting from population changes , regulatory and physical constraints , potential long term increases in carbon prices and other factors . we believe that our target markets have attractive long term investment attributes . we target assets with characteristics that include , but are not limited to , the following : located in high population coastal markets ; close proximity to transportation infrastructure ( such as sea ports , airports , highways and railways ) ; situated in supply-constrained submarkets with barriers to new industrial development , as a result of physical and or regulatory constraints ; functional and flexible layout that can be modified to accommodate single and multiple tenants ; acquisition price at a discount to the replacement cost of the property ; potential for enhanced return through re-tenanting or operational and physical improvements ; and opportunity for higher and better use of the property over time . in general , we prefer to utilize local third party property managers for day-to-day property management and as a source of acquisition opportunities . we believe outsourcing property management is cost effective and provides us with operational flexibility . we currently manage one of our properties directly and may directly manage other properties in the future if we determine such direct property management is in our best interest . we have no current intention to acquire undeveloped industrial land or to pursue ground up development . however , we may pursue redevelopment opportunities of properties that we own or acquire adjacent land to expand our existing facilities . we expect that we will continue to acquire the significant majority of our investments as equity interests in individual properties or portfolios of properties . we may also acquire industrial properties through the acquisition of other corporations or entities that own industrial real estate . we will opportunistically target investments in debt secured by industrial real estate that would otherwise meet our investment criteria with the intention of ultimately acquiring the underlying real estate . we currently do not intend to target specific percentages of holdings of particular types of industrial properties . this expectation is based upon prevailing market conditions and may change over time in response to different prevailing market conditions . the properties we acquire may be stabilized ( fully leased ) or unstabilized ( have near term lease expirations or be partially or fully vacant ) . story_separator_special_tag the aggregate amount of the facility may be increased to a total of up to $ 300.0 million , subject to the approval of the administrative agent and the identification of lenders willing to make available additional amounts . the facility continues to be guaranteed by the company and by substantially all of the borrower 's current and to-be-formed subsidiaries that own a borrowing base property. in addition , the facility continues to be secured by a pledge of the equity interests of the borrower ( a wholly-owned subsidiary of the company ) in the subsidiaries that hold each of the borrowing base properties . outstanding borrowings under the facility are limited to the lesser of ( i ) the sum of the $ 100.0 million revolving credit facility amount and the $ 50.0 million term loan amount or ( ii ) 60 % of the value of the borrowing base properties . as of december 31 , 2013 , there were approximately $ 31.0 million of borrowings outstanding under the revolving credit facility under the facility and $ 50.0 million of borrowings outstanding under the term loan . tenant default on january 29 , 2013 , we filed a one count eviction action against banah international group ( banah ) , our tenant at 215 10 th avenue located in hialeah , fl for failure to pay december 2012 and january 2013 rent . as a result , we incurred charges during the year ended december 31 , 2012 of approximately $ 45,000 related to the bad-debt reserve of outstanding accounts receivable , approximately $ 1.1 million related to the write-off of deferred rent receivable and approximately $ 0.4 million related to the write-off of capitalized leasing commissions , net of deferred lease commissions payable . on february 21 , 2013 , the state court entered a default judgment for possession against banah . later that same day , banah filed a chapter 11 bankruptcy petition and has subsequently extended the deadline to affirm or reject the lease while working on a plan of reorganization . on december 18 , 2013 , banah filed its proposed plan for reorganization which calls for a successor entity to assume the lease , pending plan confirmation by the bankruptcy court . banah has paid lease payments in accordance with the lease for the period from february 21 , 2013 through february 28 , 2014. it can not be determined currently if banah will successfully emerge from bankruptcy and assume the lease , or if they can continue paying rent during the bankruptcy . therefore , at december 31 , 2013 , the lease is recorded as a month-to-month lease and revenue is recognized as cash is received . any ultimate recovery of damages , including past due rent , is undetermined at this time . dividend and distribution activity the following table sets forth the cash dividends paid or payable per share during the year ended december 31 , 2013 : replace_table_token_9_th recent developments acquisition activity subsequent to december 31 , 2013 , we acquired one industrial building containing 62,004 square feet for a total purchase price of approximately $ 6.6 million . the property was acquired from an unrelated third party using borrowings under our credit facility , net of an assumed mortgage loan payable with a total principal amount of approximately $ 2.8 million with a fixed annual interest rate of 5.09 % . the following table sets forth the wholly-owned industrial property we acquired subsequent to december 31 , 2013 : property name location acquisition date number of buildings square feet purchase price ( in thousands ) sw 34th street renton , wa february 11 , 2014 1 62,004 $ 6,600 32 dividend and distribution activity on november 5 , 2013 , our board of directors declared a cash dividend in the amount of $ 0.13 per share of the company 's common stock payable on january 14 , 2014 to the stockholders of record as of the close of business on december 31 , 2013. on november 5 , 2013 , our board of directors declared a cash dividend in the amount of $ 0.484375 per share of the company 's series a preferred stock payable on december 31 , 2013 to the preferred stockholders of record as of the close of business on december 11 , 2013. contractual commitments currently we have two contracts with third-party sellers to acquire two industrial properties as described under the heading contractual obligations in this annual report on form 10-k. there is no assurance that we will acquire the properties under contract because the proposed acquisitions are subject to the completion of satisfactory due diligence and various closing conditions . outlook we believe that industrial rents have stopped falling in our markets and in most cases are rising and will continue to rise in 2014. however , new speculative development has begun in a growing number of markets . this new development is likely to slow potential rent growth from what it would be without such new development . we see a growing set of acquisition opportunities and seek to increase our total acquisitions in 2014 over 2013. over the intermediate term of the next five to six years , we seek to grow our portfolio to approximately $ 3.0 billion of assets to optimize our operating efficiency , increase our shareholder liquidity and position us to achieve an investment grade credit rating to broaden our access to capital . we remain mindful , however , that it is per share , rather than aggregate , results that matter . we believe in the long-term operating prospects of our functional , infill coastal assets . we believe in sound balance sheet management . we believe in the benefits of our market-leading corporate governance and exceptionally aligned executive management compensation . the primary source of our operating revenues and earnings is rents received from tenants under operating leases at our properties , including reimbursements from tenants for certain operating costs .
| financial condition and results of operations we derive substantially all of our revenues from rents received from tenants under existing leases on each of our properties . these revenues include fixed base rents and recoveries of certain property operating expenses that we have incurred and that we pass through to the individual tenants . approximately 77.4 % of our leased space includes fixed rental increases or consumer price index-based rental increases . lease terms typically range from three to ten years . our primary cash expenses consist of our property operating expenses , which include : real estate taxes , repairs and maintenance , management expenses , insurance , utilities , general and administrative expenses , which include compensation costs , office expenses , professional fees and other administrative expenses , acquisition costs , which include third-party costs paid to brokers and consultants , and interest expense , primarily on mortgage loans and our facility . our consolidated results of operations often are not comparable from period to period due to the impact of property acquisitions at various times during the course of such periods . the results of operations of any acquired property are included in our financial statements as of the date of its acquisition . the analysis of our results below for the years ended december 31 , 2013 and 2012 includes the changes attributable to same store properties . the same store pool for the comparison of the 2013 and 2012 fiscal years includes all properties that were owned and 33 in operation as of december 31 , 2013 and since january 1 , 2012 and excludes properties that were either disposed of or held for sale to a third party . as of december 31 , 2013 , the same store pool consisted of 44 buildings aggregating approximately 3.1 million square feet .
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gains and losses on these contracts are intended to offset the impact of foreign exchange rate changes on the underlying foreign currency denominated accounts receivables story_separator_special_tag this annual report on form 10-k contains “ forward-looking statements ” that involve risks and uncertainties , as well as assumptions that , if they never materialize or prove incorrect , could cause our results to differ materially from those expressed or implied by such forward-looking statements . such forward-looking statements include our expectations regarding revenue , gross margin , expenses , cash flows and other financial items ; any statements of the plans , strategies and objectives of management for future operations and personnel ; factors that may affect our operating results ; anticipated customer activity ; statements concerning new products or services , including new product features and delivery dates ; statements related to capital expenditures ; statements related to future economic conditions , performance , market growth or our sales cycle ; statements related to our convertible senior notes ; statements related to the effects of litigation on our financial position , results of operations or cash flows ; statements related to the timing and impact of transfer pricing reserves or our effective tax rate ; statements as to industry trends and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing . these statements are often identified by the use of words such as “ anticipate , ” “ believe , ” “ continue , ” “ could , ” “ estimate , ” “ expect , '' “ intend , ” “ may , ” or “ will , ” and similar expressions or variations . these statements are based on the beliefs and assumptions of our management based on information currently available to management . such forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled “ risk factors ” included in item 1a of this annual report on form 10-k. you should review these risk factors for a more complete understanding of the risks associated with an investment in our securities . such forward-looking statements speak only as of the date of this report . we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements . the following discussion and analysis should be read in conjunction with our “ selected financial data ” included in item 6 of this annual report on form 10-k and consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. overview we provide optical transport networking equipment , software and services to telecommunications service providers , icps , cable providers , wholesale and enterprise carriers , research and education institutions , enterprise customers , and government entities across the globe . optical transport networks are deployed by customers facing significant demand for optical bandwidth prompted by increased use of high-speed internet access , mobile broadband , cloud-based services , high-definition video streaming services , virtual and augmented reality , the internet of things ( iot ) and business ethernet services . our end-to-end packet-optical portfolio is designed to be managed with a single network management system . in 2016 , we announced the infinite capacity engine ( ice ) , our next-generation technology , which delivers a family of multi-terabit opto-electronic subsystems powered by our fourth-generation pic and next-generation flexcoherent dsp . the infinite capacity engine is a family of different subsystems that can be customized for different network applications across our product portfolio , spanning the long-haul , subsea , dci and metro markets . traditionally , we have focused on the long-haul portion of the optical transport market and a large portion of our revenue continues to be derived from long-haul and subsea customers . over the past two years , we have significantly increased the number of products we offer , evolving from focusing entirely on the long-haul and subsea markets with the dtn-x family of products to offering an end-to-end suite of solutions that spans terrestrial long-haul , subsea , dci , and metro core and access . in late 2014 , we increased our addressable markets by introducing the cloud xpress platform for the dci market . since the initial introduction of the cloud xpress with 40 gbe client interfaces , we have enhanced our position by expanding our cloud xpress family . in the second half of 2015 , we entered the metro market with the acquisition of transmode , a leader in metro packet-optical applications . with our entrance into the dci and metro markets over the last few years , we are now able to provide our customers with an end-to-end portfolio of solutions . the xtm series and xtg series are designed to address the metro market , with 100 gb/s metro core/regional transport capabilities and packet- 35 optical solutions optimized for fast - growing applications in the access portion of the network , including mobile fronthaul and backhaul , triple-play and cable broadband aggregation , and business ethernet services with mef certification . these products are complemented by the xtc-2 product designed for high-capacity handoffs of traffic from a long-haul network . we primarily sell our products through our direct sales force , with a small portion sold indirectly through resellers . we derived 93 % , 93 % and 95 % of our revenue from direct sales to customers for 2016 , 2015 and 2014 , respectively . we expect to continue generating a substantial majority of our revenue from direct sales in the future . we are headquartered in sunnyvale , california , with employees located throughout the americas , europe and the asia pacific region . story_separator_special_tag we expect to see heightened variability in our margins as we work to diversify our business and continue to make strategic investments to win new footprint with both existing and new customers as well as when we bring our new products to market over the course of fiscal 2017. operating expenses the following table summarizes our operating expenses for the periods presented ( in thousands , except percentages ) : replace_table_token_7_th replace_table_token_8_th 39 the following table summarizes the stock-based compensation expense included in our operating expenses for the periods presented ( in thousands ) : replace_table_token_9_th research and development expenses 2016 compared to 2015. research and development expenses increased $ 51.6 million , or 29 % , in 2016 from 2015 primarily due to increased personnel costs of $ 34.5 million as a result of incremental headcount primarily from the acquisition of transmode and an $ 11.3 million impairment on acquired in-process technology resulting from our decision to abandon previously acquired technologies related to transmode . additionally , we had increased spending on prototype and other engineering materials of $ 7.4 million , incremental outside professional services costs of $ 2.1 million and other engineering expenses of $ 1.0 million to support the development of our next generation of products . these increases were partially offset by a decrease in management bonuses of $ 4.7 million . 2015 compared to 2014. research and development expenses increased $ 47.2 million , or 35 % , in 2015 from 2014 primarily due to increased personnel costs of $ 23.8 million as a result of incremental headcount to support our expanding product roadmap . in addition , we had increased spending on prototype and other engineering materials of $ 12.8 million in 2015 compared to 2014 , as we further enhanced our product portfolio to ensure we deliver on our next generation platforms . during 2015 , we also incurred increased costs of outside professional services of $ 7.1 million and higher discretionary spending of $ 3.5 million to support our growing business compared to 2014. the inclusion of the transmode business increased research and development expenses by $ 10.1 million in 2015. sales and marketing expenses 2016 compared to 2015. sales and marketing expenses increased $ 17.5 million , or 17 % , in 2016 from 2015 primarily due to increased personnel costs of $ 14.5 million as a result of incremental headcount primarily from the acquisition of transmode and to support the expansion of our business into new markets and customer verticals . in addition , the increase also included amortization of intangible assets of $ 3.9 million , higher professional services costs of $ 1.3 million and an increase in discretionary spending of $ 0.2 million . these increases were partially offset by a decrease in management bonuses of $ 2.4 million . 2015 compared to 2014. sales and marketing expenses increased $ 22.4 million , or 28 % , in 2015 from 2014 primarily driven by increased personnel costs of $ 11.7 million as a result of higher sales commissions and incremental headcount to support the continued expansion of our business into new markets and customer verticals . we also had increased discretionary spending of $ 2.6 million , amortization of intangible assets of $ 2.2 million , prototype and lab trial spending of $ 2.0 million , and other marketing expenses of $ 3.9 million . the inclusion of the transmode business during 2015 increased sales and marketing expense by $ 12.1 million . general and administrative expenses 2016 compared to 2015 . general and administrative expenses increased $ 6.7 million , or 11 % , in 2016 from 2015 primarily due to increased personnel costs of $ 9.3 million as a result of incremental headcount from the acquisition of transmode and to a lesser extent , to scale our infrastructure to support the business . in addition , during 2016 , we incurred increased facilities and related costs of $ 1.3 million and higher depreciation expense of $ 1.2 million . these increases were partially offset by a decrease in management bonuses of $ 2.6 million and professional services costs of $ 2.5 million . 2015 compared to 2014 . general and administrative expenses increased $ 13.2 million , or 27 % , in 2015 from 2014. during 2015 , the increases were primarily due to acquisition-related expenses related to the transmode acquisition of $ 6.8 million . additionally , we incurred increased personnel costs of $ 4.6 million driven 40 by incremental headcount and higher discretionary spending of $ 1.7 million to support our growing business . the inclusion of the transmode business increased general and administrative expenses by $ 2.2 million . other income ( expense ) , net replace_table_token_10_th 2016 compared to 2015 . interest income increased $ 0.6 million primarily due to a higher return on investments . interest expense for 2016 increased $ 0.9 million due to cash interest payments and an increase of amortization of discount and issuance costs related to the notes . the change in other gain ( loss ) , net , during 2016 was primarily due to a $ 9.0 million gain on the sale of a cost-method investment , partially offset by losses due to foreign currency exchange . other gain ( loss ) , net , for 2015 mainly comprised of $ 1.3 million of gains due to foreign currency exchange rate changes and a $ 1.1 million gain primarily from foreign currency forward contracts that we entered into to hedge currency exposures associated with the cash portion of the offer to acquire transmode . 2015 compared to 2014. interest income increased mainly due to a higher average investment balance due to cash generated from the business during the year . interest expense for 2015 increased by $ 0.9 million due to an increase of amortization of discount and issuance costs related to the notes . other gain ( loss ) , net , for 2015 mainly comprised of $ 1.3 million of gains due to foreign currency exchange rate changes and a $ 1.1
| results of operations revenue the results of operations for 2016 reflects the inclusion of the transmode business , which was acquired on august 20 , 2015. the following sets forth , for the periods presented , certain consolidated statements of operations information ( in thousands , except percentages ) : replace_table_token_3_th replace_table_token_4_th 2016 compared to 2015. product revenue decreased by $ 18.1 million , or 2 % , in 2016 from 2015. we experienced a slowdown in spending from multiple key customers partly due to the effects of significant customer consolidation during the second half of 2016 , which resulted in decreased revenue compared to 2015. this decrease was partially offset by increased revenue due to the inclusion of a full year 's worth of revenue from transmode metro products . services revenue increased by $ 1.5 million , or 1 % , in 2016 from 2015 , pri marily due to higher on-going support services as we grew our installed base over the last year . with the introduction of our next-generation products , we believe our wholesale and icp verticals should continue to be strong for the foreseeable future . with the slowdown in spending from multiple long-haul customers and our metro opportunity still in its early phases , our telco customer verticals could remain challenged for the next few quarters . we currently expect that total revenue in the first quarter of 2017 will be slightly lower on a sequential basis compared to the prior quarter . 37 2015 compared to 2014. total product revenue increased by $ 197.0 million , or 34 % , in 2015 from 2014. the increase was primarily driven by continued momentum associated with the infinera dtn-x platform through both new network builds and capacity adds to existing networks . additionally , we benefited from the inclusion of revenue from transmode 's metro products since the acquisition .
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in july 2015 , the fasb issued asu 2015-11 “ simplifying the measurement of inventory , ” which amends asc 330 “ inventory . ” this update requires entities to measure inventory at the lower of cost and net realizable value . net realizable value is the estimated selling prices in the story_separator_special_tag business background we are a leading vertically-integrated global manufacturer and distributor of chemical products and a leading u.s. manufacturer of ammunition . our operations are concentrated in three business segments : chlor alkali products and vinyls , epoxy and winchester . all of our business segments are capital intensive manufacturing businesses . chlor alkali products and vinyls operating rates are closely tied to the general economy . each segment has a commodity element to it , and therefore , our ability to influence pricing is quite limited on the portion of the segment 's business that is strictly commodity . our chlor alkali products and vinyls segment is a commodity business where all supplier products are similar and price is the major supplier selection criterion . we have little or no ability to influence prices in the large , global commodity markets . our chlor alkali products and vinyls segment produces some of the most widely used chemicals in the world that can be upgraded into a wide variety of downstream chemical products used in many end-markets . cyclical price swings , driven by changes in supply/demand , can be abrupt and significant and , given capacity in our chlor alkali products and vinyls segment , can lead to very significant changes in our overall profitability . the epoxy segment consumes products manufactured by the chlor alkali products and vinyls segment . while competitive differentiation exists through downstream customization and product development opportunities , pricing is extremely competitive with a broad range of competitors across the globe . winchester also has a commodity element to its business , but a majority of winchester ammunition is sold as a branded consumer product where there are opportunities to differentiate certain offerings through innovative new product development and enhanced product performance . while competitive pricing versus other branded ammunition products is important , it is not the only factor in product selection . recent developments and highlights 2016 overview in 2016 , chlor alkali products and vinyls generated segment income of $ 224.9 million compared to $ 115.5 million for 2015. the improvement in the chlor alkali products and vinyls segment income reflects the inclusion of a full year of the acquired chlor alkali business and lower freight costs , primarily driven by the realization of synergies , partially offset by lower product prices . the lower product prices were primarily due to caustic soda , hydrochloric acid and potassium hydroxide prices , partially offset by increased chlorine prices . the chlor alkali products and vinyls segment income in 2015 was also impacted by the recognition of $ 6.7 million of additional costs of goods sold related to the fair value adjustment related to the purchase accounting for inventory and insurance recoveries of $ 11.4 million . chlor alkali products and vinyls segment income included depreciation and amortization expense of $ 418.1 million and $ 186.1 million in 2016 and 2015 , respectively . during the second half of 2016 , chlor alkali products and vinyls segment results began to reflect improvements in caustic soda prices . for the final nine months of 2016 , caustic soda price indices have increased resulting in positive product price momentum into 2017. during the fourth quarter of 2016 , a caustic soda price increase was announced for $ 40 per ton and , during february 2016 , an additional caustic soda price increase of $ 60 per ton was announced . while the success of these caustic soda price increases are not yet known , the majority of the benefit , if realized , would impact 2017 results . in 2016 , epoxy generated segment income of $ 15.4 million compared to a segment loss of $ 7.5 million for 2015. the fourth quarter of 2015 was impacted by the recognition of $ 17.3 million of additional costs of goods sold related to the fair value adjustment related to the purchase accounting for inventory . additionally , epoxy segment results were higher than the prior year due to the ownership of the acquired business for the full year . epoxy segment results included depreciation and amortization expense of $ 90.0 million and $ 20.9 million in 2016 and 2015 , respectively . winchester reported segment income of $ 120.9 million for 2016 compared to $ 115.6 million for 2015. the increase in segment income in 2016 compared to 2015 reflects lower commodity and other material costs and increased volumes . these increases were partially offset by lower product prices and higher operating costs . winchester 's segment income included depreciation and amortization expense of $ 18.5 million and $ 17.4 million in 2016 and 2015 , respectively . other operating income for 2016 included an $ 11.0 million insurance recovery for property damage and business interruption related to a 2008 chlor alkali facility incident . 26 during 2016 , olin entered into arrangements to increase our supply of low cost electricity . these arrangements improve manufacturing flexibility at our freeport , tx and plaquemine , la facilities , reduce our overall electricity cost and accelerate the realization of cost synergies available from the acquired business . in conjunction with these arrangements , olin made payments of $ 175.7 million during 2016. in 2016 , we entered into sale/leaseback transactions for railcars that we acquired in connection with the acquisition . we received proceeds from the sales of $ 40.4 million . financing during 2016 , we repaid $ 125.0 million of 6.75 % senior notes due 2016 ( 2016 notes ) , which became due , $ 67.5 million under the required quarterly installments of the $ 1,350.0 million senior term loan facility and $ 12.2 million due under the annual requirements of the sunbelt notes . story_separator_special_tag for the years ended december 31 , 2016 , 2015 and 2014 , we incurred acquisition-related costs in connection with the acquisition and related transactions , including $ 48.8 million , $ 76.3 million and $ 4.2 million , respectively , of advisory , legal , accounting , integration and other professional fees . for the year ended december 31 , 2015 , we also incurred acquisition-related costs of $ 47.1 million as a result of the change in control , which created a mandatory acceleration of expenses under deferred compensation plans as a result of the transactions and $ 30.5 million of financing-related fees . as a result of the acquisition , we believe we can generate at least $ 250 million in annual cost synergies by 2019 , or if we are able to increase sales to new third-party customers and access new product markets as a result of the acquisition , the potential for additional annual synergies of up to $ 100 million . synergies realized in 2016 were approximately $ 75 million primarily related to cost savings . during the first three years we expect to incur $ 100 million to $ 150 million in transition-related costs and $ 255 million in incremental capital spending and payments under electricity supply contracts which we believe are necessary to realize the anticipated synergies . pension and postretirement benefits under asc 715 , we recorded an after-tax charge of $ 37.5 million ( $ 61.0 million pretax ) to shareholders ' equity as of december 31 , 2016 for our pension and other postretirement plans . this charge primarily reflected a 30 -basis point decrease in the domestic pension plans ' discount rate , partially offset by favorable performance on plan assets during 2016 . in 2015 , we recorded an after-tax charge of $ 78.8 million ( $ 125.3 million pretax ) to shareholders ' equity as of december 31 , 2015 for our pension and other postretirement plans . this charge reflected unfavorable performance on plan assets during 2015 , partially offset by a 50-basis point increase in the domestic pension plans ' discount rate . in 2014 , we recorded an after-tax charge of $ 86.6 million ( $ 142.0 million pretax ) to shareholders ' equity as of december 31 , 2014 for our pension and other postretirement plans . this charge reflected a 60-basis point decrease in the plans ' discount rate and the negative impact of updated mortality tables , partially offset by favorable performance on plan assets during 2014. our benefit obligation as of december 31 , 2014 increased approximately $ 90 million pretax as a result of updated mortality tables . the non-cash charges to shareholders ' equity do not affect our ability to borrow under our senior credit facility . effective as of the closing date , we changed the approach used to measure service and interest costs for our defined benefit pension plans and on december 31 , 2015 changed this approach for our other postretirement benefits . prior to the closing date , we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations . subsequent to the closing date for our defined benefit pension plans and beginning in 2016 for our other postretirement benefits , we elected to measure service and interest costs by applying the specific spot rates along the yield curve to the plans ' estimated cash flows . we believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans ' liability cash flows to the corresponding spot rates on the yield curve . this change does not affect the measurement of our plan obligations . we have accounted for this change as a change in accounting estimate and , accordingly , have accounted for it on a prospective basis . 28 during the fourth quarter of 2014 , the soa issued the final report of its mortality tables and mortality improvement scales . the updated mortality data reflected increasing life expectancies in the u.s. during the third quarter of 2012 , the map-21 became law . the law changed the mechanism for determining interest rates to be used for calculating minimum defined benefit pension plan funding requirements . interest rates are determined using an average of rates for a 25-year period , which can have the effect of increasing the annual discount rate , reducing the defined benefit pension plan obligation , and potentially reducing or eliminating the minimum annual funding requirement . the law also increased premiums paid to the pbgc . during the third quarter of 2014 , hatfa 2014 became law , which includes an extension of map-21 's defined benefit plan funding stabilization relief . as of the closing date and as part of the acquisition , our u.s. qualified defined benefit pension plan assumed certain u.s. qualified defined benefit pension obligations and assets related to active employees and certain terminated , vested retirees of the acquired business with a net liability of $ 281.7 million . in connection therewith , pension assets were transferred from tdcc 's u.s. qualified defined benefit pension plans to our u.s. qualified defined benefit pension plan during 2016. immediately prior to the acquisition , the acquired business 's participant accounts assumed in the acquisition were closed to new participants and were no longer accruing additional benefits . during 2016 , we made a discretionary cash contribution to our domestic qualified defined benefit pension plan of $ 6.0 million . based on our plan assumptions and estimates , we will not be required to make any cash contributions to the domestic qualified defined benefit pension plan at least through 2017 . as of the closing date , we assumed certain accrued defined benefit pension liabilities relating to employees of tdcc in germany , switzerland and other international locations who transferred to olin in connection with the acquisition . the net liability assumed as of the closing date was $ 160.6
| consolidated results of operations replace_table_token_4_th 2016 compared to 2015 sales for 2016 were $ 5,550.6 million compared to $ 2,854.4 million last year , an increase of $ 2,696.2 million , or 94 % . the sales increase was primarily due to the inclusion of a full year of the acquired business of $ 2,735.1 million . chlor alkali products and vinyls sales generated from legacy businesses decreased $ 56.8 million due to lower product prices and volumes . the lower volumes were primarily due to hydrochloric acid and potassium hydroxide volumes , partially offset by increased chlorine and caustic soda volumes . the lower product prices were primarily due to caustic soda , hydrochloric acid and potassium hydroxide prices , partially offset by increased chlorine prices . winchester sales increased by $ 17.9 million from the prior year due to increased shipments to commercial customers and law enforcement agencies , partially offset by decreased shipments to industrial and military customers . gross margin increased $ 259.3 million , or 71 % , from 2015 primarily due to the inclusion of a full year of the acquired business of $ 264.2 million which includes the fourth quarter of 2015 impact of additional costs of goods sold related to the fair value adjustment related to the purchase accounting for inventory of $ 24.0 million . chlor alkali products and vinyls gross margin generated from legacy businesses decreased $ 16.1 million primarily due to lower product prices and insurance recoveries recognized in 2015 , partially offset by lower freight costs , primarily driven by the realization of synergies .
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our actual results and the timing of selected events could differ materially from those described in or implied by these forward-looking statements as a result of several factors , including those set forth in the section titled risk factors. see also the section titled special note regarding forward-looking statements. overview we were founded on the belief that engineered cells will be one of the most important transformations in medicine over the next several decades . the burden of diseases that can be addressed at their root cause through engineered cells is significant . we view engineered cells as having the potential to be as therapeutically disruptive as biologics to clinical practice . our long-term aspirations are to be able to control or modify any gene in the body , to replace any cell that is damaged or missing , and to markedly improve access to cellular and gene-based medicines . we have brought together an experienced group of scientists , engineers , and company builders and combined them with the necessary technologies to move this vision forward . we are developing in vivo and ex vivo cell engineering platforms to revolutionize treatment across a broad array of therapeutic areas with unmet treatment needs , including oncology , diabetes , central nervous system ( cns ) disorders , cardiovascular diseases , and genetic disorders , among others . while our current product candidates are all in preclinical development , our goal is to file multiple investigational new drug applications ( inds ) both in 2022 and 2023. the process of repairing and controlling genes in the body , referred to as gene therapy or in vivo cell engineering , requires in vivo delivery of a therapeutic payload and modification of the genome . of these , we believe delivery of a therapeutic payload represents the greatest unmet need and is thus at the core of our strategic focus , with our ultimate goal being the delivery of any payload to any cell in a specific and repeatable way . our initial effort is on cell-specific delivery and increasing the diversity and size of payloads . using our fusogen technology , we have shown in preclinical studies that we can specifically target numerous cell surface receptors that , when combined with delivery vehicles to form fusosomes , allow cell-specific delivery across multiple different cell types . we have initially chosen to focus this technology on delivering payloads to t cells , hepatocytes , and hematopoietic stem cells . frequently in disease , cells are damaged or missing entirely , and an effective therapy needs to replace the entire cell , an approach referred to as cell therapy or ex vivo cell engineering . a successful therapeutic requires an ability to manufacture cells at scale that engraft , function , and have the necessary persistence in the body . of these , long-term persistence related to overcoming immunologic rejection of another person 's cells has been the most challenging , which has led many to focus on autologous , or a patient 's own , cells as the therapeutic source . however , autologous therapies require a complex process of harvesting cells from the patients , manipulating them outside the body , and returning them to the patient . products utilizing this approach have had to manage significant challenges such as scalability , product variability , product quality , cost , patient accessibility , and a limited number of cell types being amenable to this approach . given these limitations , rather than utilizing autologous cells to overcome immune rejection , we have invested in creating hypoimmune cells that can hide from the patient 's immune system . we are striving to make therapies utilizing pluripotent stem cells with our hypoimmune genetic modifications as the starting material , which we then differentiate into a specific cell type , such as a pancreatic beta cell , before treating the patient . additionally , for cell types for which effective differentiation protocols from a stem cell have not yet been developed , such as t cells , instead of starting from a pluripotent stem cell , we can utilize an allogeneic cell , differentiated cells sourced from a donor , as the starting material to which we then apply our hypoimmune genetic modifications . 148 index to financial statements we believe the time is right to develop engineered cell therapies across a broad range of therapeutic areas . substantial progress in the understanding of genetics , gene editing , gene control , protein engineering , stem cell biology , immunology , process analytics , and computational biology have converged to create an opportunity to markedly increase the breadth and depth of the potential impact of genetic and cellular medicines . we are focused on creating transformative in vivo and ex vivo engineered cell therapies across a range of therapeutic areas . we are in the early stages of development across a broad pipeline of product candidates , all of which are currently in the preclinical stage of development and are summarized below : our ex vivo and in vivo technology represents an aggregation of years of innovation and technology from multiple academic institutions and companies , including our fusogen technology acquired from cobalt biomedicines inc. ( cobalt ) , our ex vivo cell engineering programs focused on replacing damaged cells in the heart and certain brain disorders acquired from cytocardia inc. ( cytocardia ) and oscine corp. ( oscine ) , respectively , and hypoimmune technology licensed from the president and fellows of harvard college ( harvard ) and the regents of the university of california ( ucsf ) , amongst others . see the subsections titled businesskey intellectual property agreements and note 3 , acquisitions and note 5 , license and collaboration agreements to our consolidated financial statements included elsewhere in this annual report on form 10-k. we were incorporated in july 2018 and commenced operations thereafter . story_separator_special_tag for details regarding our acquisitions , see the subsection titled businesskey intellectual property agreements and note 3 , acquisitions , to our consolidated financial statements included elsewhere in this annual report on form 10-k. 150 index to financial statements license and collaboration agreements we have entered into license and collaboration arrangements with various third parties . for details regarding these agreements , see the subsections titled business key intellectual property agreements and note 5 , license and collaboration agreements , to our consolidated financial statements included elsewhere in this annual report on 10-k. success payments and contingent consideration cobalt success payment and contingent consideration pursuant to the terms of the cobalt acquisition agreement , we may be required to pay contingent consideration of up to an aggregate of $ 500.0 million upon the achievement of certain pre-specified development milestones ( cobalt contingent consideration ) , and a success payment of up to $ 500.0 million payable in cash or stock , at our discretion ( the cobalt success payment ) . prior to the ipo in february 2021 , the cobalt success payment was payable , if at pre-determined valuation measurement dates , our value was equal to or exceeded three times our value implied by the per share value of the company 's series b convertible preferred stock at issuance , or any security into which such stock has been converted or exchanged , and we had a program based on the fusogen technology in a clinical trial pursuant to an ind , or have filed for , or received approval for , a biologics license application ( bla ) or new drug application ( nda ) . subsequent to the ipo , the threshold to determine if a payment is due will be based on whether our market capitalization equals or exceeds $ 8.1 billion , and we have a program based on the fusogen technology in a clinical trial pursuant to an ind , or have filed for , or received approval for , a bla or nda . the valuation measurement dates for the cobalt success payment are an ipo , which occurred in february 2021 , and periodically thereafter . a cobalt success payment was not triggered upon the ipo . in addition to an ipo , a valuation measurement date is triggered upon a change of control when at least one of our programs based on the fusogen technology is the subject of an active research program . if there is a change of control and our market capitalization falls below certain thresholds on the change of control date , the amount of the potential cobalt success payment will decrease , and the amount of potential cobalt contingent consideration will increase . see note 3 , acquisitions to our consolidated financial statements included elsewhere in this annual report on form 10-k for details on the different market capitalizations and impact to the amount of the potential cobalt success payment and potential cobalt contingent consideration if there is a change of control . as of december 31 , 2020 and 2019 , the estimated fair value of the cobalt success payment liability was $ 64.7 million and $ 2.4 million , respectively , and the estimated fair value of the cobalt contingent consideration was $ 121.9 million and $ 69.1 million , respectively . for the years ended december 31 , 2020 and 2019 the company recognized $ 62.3 million and an immaterial amount in research and development expense in connection with the change in fair value of the cobalt success payment , respectively , and $ 52.8 million and $ 17.9 million in research and development expense in connection with the change in fair value of the cobalt contingent consideration , respectively . see the subsections below titled success payments and contingent consideration for more information on the accounting treatment . harvard success payments pursuant to the terms of the harvard agreement , we may be required to make success payments ( the harvard success payments ) up to an aggregate of $ 175.0 million , payable in cash , based on increases in the per share fair market value of our series a convertible preferred stock . concurrent with the closing of the ipo in february 2021 , our series a convertible preferred stock was converted into common stock , and as a result , going forward the per share fair market value of our common stock will determine whether a success payment is owed to harvard . the potential harvard success payments are based on multiples of increased value ranging from 5x to 40x based on a comparison of the per share fair market value of our common stock relative to the original issuance price of $ 4.00 per share at pre-determined valuation measurement dates . the harvard success payments can be achieved over a maximum of 12 years from the effective date of the agreement . see note 5 , license and collaboration agreements to our consolidated financial statements included elsewhere in this annual report on form 10-k for more details on the various per share common stock values that trigger a harvard success payment . we anticipate the first valuation measurement date to occur in february 2022 , the one-year anniversary of our ipo , with valuation dates occurring periodically after this date . additional valuation measurement dates are triggered by events which include : a merger , an asset sale , the sale of the majority of the shares held by series a convertible preferred stockholders , and the last day of the term of the success payments . if a higher success payment tier is met at the same time 151 index to financial statements a lower tier is met , both tiers will be owed . any previous success payments made under the harvard agreement are credited against the success payment owed as of any valuation measurement date , so that harvard does not receive multiple success payments in connection with the same threshold . the estimated fair value of the harvard success payment liability was $ 11.8
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the periods presented : replace_table_token_3_th research and development expenses the following table summarizes the components of our research and development expenses for the periods presented : replace_table_token_4_th 153 index to financial statements research and development expenses were $ 257.9 million and $ 119.4 million for the years ended december 31 , 2020 and 2019 , respectively . the increase of $ 138.5 million was primarily due to : an increase of $ 70.2 million for the change in the estimated fair value of our cobalt and harvard success payment liabilities in aggregate ; an increase of $ 34.9 million for the change in the estimated fair value of the cobalt contingent consideration ; increased personnel-related expenses of $ 19.1 million , including non-cash stock-based compensation of $ 4.9 million , which was primarily attributable to an increase in headcount to expand our research and development capabilities . an increase of $ 18.6 million in research and laboratory costs , including laboratory supplies , preclinical studies , and other external research expenses ; and an increase of $ 12.0 million of facility and other allocated costs , including rent , depreciation , and allocated overhead costs . these increases were partially offset by a decline in costs to acquire and license technology of $ 15.8 million due to costs incurred under the harvard and ucsf agreements , and the upfront fee for the acquisition of cytocardia 2019 , partially offset by the upfront fee for the acquisition of oscine in 2020. general and administrative expenses general and administrative expense were $ 28.3 million and $ 21.8 million for the years ended december 31 , 2020 and 2019 , respectively .
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the working capital facility includes a $ 20 million letter of credit sublimit . borrowings under the working capital facility bear interest at rates based on libor or the base rate ( as such terms are defined in the working capital facility ) , plus an applicable margin determined based on outstanding borrowing under the working capital facility . in addition , the company is required to pay a commitment fee on the amount unused under the working capital facility . the working capital facility expires on the earlier of ( i ) march 21 , 2020 and ( ii ) the date on which all commitments under the working capital facility shall have terminated , whether as a result of the occurrence of the commitment termination date ( as defined in the working capital facility ) or otherwise . there were no advances outstanding under the working capital facility as of december 31 , 2019 . 8. long-term debt : long-term debt was comprised of the following ( in thousands ) : replace_table_token_22_th as of december 31 , 2019 , long-term debt maturities were as follows ( in story_separator_special_tag overview we are a full-service , integrated retailer of commercial vehicles and related services . we operate one segment - the truck segment . the truck segment operates a network of commercial vehicle dealerships primarily under the name “ rush truck centers. ” most rush truck centers are a franchised dealer for commercial vehicles manufactured by peterbilt , international , hino , ford , isuzu , fuso , ic bus or blue bird . through our strategically located network of rush truck centers , we provide one-stop service for the needs of our commercial vehicle customers . we offer an integrated approach to meeting customer needs by providing service , parts and collision repair in addition to new and used commercial vehicle sales and leasing , insurance and financial services , vehicle upfitting , cng fuel systems and vehicle telematics products . our goal is to continue to serve as the premier service solutions provider to the end-users of commercial vehicles . our strategic efforts to achieve this goal include continuously expanding our portfolio of aftermarket products and services , broadening the diversity of our commercial vehicle product offerings and extending our network of rush truck centers . our commitment to provide innovative solutions to service our customers ' needs continues to drive our strong aftermarket products and services revenues . our aftermarket products and services include a wide range of capabilities and products such as providing parts , service and collision repairs at certain of our rush truck centers , a fleet of mobile service units , technicians who work in our customers ' facilities , a proprietary line of commercial vehicle parts and accessories , vehicle upfitting , a broad range of diagnostic and analysis capabilities , a suite of telematics products and assembly services for specialized bodies and equipment . aftermarket products and services accounted for 64.9 % of our total gross profits in 2019. story_separator_special_tag value of goodwill in the future , we may be exposed to an impairment charge that could be material . goodwill was tested for impairment during the fourth quarter of 2019 and no impairment was required . the fair value of our reporting unit exceeded the carrying value of its net assets . as a result , we were not required to conduct the second step of the impairment test . we do not believe our reporting unit is at risk of failing step one of the impairment test . insurance accruals we are partially self-insured for a portion of the claims related to our property and casualty insurance programs , which requires us to make estimates regarding expected losses to be incurred . we engage a third-party administrator to assess any open claims and we adjust our accrual accordingly on a periodic basis . we are also partially self-insured for a portion of the claims related to our workers ' compensation and medical insurance programs . we use actuarial information provided from third-party administrators to calculate an accrual for claims incurred , but not reported , and for the remaining portion of claims that have been reported . 30 changes in the frequency , severity and development of existing claims could influence our reserve for claims and financial position , results of operations and cash flows . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we used to calculate our self-insured liabilities . however , if actual results are not consistent with our estimates or assumptions , we may be exposed to losses or gains that could be material . accounting for income taxes management 's judgment is required to determine the provisions for income taxes and to determine whether deferred tax assets will be realized in full or in part . deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . when it is more likely than not that all or some portion of specific deferred income tax assets will not be realized , a valuation allowance must be established for the amount of deferred income tax assets that are determined not to be realizable . accordingly , the facts and financial circumstances impacting deferred income tax assets are reviewed quarterly and management 's judgment is applied to determine the amount of valuation allowance required , if any , in any given period . our income tax returns are periodically audited by tax authorities . these audits include questions regarding our tax filing positions , including the timing and amount of deductions . story_separator_special_tag as commercial vehicles and certain commercial vehicle components have become increasingly complex , the ability to provide service for commercial vehicles has become an increasingly competitive factor in the industry . the ability to provide such service requires a significant capital investment in diagnostic and other equipment , parts inventory and highly trained service personnel . epa and department of transportation regulatory guidelines for service processes , including collision center , paint work and waste disposal , require sophisticated equipment to ensure compliance with environmental and safety standards . differentiation between commercial vehicle dealers has become less dependent on price competition and is increasingly based on a dealer 's ability to offer a wide variety of services to their clients in a timely manner to minimize vehicle downtime . such services include the following : efficient , conveniently located and easily accessible commercial vehicle service centers with an adequate supply of replacement parts ; financing for commercial vehicle purchases ; leasing and rental programs ; and the ability to accept multiple unit trade-ins related to large fleet purchases . we believe our one-stop center concept and the size and geographic diversity of our dealership network gives us a competitive advantage in providing these services . a.c.t . research currently estimates approximately 190,000 new class 8 trucks will be sold in the united states in 2020 , compared to approximately 281,440 new class 8 trucks sold in 2019. a.c.t . research currently forecasts sales of new class 8 trucks in the u.s. to be approximately 193,000 in 2021. medium-duty truck market many of our rush truck centers sell medium-duty commercial vehicles manufactured by peterbilt , international , hino , ford , fuso or isuzu , and provide parts and service for medium-duty commercial vehicles . medium-duty commercial vehicles are principally used in short-haul , local markets as delivery vehicles ; they typically operate locally and generally do not leave their service areas overnight . we also sell light-duty vehicles ( class 3 and under ) at several of our ford dealerships . a.c.t . research currently forecasts sales of new class 4 through 7 commercial vehicles in the u.s. to be approximately 253,400 units in 2020 , compared to 266,977 units in 2019. a.c.t . research currently forecasts sales of new class 4 through 7 commercial vehicles in the u.s. to be approximately 252,800 in 2021 . 33 year ended december 31 , 20 1 9 compared to year ended december 31 , 20 1 8 revenues total revenues increased $ 303.7 million , or 5.5 % , in 2019 , compared to 2018. our aftermarket products and services revenues increased $ 92.5 million , or 5.5 % , in 2019 , compared to 2018. this increase was primarily due to continued growth of our all-makes parts product offerings , investment in internal and customer-facing technologies and increases to our aftermarket sales force . our revenues from sales of new and used commercial vehicles increased $ 198.9 million , or 5.6 % , in 2019 , compared to 2018. our commercial vehicle sales increased steadily in the first three quarters of 2019 primarily due to a healthy economy and strong activity across the market segments that we support , and in particular , our vocational customers . we sold 14,986 new heavy-duty trucks in 2019 , a 2.2 % increase compared to 14,666 new heavy-duty trucks in 2018. our new heavy-duty truck sales in 2019 increased due to strong activity across the industries that we support . our share of the new u.s. class 8 commercial vehicle sales market decreased to approximately 5.3 % in 2019 , from 5.7 % in 2018. in a robust class 8 truck market , our market share historically declines . we sold 14,470 new medium-duty commercial vehicles , including 1,272 buses , in 2019 , an 11.7 % increase compared to 12,949 new medium-duty commercial vehicles , including 1,453 buses , in 2018. this increase was primarily the result of the wide range of medium-duty commercial vehicles we offer , as well as strong growth in the market segments on which we focus , and in particular , construction . in 2019 , we achieved a 5.4 % share of the class 4 through 7 commercial vehicle market in the u.s. we sold 2,219 new light-duty vehicles in 2019 , a 2.7 % increase compared to 2,161 new light-duty vehicles in 2018. we sold 7,741 used commercial vehicles in 2019 , a 3.5 % decrease compared to 8,021 used commercial vehicles in 2018. commercial vehicle lease and rental revenues increased $ 9.3 million , or 3.9 % , in 2019 , compared to 2018. this increase was primarily related to increased utilization of the rental fleet and the increase in the number of units in the lease in rental fleet compared to 2018. finance and insurance revenues increased $ 3.9 million , or 19.0 % , in 2019 , compared to 2018. we expect finance and insurance revenue to fluctuate proportionately with our new and used commercial vehicle sales in 2020. finance and insurance revenues have limited direct costs and , therefore , contribute a disproportionate share of our operating profits . other revenues decreased $ 1.0 million , or 5.2 % in 2019 , compared to 2018. other revenues consist primarily of document fees related to commercial vehicle sales . gross profit gross profit increased $ 47.4 million , or 4.8 % , in 2019 , compared to 2018. gross profit as a percentage of sales decreased to 17.7 % in 2019 , from 17.8 % in 2018. gross margins from our aftermarket products and services operations increased to 37.7 % in 2019 , from 37.1 % in 2018. gross profit for aftermarket products and services increased to $ 665.2 million in 2019 , from $ 620.4 million in 2018. historically , parts operations ' gross margins range from 27 % to 29 % and service and collision center operations range from 66 % to 68 % .
| summary of 201 9 our results of operations for the year ended december 31 , 2019 are summarized below as follows : ● our gross revenues totaled $ 5,809.8 million in 2019 , a 5.5 % increase from gross revenues of $ 5,506.2 million in 2018 . ● gross profit increased $ 47.4 million , or 4.8 % , in 2019 , compared to 2018. gross profit as a percentage of sales decreased to 17.7 % in 2019 , from 17.8 % in 2018 . 28 ● our 2019 new class 8 heavy-duty unit sales , which accounted for 5.3 % of the total u.s. market , increased 2.2 % in 2019 , compared to 2018 . ● our 2019 new class 4-7 medium-duty unit sales , including buses , which accounted for 5.4 % of the total u.s. market , increased 11.7 % in 2019 , compared to 2018. new light-duty truck unit sales increased 2.7 % in 2019 , compared to 2018 . ● aftermarket products and services revenues increased $ 92.5 million , or 5.5 % , to $ 1,762.5 million in 2019 , compared to $ 1,670.1 million in 2018 . ● selling , general and administrative expenses increased $ 48.5 million , or 6.9 % , to $ 753.7 million in 2019 , compared to $ 705.2 million in 2018 . ● on february 25 , 2019 , we acquired 50 % of the equity interest in rtc canada , which acquired the operating assets of tallman group , the largest international truck dealer in canada . rtc canada currently operates a network of 14 international truck full-service dealerships throughout the province of ontario . we have a call option to purchase the remaining 50 % equity interest that expires on february 25 , 2024 . 20 20 outlook according to a.c.t . research co. , llc ( “ a.c.t .
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reportable operating segments the company has three reportable operating segments . the company 's operating segments are determined on the basis of how the company internally reports and evaluates financial information used to make operating decisions . the company 's reportable operating segments are : lifestyle group , consisting of sperry top-sider ® footwear and apparel , stride rite ® footwear and apparel , hush puppies ® footwear and apparel , keds ® footwear and apparel , and soft style ® footwear ; performance group , consisting of merrell ® footwear and apparel , saucony ® footwear and apparel , chaco ® footwear , patagonia ® footwear , and cushe ® footwear ; and heritage group , consisting of wolverine ® footwear and apparel , cat ® footwear , bates ® uniform footwear , sebago ® footwear and apparel , harley-davidson ® footwear , and hytest ® safety footwear . the company also reports an other and corporate category . the other category consists of the company 's multi-brand consumer direct business , leather marketing operations and sourcing operations that include third-party commission revenues . the corporate category consists of unallocated corporate expenses , including acquisition-related transaction and integration costs and restructuring costs . the reportable operating segment results for fiscal years 2013 , 2012 and 2011 are as follows : replace_table_token_5_th replace_table_token_6_th further information regarding the reportable operating segments can be found in note 10 to the consolidated financial statements . lifestyle group the lifestyle group 's revenue increased $ 777.0 million , or 251.0 % , in fiscal 2013 compared to fiscal 2012. the revenue increase in fiscal 2013 was due to the full year inclusion of the sperry top-sider ® , stride rite ® and keds ® brands . the lifestyle group 's operating profit increased $ 123.6 million , or 277.1 % , in fiscal 2013 compared to fiscal 2012. hush puppies ® operating profit increased at a growth rate in the mid teens due primarily to a mid single digit reduction in selling , general and administrative costs . the remainder of the operating profit increase in fiscal 2013 was due to the full year inclusion of the sperry top-sider ® , stride rite ® and keds ® brands . 25 the lifestyle group 's revenue increased $ 162.2 million , or 110.0 % , in fiscal 2012 compared to fiscal 2011. the revenue increase in fiscal 2012 was due to the inclusion of the sperry top-sider ® , stride rite ® and keds ® brands from the date of acquisition . the lifestyle group 's operating profit increased $ 12.4 million in fiscal 2012 compared to fiscal 2011 , due to inclusion of the sperry top-sider ® , stride rite ® and keds ® brands from the date of acquisition . performance group the performance group 's revenue increased $ 271.2 million , or 40.2 % , in fiscal 2013 compared to fiscal 2012. the increase was due partially to the merrell ® brand 's mid single digit revenue increase due to higher volumes . the remainder of the increase was due to the full year inclusion of the saucony ® brand . the performance group 's operating profit increased $ 51.4 million , or 40.0 % , in fiscal 2013 compared to fiscal 2012. the merrell ® brand experienced operating income growth in the low single digits . the remainder of the increase was due to the full year inclusion of the saucony ® brand . the performance group 's revenue increased $ 55.2 million , or 8.9 % , in fiscal 2012 compared to fiscal 2011. the increase was due to the inclusion of the saucony ® brand from the date of acquisition . the performance group 's operating profit decreased $ 7.1 million , or 5.2 % , in fiscal 2012 compared to fiscal 2011 due to increased product costs . heritage group the heritage group 's revenue increased $ 3.5 million , or 0.6 % , in fiscal 2013 compared to fiscal 2012. the heritage group 's operating profit increased $ 2.2 million , or 2.6 % , in fiscal 2013 compared to fiscal 2012. the heritage group 's revenue increased $ 10.1 million , or 1.8 % , in fiscal 2012 compared to fiscal 2011. the increase was due to increased volumes . the heritage group 's operating profit decreased $ 8.1 million , or 8.8 % , in fiscal 2012 compared to fiscal 2011 due to increased product costs . corporate corporate expenses increased $ 99.9 million compared to fiscal 2012. the drivers of the increase include $ 48.1 million of corporate expenses for the acquired plg business , now included for a full year . the company also incurred an incremental $ 4.5 million of acquisition-related transaction and integration costs , $ 7.6 million of restructuring costs related to its manufacturing operations in the dominican republic , incremental incentive compensation costs of $ 13.1 million and incremental pension costs of $ 9.4 million . the remainder of the increase was due to various incremental corporate expenses due to the larger size and complexity of the company . corporate expenses were $ 141.7 million in fiscal 2012 compared to $ 89.1 million in fiscal 2011. the $ 52.6 million increase includes $ 9.7 million of corporate costs for the acquired plg business and $ 37.0 million for acquisition-related transaction and integration costs . liquidity and capital resources replace_table_token_7_th ( 1 ) for fiscal 2013 and 2012 , amounts shown are net of both borrowings and outstanding standby letters of credit in accordance with the terms of the current revolving credit facility . story_separator_special_tag the company intends to permanently reinvest cash in foreign locations . 27 cash flow from operating activities , along with borrowings on the revolving credit facility , if any , are expected to be sufficient to meet the company 's working capital needs for the foreseeable future . any excess cash flows from operating activities are expected to be used to reduce debt , fund internal and external growth initiatives , purchase property , plant and equipment , pay dividends or repurchase the company 's common stock . the company did not repurchase any shares of company common stock in fiscal 2013 under a stock repurchase program and repurchased $ 2.4 million of company stock during fiscal 2012. on february 12 , 2014 , the company 's board of directors approved a common stock repurchase program that authorizes the repurchase of up to $ 200.0 million in common stock over a four-year period . in addition to the share repurchase program activity , the company acquired $ 0.8 million and $ 11.7 million of shares in fiscal years 2013 and 2012 , respectively , in connection with employee transactions related to stock incentive plans . on july 11 , 2013 , the company 's board of directors approved a two-for-one stock split in the form of a stock dividend which was paid on november 1 , 2013 to stockholders of record on october 1 , 2013. the company declared cash dividends of $ 0.24 per share in fiscal 2013 , 2012 and 2011. dividends paid totaled $ 23.7 million , $ 23.6 million and $ 22.7 million , for fiscal 2013 , 2012 and 2011 , respectively . new accounting standards in february 2013 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) 2013-02 , comprehensive income ( topic 220 ) reporting of amounts reclassified out of accumulated other comprehensive income ( “ asu 2013-02 ” ) . asu 2013-02 requires preparers to report , in one place , information about reclassifications out of accumulated other comprehensive income ( aoci ) . for significant items reclassified out of aoci to net income in their entirety in the same reporting period , reporting ( either on the face of the statement where net income is presented or in the notes ) is required about the effect of the reclassifications on the respective line items in the statement where net income is presented . for items that are not reclassified to net income in their entirety in the same reporting period , a cross reference to other disclosures currently required under u.s. generally accepted accounting principles ( `` gaap '' ) is required in the notes . the above information must be presented in one place ( parenthetically on the face of the financial statements by income statement line item or in a note ) . asu 2013-02 is effective prospectively for reporting periods beginning after december 15 , 2012. the company adopted the provisions of this asu in the first quarter of fiscal 2013. the adoption of asu 2013-02 did not have a material impact on the company 's consolidated financial position , results of operations or cash flows . critical accounting policies the preparation of the company 's consolidated financial statements , which have been prepared in accordance with gaap , requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . on an ongoing basis , management evaluates these estimates . estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . historically , actual results have not been materially different from the company 's estimates . however , actual results may differ materially from these estimates under different assumptions or conditions . the company has identified the following critical accounting policies used in determining estimates and assumptions in the amounts reported . management believes that an understanding of these policies is important to an overall understanding of the company 's consolidated financial statements . revenue recognition revenue is recognized on the sale of products manufactured or sourced by the company when the related goods have been shipped , legal title has passed to the customer and collectability is reasonably assured . revenue generated through licensees and distributors involving products bearing the company 's trademarks is recognized as earned according to stated contractual terms upon either the purchase or shipment of branded products by licensees and distributors . retail store revenue is recognized at time of sale . the company records provisions for estimated sales returns and allowances at the time of sale based on historical rates of returns and allowances and specific identification of outstanding returns not yet received from customers . however , estimates of actual returns and allowances in any future period are inherently uncertain and actual returns and allowances for the relevant periods may differ from these estimates . if actual or expected future returns and allowances were significantly greater or lower than established reserves , an adjustment to net revenues would be recorded in the period the determination was made . 28 accounts receivable the company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers ' failure to make required payments . company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience . historically , losses have been within the company 's expectations . adjustments to these estimates may be required if the financial condition of the company 's customers were to change . if the company were to determine adjustments to the allowance for uncollectible accounts were appropriate , the company would record either an increase or decrease to general and administrative expenses in
| results of operations the following is a discussion of the company 's results of operations and liquidity and capital resources . this section should be read in conjunction with the company 's consolidated financial statements and related notes included elsewhere in this annual report . replace_table_token_4_th revenue revenue was $ 2,691.1 million for fiscal 2013 , compared to $ 1,640.8 million for fiscal 2012. the full year inclusion of the plg business , acquired in the fourth quarter of fiscal 2012 , drove the majority of the increase . changes in foreign exchange rates decreased reported revenue by $ 1.7 million in fiscal 2013. international revenue represented 26.2 % , 34.2 % and 40.2 % of total reported revenues in fiscal 2013 , fiscal 2012 and fiscal 2011 , respectively . the decrease in international revenue in fiscal 2013 as a percent of total revenue was driven by the inclusion of the plg business , which is primarily within the u.s. 23 revenue for fiscal 2012 increased $ 231.7 million from fiscal 2011 , to $ 1,640.8 million . the plg business contributed $ 219.4 million during the fourth quarter of fiscal 2012. changes in foreign exchange rates decreased reported revenue by $ 10.9 million . the remainder of the increase in revenues was due to increased volumes . gross margin for fiscal 2013 , the company 's gross margin was 39.6 % compared to 38.3 % in fiscal 2012. the increase was driven by favorable channel mix ( 150 basis points ) , higher selling prices ( 80 basis points ) and lower lifo expense ( 20 basis points ) , which were partially offset by higher product costs ( 70 basis points ) , restructuring costs ( 40 basis points ) and unfavorable variances on forward currency contracts due to changes in foreign exchange rates ( 20 basis points ) .
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specific forward-looking statements in this report include , but are not limited to : ( i ) statements about our focus in the fiscal year beginning july 1 , 2016 and ending june 30 , 2017 ( fiscal 2017 ) on growth in earnings and cash flows ; ( ii ) creating value through investments in broader enterprise information management ( eim ) capabilities ; ( iii ) our future business plans and business planning process ; ( iv ) statements relating to business trends ; ( v ) statements relating to distribution ; ( vi ) the company 's presence in the cloud and in growth markets ; ( vii ) product and solution developments , enhancements and releases and the timing thereof ; ( viii ) the company 's financial conditions , results of operations and earnings ; ( ix ) the basis for any future growth and for our financial performance ; ( x ) declaration of quarterly dividends ; ( xi ) future tax rates ; ( xii ) the changing regulatory environment and its impact on our business ; ( xiii ) recurring revenues ; ( xiv ) research and development and related expenditures ; ( xv ) our building , development and consolidation of our network infrastructure ; ( xvi ) competition and changes in the competitive landscape ; ( xvii ) our management and protection of intellectual property and other proprietary rights ; ( xviii ) foreign sales and exchange rate fluctuations ; ( xix ) cyclical or seasonal aspects of our business ; ( xx ) capital expenditures ; ( xxi ) potential legal and or regulatory proceedings ; ( xxii ) statements about the impact of `` open text release 16 '' and ( xxiii ) other matters . in addition , any statements or information that refer to expectations , beliefs , plans , projections , objectives , performance or other characterizations of future events or circumstances , including any underlying assumptions , are forward-looking , and based on our current expectations , forecasts and projections about the operating environment , economies and markets in which we operate . forward-looking statements reflect our current estimates , beliefs and assumptions , which are based on management 's perception of historic trends , current conditions and expected future developments , as well as other factors it believes are 32 appropriate in the circumstances . the forward-looking statements contained in this report are based on certain assumptions including the following : ( i ) countries continuing to implement and enforce existing and additional customs and security regulations relating to the provision of electronic information for imports and exports ; ( ii ) our continued operation of a secure and reliable business network ; ( iii ) the stability of general economic and market conditions , currency exchange rates , and interest rates ; ( iv ) equity and debt markets continuing to provide us with access to capital ; ( v ) our continued ability to identify and source attractive and executable business combination opportunities ; and ( vi ) our continued compliance with third party intellectual property rights . management 's estimates , beliefs and assumptions are inherently subject to significant business , economic , competitive and other uncertainties and contingencies regarding future events and , as such , are subject to change . we can give no assurance that such estimates , beliefs and assumptions will prove to be correct . forward-looking statements involve known and unknown risks , uncertainties and other factors that may cause our actual results , performance or achievements to differ materially from the anticipated results , performance or achievements expressed or implied by such forward-looking statements . the risks and uncertainties that may affect forward-looking statements include , but are not limited to : ( i ) integration of acquisitions and related restructuring efforts , including the quantum of restructuring charges and the timing thereof ; ( ii ) the potential for the incurrence of or assumption of debt in connection with acquisitions and the impact on the ratings or outlooks of rating agencies on our outstanding debt securities ; ( iii ) the possibility that the company may be unable to meet its future reporting requirements under the exchange act , and the rules promulgated thereunder ; ( iv ) the risks associated with bringing new products and services to market ; ( v ) fluctuations in currency exchange rates ( including as a result of the impact of brexit ) ; ( vi ) delays in the purchasing decisions of the company 's customers ; ( vii ) the competition the company faces in its industry and or marketplace ; ( viii ) the final determination of litigation , tax audits ( including tax examinations in the united states or elsewhere ) and other legal proceedings ; ( ix ) potential exposure to greater than anticipated tax liabilities or expenses , including with respect to changes in canadian , u.s. or international tax regimes ; ( x ) the possibility of technical , logistical or planning issues in connection with the deployment of the company 's products or services ; ( xi ) the continuous commitment of the company 's customers ; ( xii ) demand for the company 's products and services ; ( xiii ) increase in exposure to international business risks ( including as a result of the impact of brexit ) as we continue to increase our international operations ; ( xiv ) inability to raise capital at all or on not unfavorable terms in the future ; and ( xv ) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities ( including in connection with future acquisitions ) ; and ( xvi ) potential changes in ratings or outlooks of rating agencies on our outstanding debt securities . story_separator_special_tag million of foreign exchange rate changes . gaap-based eps , diluted , was $ 2.33 compared to $ 1.91 in the prior fiscal year . non-gaap-based eps , diluted , was $ 3.54 compared to $ 3.46 in the prior fiscal year . gaap-based gross margin was 68.5 % compared to 67.7 % in the prior fiscal year . gaap-based operating margin was 20.2 % compared to 18.8 % in the prior fiscal year . non-gaap-based operating margin was 33.8 % compared to 30.9 % in the prior fiscal year . operating cash flow was $ 525.7 million , up 1 % from the prior fiscal year . cash and cash equivalents was $ 1,283.8 million as of june 30 , 2016 , compared to $ 700.0 million as of june 30 , 2015 . the company raised $ 600 million in debt in fiscal 2016. for more details , refer to the `` liquidity and capital resources '' section below . see `` use of non-gaap financial measures '' below for a reconciliation of gaap-based measures to non-gaap-based measures . see `` acquisitions '' below for the impact of acquisitions on the period-to-period comparability of results . acquisitions our competitive position in the marketplace requires us to maintain a complex and evolving array of technologies , products , services and capabilities . in light of the continually evolving marketplace in which we operate , on an ongoing basis we regularly evaluate acquisition opportunities within the eim market and at any time may be in various stages of discussions with respect to such opportunities . acquisition of anxe business corporation o n may 1 , 2016 , we acquired anxe business corporation ( anx ) , a leading provider of cloud-based information exchange services to the automotive and healthcare industries , for approximately $ 104.6 million . we believe this acquisition will strengthen our industry presence and reach in the automotive and healthcare industries through strong customer 34 relationships and targeted business partner collaboration solutions . the results of operations of anx have been consolidated with those of opentext beginning may 1 , 2016. acquisition of certain customer experience software assets from hp inc. on april 30 , 2016 , we acquired certain customer experience software and services assets and liabilities from hp inc. ( cem business ) for approximately $ 160.0 million , of which $ 7.3 million is currently held back and unpaid in accordance with the terms of the purchase agreement . we believe that the acquisition will complement our current software portfolio , particularly our customer experience management and cloud offerings . the results of operations have been consolidated with those of opentext beginning april 30 , 2016. acquisition of daegis inc. on november 23 , 2015 , we acquired daegis inc. ( daegis ) , a global information governance , data migration solutions and development company , based in irvine , texas , united states . total consideration for daegis was $ 23.3 million ( $ 22.1 million - net of cash acquired ) . we believe this acquisition enables opentext to strengthen our current information governance capabilities . the results of operations of daegis have been consolidated with those of opentext beginning november 23 , 2015. we believe our acquisitions support our long-term strategic direction , strengthen our competitive position , expand our customer base , provide greater scale to accelerate innovation , grow our earnings and provide superior shareholder value . we expect to continue to strategically acquire companies , products , services and technologies to augment our existing business . our acquisitions , particularly significant ones , can affect the period-to-period comparability of our results . see note 18 `` acquisitions '' to our consolidated financial statements for more details . outlook for fiscal 2017 while we continue to offer on-premises solutions , we realize that the eim market is broad and we are agnostic to whether a customer prefers an on-premises solution , cloud solution , or combination of both ( hybrid ) . we believe giving customer choice and flexibility will help us to strive to obtain long-term customer value . we measure long-term value by looking at our recurring revenue , earnings and operating cash flow . we define recurring revenue as the sum of our “ cloud services and subscriptions revenue ” , “ customer support revenue ” and “ professional services revenue ” . in fiscal 2016 recurring revenue was $ 1,541 million , which represented 84 % of our total revenues and was relatively stable ( down 1.1 % ) compared to fiscal 2015. our cloud services and subscriptions revenues was also relatively stable ( down 0.7 % ) in fiscal 2016 compared to fiscal 2015. our net income for fiscal 2016 was up 21 % compared to fiscal 2015 and our operating cash flow was relatively flat , growing 1 % over the same period . we believe customers are looking for choice and flexibility in how they consume technology and we look to continue to provide long term value to our customers . additionally , customer support revenues , which are a recurring source of income for us , make up a significant portion of our revenue mix . our management reviews our customer support renewal rates on a quarterly basis and we use these rates as a method of monitoring our customer service performance . for the three months ended june 30 , 2016 , our customer support renewal rate was approximately 90 % , consistent with the customer support renewal rate during the three months ended june 30 , 2015 . we expect to continue to pursue strategic acquisitions in the future to strengthen our service offerings in the eim market . we believe we are a value oriented and disciplined acquirer , having efficiently deployed $ 3.7 billion on acquisitions over the last 10 years . we see our ability to successfully integrate acquired companies and assets into our business as a strength and pursuing strategic acquisitions is an important aspect to our growth strategy .
| summary of results of operations replace_table_token_7_th 41 replace_table_token_8_th ( 1 ) americas consists of countries in north , central and south america . ( 2 ) emea primarily consists of countries in europe , the middle east and africa . ( 3 ) asia pacific primarily consists of the countries japan , australia , china , korea , philippines , singapore and new zealand . ( 4 ) see `` use of non-gaap financial measures '' ( discussed later in the md & a ) for a reconciliation of non-gaap-based measures to gaap-based measures . revenues , cost of revenues and gross margin by product type 1 ) license revenues : license revenues consist of fees earned from the licensing of software products to customers . our license revenues are impacted by the strength of general economic and industry conditions , the competitive strength of our software products , and our acquisitions . cost of license revenues consists primarily of royalties payable to third parties . replace_table_token_9_th fiscal 2016 compared to fiscal 2015 license revenues decreased by $ 10.6 million , inclusive of the negative impact of foreign exchange of approximately $ 15.1 million . geographically , the overall decrease was attributable to a decrease in asia pacific of $ 6.2 million , a decrease in americas of $ 3.6 million , and a decrease in emea of $ 0.7 million . the number of license deals greater than $ 0.5 million that closed during fiscal 2016 was 78 deals , of which 34 deals were greater than $ 1.0 million and is inclusive of a patent infringement settlement , compared to 78 deals in fiscal 2015 , of which 30 deals were greater than $ 1.0 million . license revenue , as a proportion of our total revenues , remained stable at approximately 16 % . cost of license revenues decreased by $ 2.6 million , primarily as a result of lower third party technology costs .
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our unified software platform enables our clients to build , deploy , and change enterprise applications easily and quickly , by directly capturing business objectives , automating programming , and automating work . we also provide consulting services , maintenance , and training related to our software . we focus our sales efforts primarily on target accounts , which are large companies or divisions within companies and typically leaders in their industry . our strategy is to sell a series of licenses that are focused on a specific purpose or area of operations . our license revenue is primarily derived from sales of our prpc software and related business solutions . prpc is a comprehensive platform for building and managing bpm applications that unifies business rules and business processes . our solutions , built on the capabilities of prpc , are purpose or industry-specific collections of best practice functionality , which allow organizations to quickly implement new customer-facing practices and processes , bring new offerings to market , and provide customized or specialized processing . our products are simpler , easier to use and often result in shorter implementation periods than competitive enterprise software products . prpc and related business solutions can be used by a broad range of clients across markets including financial services , insurance , healthcare , communications and media , life sciences , manufacturing and high technology , and government markets . our business solution products include crm software , which enables unified predictive decisioning and analytics and optimizes the overall customer experience . our decision management products and capabilities are designed to manage processes so that actions optimize the process outcomes based on business objectives . we continue to invest in the development of new products and intend to remain a leader in bpm , crm , and decision management . we also offer pega cloud ® , a service offering that allows our clients to immediately build , test , and deploy their applications in a secure cloud environment , while minimizing their infrastructure and hardware costs . revenue from our pega cloud ® offering is included in consulting services revenue . our acquisition of antenna expands pega 's application mobility platform , which provides clients with a mobile application development platform to build , manage , and deploy mobile applications as part of a seamless omnichannel experience . enterprises can manage the complex elements of the mobile application lifecycle including security , integration , testing , and management of mobile applications and devices . pega 's mobile application development solutions help businesses to significantly reduce their development time , deployment costs , and the complexity associated with run-the-business mobile applications . the operations of antenna are included in our operating results from the date of acquisition . total revenue attributable to antenna included in our consolidated statements of operations in 2013 was $ 3.9 million . due to the rapid integration of the products , sales force , and operations of antenna , other than the maintenance and hosting revenue attributable to the recognition of the fair value of acquired deferred maintenance and hosting revenue , it may not be feasible for us to identify revenue from new arrangements attributable to antenna . we offer training for our staff , clients , and partners at our regional training facilities , at third party facilities , and at client sites . in 2012 , we began offering training online through pegaacademy , which provides an alternative way to learn our software in a virtual environment quickly and easily . we believe that this online training will continue to expand the number of trained experts at a faster pace . 19 story_separator_special_tag foreign currency transaction loss . we have been primarily exposed to the fluctuation in the british pound and euro relative to the u.s. dollar . more recently , we have experienced increased levels of exposure to the australian dollar and indian rupee . see note 4 derivative instruments in the notes to the accompanying consolidated financial statements for discussion on our use of forward contracts . the total change in the fair value of our foreign currency forward contracts recorded in other ( expense ) income , net , during 2013 and 2012 was a loss of $ 0.7 million and $ 1.7 million , respectively . provision for income taxes the provision for income taxes represents current and future amounts owed for federal , state , and foreign taxes . during 2013 and 2012 , we recorded an $ 18.4 million provision and a $ 9.1 million provision , respectively , which resulted in an effective tax rate of 32.5 % and 29.3 % , respectively our effective income tax rate for 2013 was below the statutory federal income tax rate due to a $ 2.1 million benefit related to the current period domestic production activities deduction , a $ 1.2 million benefit related to income generated in foreign jurisdictions that is subject to tax at a rate lower than the u.s. statutory tax rate , and a $ 1.6 million benefit related to the 2012 and 2013 federal research and experimentation ( r & e ) credit . these benefits were partially offset by $ 1.4 million of permanent differences related to nondeductible meals and entertainment expenses , foreign stock compensation , and transaction costs . our effective income tax rate for 2012 was below the statutory federal income tax rate due to a $ 1.2 million benefit related to the domestic production activities deduction and a $ 1.2 million benefit related to income generated in foreign jurisdictions that is subject to tax at a rate lower than the u.s. statutory rate . these benefits were partially offset by $ 1 million of permanent differences related to nondeductible meals and entertainment expenses and nondeductible foreign stock compensation . 24 the american taxpayer relief act of 2012 ( the act ) was signed into law by president obama on january 2 , 2013. among other things , the act retroactively extended the r & e credit through the end of 2013. story_separator_special_tag the increase in selling and marketing expenses was primarily due to a $ 19.3 million increase in compensation and benefit expenses associated with higher headcount , partially offset by a $ 1.1 million decrease in commission expense . replace_table_token_21_th the increase in headcount reflects growth in our india research facility as we have been replacing contractors with employees . the increase in offshore headcount lowered our average compensation expense per employee . the increase in research and development expenses was primarily due to a $ 9.9 million increase in compensation and benefit expenses associated with higher headcount and a $ 3.3 million increase in rent and facilities related expenses associated with the build-out of our u.s. and india facilities , partially offset by a $ 2.3 million decrease in engineering contractor expenses . replace_table_token_22_th we completed the move to our new office headquarters in the third quarter of 2012 and ceased use of the former office space in the fourth quarter of 2012 , resulting in approximately $ 0.2 million in lease exit costs . we recorded approximately $ 5.7 million and $ 1.9 million of rent expense under the new lease arrangement during 2012 and 2011 , respectively . stock-based compensation we recognize stock-based compensation expense associated with equity awards in our consolidated statements of operations based on the fair value of these awards at the date of grant . replace_table_token_23_th the increase in stock-based compensation expense was primarily due to the higher value of the annual periodic equity grant , the annual executive grant and new hire grants . see note 15 stock-based compensation in the notes to the accompanying audited consolidated financial statements for further information on our stock-based awards . 28 non-operating income and ( expenses ) , net replace_table_token_24_th n/m not meaningful we hold foreign currency denominated accounts receivable , intercompany payables , and cash in our u.s. operating company where the functional currency is the u.s. dollar . as a result , these receivables , intercompany payables , and cash are subject to foreign currency transaction gains and losses when there are changes in exchange rates between the u.s. dollar and the foreign currencies . the fluctuations in foreign currency transaction gains and losses were primarily due to the changes in the value of the british pound and euro relative to the u.s. dollar during 2012 and 2011. beginning in the second quarter of 2011 , we entered into foreign currency forward contracts to manage our exposure to changes in foreign currency exchange rates affecting the foreign currency denominated accounts receivable , intercompany payables , and cash held by our u.s. operating company . we have not designated these foreign currency forward contracts as hedging instruments and as a result , we record the fair value of the outstanding contracts at the end of the reporting period in our consolidated balance sheet , with any fluctuations in the value of these contracts recognized in other ( expense ) income , net . the fluctuations in the value of these foreign currency forward contracts recorded in other ( expense ) income , net , partially offset in net income the gains and losses from the remeasurement or settlement of the foreign currency denominated accounts receivable , intercompany payables , and cash held by the u.s. operating company recorded in foreign currency transaction gain ( loss ) . the total change in the fair value of our foreign currency forward contracts recorded in other ( expense ) income , net , during 2012 and 2011 was a loss of $ 1.7 million and a gain of $ 0.8 million , respectively . provision ( benefit ) for income taxes the provision for income taxes represents current and future amounts owed for federal , state , and foreign taxes . during 2012 and 2011 , we recorded a $ 9.1 million provision and a $ 0.7 million provision , respectively , which resulted in an effective tax rate of 29.3 % and 6.5 % , respectively our effective income tax rate for 2012 was below the statutory federal income tax rate due to a $ 1.2 million benefit related to the current period domestic production activities and a $ 1.2 million benefit related to lower foreign income tax rates . these benefits were partially offset by $ 1 million of permanent differences related to nondeductible meals and foreign stock compensation . our effective income tax rate for 2011 was below the statutory federal income tax rate due to a $ 2.5 million reduction in liabilities established for unrecognized tax benefits and a corresponding reduction in income tax expense related to uncertain tax positions of prior years for which the statute of limitations expired , a $ 1.5 million benefit related to the current period domestic production activities and a $ 0.6 million benefit related to tax credits from our continued investment in research and development activities . these benefits were partially offset by a $ 0.3 million increase in our valuation allowances and $ 0.6 million of permanent differences related to nondeductible meals . as of december 31 , 2012 , the company had approximately $ 26.3 million of total unrecognized tax benefits , of which $ 16 million would decrease the company 's effective tax rate if recognized . however , approximately $ 9.2 million of these unrecognized tax benefits relate to acquired nols and research tax credits , which are subject to limitations on use . 29 liquidity and capital resources replace_table_token_25_th we believe that our current cash , cash equivalents , and cash flow from operations will be sufficient to fund our operations and our share repurchase program for at least the next 12 months . there can be no assurance that changes in our plans or other events affecting our operations will not result in materially accelerated or unexpected cash requirements . we evaluate acquisition opportunities from time to time , which if pursued , could require use of our funds .
| results of operations 2013 compared to 2012 replace_table_token_5_th n/m not meaningful revenue replace_table_token_6_th the aggregate value of new license arrangements executed in 2013 was higher than in 2012. the aggregate value of new license arrangements executed in the fourth quarter of 2013 was down slightly as compared to the fourth quarter of 2012.the aggregate value of new license arrangements executed fluctuates quarter to quarter . during 2013 and 2012 , approximately 80 % and 74 % , respectively , of the value of new license arrangements were executed with existing clients . the mix between perpetual and term license arrangements executed in a particular period varies based on client needs . a change in the mix between perpetual and term license arrangements executed may cause our revenues to vary materially from period to period . a higher proportion of term license arrangements executed would result in more license revenue being recognized over longer periods as payments become due or earlier if prepaid . however , some of our perpetual license arrangements include extended payment terms or additional rights of use , which also result in the recognition of revenue over longer periods . the increase in perpetual license revenue was primarily due to higher value perpetual arrangements executed during 2013 and the fourth quarter of 2012 than during 2012 and the fourth quarter of 2011. the increase in term license revenue was primarily due to revenue recognized on term license arrangements executed in 2012 and 2011. the aggregate value of payments due under noncancellable term licenses increased to $ 233.6 million as of december 31 , 2013 compared to $ 211.5 million as of december 31 , 2012. see the table of future cash receipts from these term licenses on page 31 .
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at december 31 , 2012 , the bank operated and served its customers through nineteen banking offices located in brent , bucksville , butler , calera , centreville , coffeeville , columbiana , fulton , gilbertown , grove hill , harpersville , jackson , thomasville , tuscaloosa and woodstock , alabama . the bank owns all of the stock of acceptance loan company , inc. ( alc ) , an alabama corporation . alc is a finance company organized for the purpose of making and purchasing consumer loans . alc operates twenty-four finance company offices located in alabama and southeast mississippi . the headquarters of alc is located in jackson , alabama . the bank is the funding source for alc . the bank provides a wide range of commercial banking services to small and medium-sized businesses , property managers , business executives , professionals and other individuals , while alc 's business is consumer oriented . fusb reinsurance , inc. ( fusb reinsurance ) , an arizona corporation and a wholly-owned subsidiary of the bank , reinsures or underwrites credit life and credit accident and health insurance policies sold to the bank 's and alc 's consumer loan customers . fusb reinsurance is responsible for the first level of risk on these policies up to a specified maximum amount , and a primary third-party insurer retains the remaining risk . the third-party insurer is also responsible for performing most of the administrative functions of fusb reinsurance on a contract basis . at december 31 , 2012 , bancshares had consolidated assets of $ 567.1 million , deposits of $ 489.0 million and shareholders ' equity of $ 68.6 million . total assets decreased by $ 54.7 million , or 8.8 % , in 2012. net income attributable to usbi increased from a loss of $ ( 9.1 ) million in 2011 to income of $ 2.2 million in 2012. net income attributable to usbi per share increased from a loss of $ ( 1.51 ) in 2011 to income of $ 0.36 in 2012. these results are explained in more detail throughout this section . delivery of the best possible banking services to customers remains an overall operational focus of the company . we recognize that attention to details and responsiveness to customers ' desires are critical to customer satisfaction . the company continues to employ current technology , both in its financial services and in the training of its 290.67 full-time equivalent employees , to ensure customer satisfaction and convenience . the following discussion and financial information are presented to aid in an understanding of the current consolidated financial position , changes in financial position and results of operations of bancshares and should be read in conjunction with the audited consolidated financial statements and notes thereto included herein . the emphasis of this discussion is on the years 2012 and 2011. all yields presented and discussed herein are based on the accrual basis and not on the tax-equivalent basis , unless otherwise indicated . forward-looking statements this annual report on form 10-k for the year ended december 31 , 2012 ( this annual report ) , other annual and periodic reports filed by bancshares and its subsidiaries under the securities exchange act of 1934 , as amended , and any other written or oral statements made by or on behalf of bancshares may include forward-looking statements , within the meaning of the private securities litigation reform act of 1995 , that reflect bancshares ' current views with respect to future events and financial performance . such forward-looking statements are based on general assumptions and are subject to various risks , uncertainties and other factors that may cause actual results to differ materially from the views , beliefs and projections expressed in such statements . these risks , uncertainties and other factors include , but are not limited to : 19 1. possible changes in economic and business conditions that may affect the prevailing interest rates , the prevailing rates of inflation , the amount of growth , stagnation or recession in the global , u.s. , alabama and mississippi economies , the value of investments , the collectibility of loans and the ability to retain and grow deposits ; 2. possible changes in monetary and fiscal policies , laws and regulations and other activities of governments , agencies and similar organizations ; 3. possible changes in regulation and laws affecting the financial services industry , such as banks , securities brokers and dealers , investment companies and finance companies , and attendant changes in patterns and effects of competition in the financial services industry ; 4. the ability of bancshares to achieve its expected operating results in the markets in which bancshares operates and bancshares ' ability to expand into new markets and to maintain profit margins ; and 5. since 2008 , the residential and commercial mortgage market in the united states has experienced a variety of difficult economic conditions that have adversely affected and may continue to adversely affect the performance and market value of our residential and commercial mortgage loans . across the united states , delinquencies , foreclosures and losses with respect to residential and commercial mortgage loans generally increased from 2008 through 2012. in addition , from 2008 through 2012 , prices and appraisal values declined . it is possible that values may remain stagnant or decline in the near term . an extended period of flat or declining values may result in increased delinquencies , losses on residential and commercial mortgage loans and reduced value of collateral that secure real estate loans . bad economic conditions have also impacted consumer loan customers . high unemployment and a stagnant economy may continue to adversely effect the performance of our consumer loans . in addition , bancshares ' business is subject to a number of general and market risks that would affect any forward-looking statements , including the risks discussed in part i , item 1a of this annual report . story_separator_special_tag these decreases were somewhat offset by a decline in the cost of interest-bearing liabilities . provision for loan losses decreased to $ 4.3 million for the year ended december 31 , 2012 , or 1.2 % annualized of average loans , compared with $ 18.8 million , or 4.6 % annualized of average loans , for the year ended december 31 , 2011. non-interest income decreased 36.2 % to $ 5.6 million in 2012 , compared with $ 8.7 million in 2011. non-interest income in 2011 benefited from net gains on investment securities of $ 2.6 million , which declined to $ 1,000 in 2012. non-interest expense decreased 19.4 % to $ 32.5 million in 2012 , compared with $ 40.3 million in 2011. impairment of goodwill was $ 4.1 million in 2011 , with no impairment charged in 2012. impairment of oreo decreased $ 2.8 million in 2012 compared to 2011. shareholders ' equity totaled $ 68.6 million , with a corresponding book value of $ 11.40 per share , at december 31 , 2012. return on average assets in 2012 was 0.37 % , and return on average shareholders ' equity was 3.27 % . these items are discussed in further detail throughout this management 's discussion and analysis of financial condition and results of operations section . story_separator_special_tag changes in volume and changes in rates the following table sets forth the effect that varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates had on changes in net interest income for 2012 versus 2011 and 2011 versus 2010. replace_table_token_5_th provision for loan losses the provision for loan losses is an expense used to establish the allowance for loan losses . actual loan losses , net of recoveries , are charged directly to the allowance . the expense recorded each year is a reflection of actual net losses experienced during the year and management 's judgment as to the adequacy of the allowance to absorb losses inherent to the portfolio . charge-offs exceeded recoveries by $ 7.3 million in 2012 , and a provision of $ 4.3 million was expensed for loan losses in 2012 , compared to $ 18.8 million in 2011. the provision for 2012 and 2011 was 1.2 % and 4.6 % of average loans , respectively . the provisions in 2011 and 2012 were high due to charge-offs and impairments in the real estate development loan portfolio at the bank . net charge-offs at the bank were $ 4.2 million for the year ending december 31 , 2012 , compared to $ 14.2 million for the year ending december 31 , 2011. at the bank , net charge-offs of commercial real estate decreased from $ 12.9 million in 2011 to $ 2.8 million in 2012. the severely depressed real estate market in the bank 's market area continues to adversely impact real estate values and the ability of borrowers to perform , particularly when performance is based on real estate sales . these conditions are the primary cause for the large amount of net charge-offs in 2011 compared to 2012. alc had net charge-offs of $ 3.1 million for the year ending december 31 , 2012 , compared to $ 3.2 million for the year ending december 31 , 2011. for the company , net charge-offs as a percentage of average loans were 2.0 % and 4.3 % for the years ended december 31 , 2012 and 2011 , respectively . we believe that growing the loan portfolio at the bank and alc with quality customers , along with working through and reducing non-performing loans , should result in both lower provisions for loan losses and a reduced allowance for loans losses . the ratio of the allowance to loans , net of unearned income , at december 31 , 2012 and 2011 was 5.40 % and 5.52 % , respectively . for additional information regarding the company 's allowance for loan losses , see loans and allowance for loan losses. 25 non-interest income the following table presents the major components of non-interest income for the years indicated . replace_table_token_6_th total non-interest income decreased by $ 3.2 million , or 36.2 % , in 2012 compared to 2011. service charges and fees on deposit accounts decreased by $ 366,000 , or 12.7 % , in 2012 , compared to 2011. in 2012 , fees generated from customer overdrafts and non-sufficient funds decreased by $ 354,000 , and regular account service charges decreased by $ 12,000. the decrease in overdraft and non-sufficient funds charges can be attributed to a change in the regulations that prohibits the bank from assessing these charges for certain non-recurring electronic transactions . regular account service charges continued to decline as customers switched from accounts with a monthly service charge to a no-service charge account . this no-service charge account , introduced in the fourth quarter of 2007 , has allowed the bank to attract new customers and has otherwise been profitable by requiring electronic statements and encouraging atm and debit card use , which generates additional fees . service charges and other fees on deposit accounts is the largest component of non-interest income . revenues from this source have declined in recent years , which appears to be a trend that will continue . management constantly searches for new sources of fee income from new financial services and products , however , income from these non-interest sources will continue to decline as a percentage of total revenue . net gains on security sales were $ 1,000 and $ 2.6 million in 2012 and 2011 , respectively . income generated in the area of securities gains and losses is dependent on factors that include investment portfolio strategies , interest rate changes and asset liability management strategies . other income includes fee income generated from other banking services , such as letters of credit , atms , debit and credit cards , check cashing and wire transfers .
| summary of consolidated operating results replace_table_token_3_th net interest income net interest income is an effective measurement of how well management has matched interest-earning assets and interest-bearing liabilities and is the company 's principal source of income . fluctuations in interest rates materially affect net interest income . although market rates were stable during 2012 , the yield on earning assets declined by 35 basis points , while the cost of interest-earning liabilities declined by 46 basis points , as longer-term time deposits repriced at lower rates , improving the net interest margin by 4 basis points , from 6.17 % in 2011 to 6.21 % in 2012 . 22 net interest income decreased 3.2 % to $ 34.2 million in 2012 , compared to an increase of 1.6 % in 2011. the decrease in net interest income in 2012 was primarily due to a decline in interest-earning assets along with a decrease in the yield on earning assets . these decreases were somewhat offset by a decline in the cost of interest-bearing liabilities . interest income declined $ 3.6 million in 2012 : $ 2.6 million was the result of decreased interest-earning assets , and $ 1.0 million was due to a 35 basis point decline in the yield on interest-earning assets . interest expense declined $ 2.5 million in 2012 : $ 0.8 million resulted from decreased interest-bearing liabilities , and $ 1.6 million was due to a 46 basis point decline in the cost of interest-bearing liabilities . overall , volume , rate and yield changes in interest-earning assets and interest-bearing liabilities contributed to the decrease in net interest income during 2012. as to volume , the company 's average earning assets decreased $ 22.6 million during 2012 , or 3.9 % , while average interest-bearing liabilities decreased $ 23.9 million , or 4.9 % .
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asu 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software ( and hosting arrangements that include an internal-use software license ) . the guidance provides criteria for determining which implementation costs to capitalize as an asset related to the service contract and which costs to expense . the capitalized implementation costs are required to be expensed over the term of the hosting arrangement . the guidance also clarifies the presentation requirements for reporting such costs in the entity 's financial statements . early adoption story_separator_special_tag f financial condition and results of operations the following information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions , which could cause actual results to differ materially from management 's expectations . please see the “ cautionary statement regarding forward-looking statements ” section immediately preceding part i , item 1 of this form 10-k and the “ risk factors ” section in part i , item 1a of this form 10-k. overview we are a leading provider of advanced laser systems for the dental industry . we develop , manufacture , market , and sell laser systems that provide significant benefits for dental practitioners and their patients . our proprietary systems allow dentists , periodontists , endodontists , oral surgeons , and other dental specialists to perform a broad range of minimally invasive dental procedures , including cosmetic , restorative , and complex surgical applications . our laser systems are designed to provide clinically superior results for many types of dental procedures compared to those achieved with drills , scalpels , and other conventional instruments . potential patient benefits include less pain , fewer shots , faster healing , decreased fear and anxiety , and fewer appointments . potential practitioner benefits include improved patient care and the ability to perform a higher volume and wider variety of procedures and generate more patient referrals . we offer two categories of laser system products : waterlase ( all-tissue ) systems and diode ( soft-tissue ) systems . our flagship brand , the waterlase , uses a patented combination of water and laser energy and is fda cleared for over 80 clinical indications to perform most procedures currently performed using drills , scalpels , and other traditional dental instruments for cutting soft and hard tissue . for example , waterlase safely debrides implants without damaging or significantly affecting surface temperature and is the only effective , safe solution to preserving sick implants . in addition , waterlase disinfects root canals more efficiently than some traditional chemical methods . we also offer our diode laser systems to perform soft tissue , pain therapy , and cosmetic procedures , including teeth whitening . we have approximately 208 issued and 56 pending united states and international patents , the majority of which are related to waterlase technology . from 1998 through december 31 , 2019 , we sold over 41,000 laser systems in over 80 countries around the world . contained in this total are approximately 13,400 waterlase systems , including over 8,900 waterlase md , mdx , express and iplus systems . consistent with our goal to focus our energies on strengthening our leadership , and worldwide competitiveness and increasing the amount of attention we pay to our professional customers and their patients , we have made strategic personnel additions to our senior management team . recent developments impact of coronavirus ( covid-19 ) on our operations in december 2019 , a novel strain of coronavirus was reported to have surfaced in wuhan , china . the novel coronavirus has since spread to over 100 countries , including every state in the united states . on march 11 , 2020 , the world health organization declared covid-19 , the disease caused by the novel coronavirus , a pandemic , and on march 13 , 2020 , the united states declared a national emergency with respect to the coronavirus outbreak . this outbreak has severely impacted global economic activity , and many countries and many states in the united states have reacted to the outbreak by instituting quarantines , mandating business and school closures and restricting travel . these mandated business closures have included dental office closures worldwide for all but emergency procedures , for the most part . the ability of our salespeople to call on dental customers during these closures has been greatly limited . in addition , most dental shows and workshops scheduled in the first and second quarters of 2020 have been canceled . more than half of our sales each quarter typically occur in the last three weeks of the quarter . as a result of reduced sales due to the covid-19 pandemic and actions taken to contain it , cash generated from our operations during the first quarter of 2020 will be less than we anticipated . moreover , there is no assurance that sales will return to normal levels during the second quarter of 2020 or at any time thereafter . as of the date of the filing of this annual report on form 10-k , management is evaluating all options to conserve cash and to obtain additional debt or equity financing and or enter into a collaborative arrangement or sale of assets , to permit the company to continue operations . see item 1a — “ risk factors ” for additional information regarding the potential impact of the covid-19 pandemic on our business , results of operations and financial condition . 45 launch of epic hygiene on december 9 , 2019 , we launched its new epic hygiene laser . story_separator_special_tag in connection with the third amendment , we consolidated the swk warrants and adjusted the price to $ 1.00 per share issued to swk on november 9 , 2018 and may 7 , 2019. as of december 31 , 2019 , we were not in compliance with debt covenants and obtained a waiver as part of a fourth amendment to credit agreement ( “ fourth amendment ” ) in march 2020. we do not anticipate that we will regain compliance by march 31 , 2020 , we reclassified the term loan balance to a current liability in the consolidated balance sheets . additionally , there was uncertainty surrounding the impact of covid-19 on our business . see “ management 's discussion and analysis of financial condition and results of operation – liquidity and capital resources – term loan. ” revolving credit facility on october 28 , 2019 , we entered into a loan and security agreement ( the “ loan agreement ” ) with pacific mercantile bank , as lender ( the “ lender ” ) , which provides for a revolving line of credit ( the “ pmb loan ” ) . borrowings under the pmb loan may be used for working capital . the pmb loan matures on october 28 , 2021 , unless earlier terminated . for more information , see “ management 's discussion and analysis of financial condition and results of operation – liquidity and capital resources – revolving credit facility. ” deficiency letter from nasdaq on december 3 , 2019 , we received a deficiency letter from the listing qualifications department ( the “ staff ” ) of the nasdaq stock market , llc ( “ nasdaq ” ) notifying biolase that it violated the continued listing requirements of nasdaq listing rule 5550 ( a ) ( 2 ) . in accordance with nasdaq rules , biolase has been provided an initial period of 180 calendar days , or until june 1 , 2020 ( the “ compliance date ” ) , to submit a plan to regain compliance . if biolase does not regain compliance by the compliance date and is not eligible for an additional compliance period at that time , the staff will provide written notification to biolase that its common stock may be delisted . biolase intends to monitor the closing bid price of its common stock and may , if appropriate , consider available options to regain compliance . ability to continue as a going concern 2019 was a year of continued transformation for us , positioning ourselves to further execute on our strategic goals of returning biolase to a successful growing company and continuing as the clear worldwide industry leader in the dental laser segment . although we made improvements throughout the year , it will take time for the financial statements to reflect the changes and as such , for the three years ended december 31 , 2019 we have reported recurring losses from operations and have not generated cash from operations . our level of cash used in operations , the potential need for additional capital , and the uncertainties surrounding our ability to raise additional capital or to service our existing debt , raise substantial doubt about our ability to continue as a going concern . as a result , the opinion we have received from our independent registered public accounting firm , on our consolidated financial statements , contains an explanatory paragraph stating that there is a substantial doubt regarding our ability to continue as a going concern . the accompanying consolidated financial statements have been prepared on a going concern basis , which assumes that we will continue in operation for the next 12 months and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business . the consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . as a result of reduced sales due to the covid-19 pandemic and actions taken to contain it , cash generated from our operations during the first quarter of 2020 will be less than we anticipated . moreover , there is no assurance that sales will return to normal levels during the second quarter of 2020 or at any time thereafter . as of the date of the filing of this annual report on form 10-k , management is evaluating all options to conserve cash and to obtain additional debt or equity financing and or enter into a collaborative arrangement or sale of assets , to permit the company to continue operations . if we become unable to continue as a going concern , we may have to liquidate our assets , and potentially realize significantly less than the values at which they are carried on our financial statements , and stockholders could lose all or part of their investment in our common stock . 47 critical accounting policies the preparation of consolidated financial statements and related disclosures in conformity with generally accepted accounting principles in the united states ( “ gaap ” ) requires us to make estimates and assumptions that affect the amounts reported in the consol idated financial statements and the accompanying notes . the following is a summary of those accounting policies that we believe are necessary to understand and evaluate our reported financial results . revenue recognition . revenue for sales of products and services is derived from contracts with customers . the products and services promised in customer contracts include delivery of laser systems , imaging systems , and consumables as well as certain ancillary services such as product training and support for extended warranties . contracts with each customer generally state the terms of the sale , including the description , quantity and price of each product or service . payment terms are stated in the contract and vary according to the arrangement .
| comparison of results of operations year ended december 31 , 2019 compared with year ended december 31 , 2018 net revenue . net revenue for the year ended december 31 , 2019 was $ 37.8 million , a decrease of $ 8.4 million , or 18 % , as compared with net revenue of $ 46.2 million for the year ended december 31 , 2018. domestic revenues were $ 22.8 million , or 60 % of net revenue , for the year ended december 31 , 2019 compared to $ 28.7 million , or 62 % of net revenue , for the year ended december 31 , 2018. international revenues for year ended december 31 , 2019 were $ 15.0 million , or 40 % of net revenue , compared to $ 17.5 million , or 38 % of net revenue for year ended december 31 , 2018. given the recent dental office closures , we expect our first quarter for the year ended december 31 , 2020 , to be lower . the decrease in year-over-year net revenue primarily resulted from decreases in domestic sales due to open sales territories , which were the result of strategic decisions we made to realign a significant portion of our u.s. sales force and change the culture through increased transparency and accountability . as of result of these decisions , we had approximately one-third of our sales territories open . laser system net revenues decreased by approximately $ 6.9 million , or 23 % , for the year ended december 31 , 2019 compared to the same period in 2018. the laser systems revenue decrease was driven by a 28 % decrease in domestic revenue and a 18 % decrease in international revenue . the decrease in domestic revenue was primarily due to the open sales territories discussed above .
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however , in recent years , we have increased our focus on the origination of commercial real estate loans , multi-family real estate loans and commercial business loans , which generally provide higher returns than one- to four-family residential mortgage loans , have shorter durations and are often originated with adjustable rates of interest . we have grown our organization to $ 735.5 million in assets at june 30 , 2020 from $ 377.2 million in assets at june 30 , 2009. we have increased our assets primarily through increased investment securities and loan growth . our results of operations depend primarily on our net interest income . net interest income is the difference between the interest income we earn on our interest-earning assets , consisting primarily of loans , investment securities and other interest-earning assets , and the interest paid on our interest-bearing liabilities , consisting primarily of savings and transaction accounts , certificates of deposit , repurchase agreements , and federal home loan bank of chicago advances . our results of operations also are affected by our provision for loan losses , noninterest income and noninterest expense . noninterest income consists primarily of customer service fees , brokerage commission income , insurance commission income , net realized gains on loan sales , mortgage banking income , and income on bank-owned life insurance . noninterest expense consists primarily of compensation and benefits , occupancy and equipment , data processing , professional fees , marketing , office supplies , federal deposit insurance premiums , and foreclosed assets . our results of operations also may be affected significantly by general and local economic and competitive conditions , changes in market interest rates , governmental policies and actions of regulatory authorities . our net interest rate spread ( the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities ) was 2.52 % and 2.54 % for the year ended june 30 , 2020 and 2019 , respectively . net interest income increased to $ 18.3 million for the year ended june 30 , 2020 , from $ 17.9 million for the year ended june 30 , 2019. our net income for the year ended june 30 , 2020 was $ 4.2 million , compared to a net income of $ 3.6 million for the year ended june 30 , 2019. our emphasis on conservative loan underwriting has resulted in relatively low levels of non-performing assets . our non-performing assets totaled $ 1.1 million or 0.2 % of total assets at june 30 , 2020 , and $ 1.5 million , or 0.2 % of assets at june 30 , 2019. other than our loans for the construction of one- to four-family residential properties and the draw portion of our home equity lines of credit , we do not offer interest only mortgage loans on one- to four-family residential properties ( where the borrower pays interest but no principal for an initial period , after which the loan converts to a fully amortizing loan ) . we also do not offer loans that provide for negative amortization of principal , such as option arm loans , where the borrower can pay less than the interest owed on their loan , resulting in an increased principal balance during the life of the loan . we do not offer subprime loans ( loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies , previous charge-offs , judgments , bankruptcies , or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios ) or alt-a loans ( traditionally defined as loans having less than full documentation ) . we also do not own any private label mortgage-backed securities that are collateralized by alt-a , low or no documentation or subprime mortgage loans . the association 's legal lending limit to any one borrower is 15 % of unimpaired capital and surplus . on july 30 , 2012 the association received approval from the office of the comptroller of the currency to participate in the supplemental lending limits program ( sllp ) . this program allows eligible savings associations to make additional residential real estate loans or extensions of credit to one borrower , small business loans or extensions of 53 credit to one borrower , or small farm loans or extensions of credit to one borrower . for our association this additional limit ( or supplemental limit ( s ) ) for one- to four-family residential real estate , small business , or small farm loans is 10 % of our association 's capital and surplus . in addition , the total outstanding amount of the association 's loans or extensions of credit or parts of loans and extensions of credit made to all of its borrowers under the sllp may not exceed 100 % of the association 's capital and surplus . by association policy , participation of any credit facilities in the sllp is to be infrequent and all credit facilities are to be with prior board approval . all of our mortgage-backed securities have been issued by freddie mac , fannie mae or ginnie mae , u.s. government-sponsored enterprises . these entities guarantee the payment of principal and interest on our mortgage-backed securities . on july 7 , 2011 , we completed our initial public offering of common stock in connection with iroquois federal 's mutual-to-stock conversion , selling 4,496,500 shares of common stock at $ 10.00 per share , including 384,900 shares sold to iroquois federal 's employee stock ownership plan , and raising approximately $ 45.0 million of gross proceeds . in addition , we issued 314,755 shares of our common stock to the iroquois federal foundation . recent developments : covid-19 and the cares act the covid-19 pandemic has caused economic and social disruption on an unprecedented scale . while some industries have been impacted more severely than others , all businesses have been impacted to some degree . story_separator_special_tag in addition , our portfolio is comprised of a substantial amount of commercial real estate loans which generally have greater credit risk than one- to four-family residential mortgage and consumer loans because these loans generally have larger principal balances and are non-homogenous . the allowance for loan losses is maintained at a level to cover probable credit losses inherent in the loan portfolio at the balance sheet date . based on our estimate of the level of allowance for loan losses required , we record a provision for loan losses as a charge to earnings to maintain the allowance for loan losses at an appropriate level . the estimate of our credit losses is applied to two general categories of loans : loans that we evaluate individually for impairment under asc 310-10 , receivables ; and groups of loans with similar risk characteristics that we evaluate collectively for impairment under asc 450-20 , loss contingencies. the allowance for loan losses is evaluated on a regular basis by management and reflects consideration of all significant factors that affect the collectability of the loan portfolio . the factors used to evaluate the collectability of the loan portfolio include , but are not limited to , current economic conditions , our historical loss experience , the nature and volume of the loan portfolio , the financial strength of the borrower , and estimated value of any underlying collateral . this evaluation is inherently subjective as it requires estimates that are subject to significant revision as more information becomes available . actual loan losses may be significantly more than the allowance for loan losses we have established which could have a material negative effect on our financial results . see also business allowance for loan losses. income tax accounting . the provision for income taxes is based upon income in our consolidated financial statements , rather than amounts reported on our income tax return . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect of a change in tax rates on our deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date . under gaap , a valuation allowance is required to be recognized if it is more likely than not that a deferred tax asset will not be realized . the determination as to whether we will be able to realize the deferred tax assets is highly subjective and dependent upon judgment concerning our evaluation of both positive and negative evidence , our forecasts of future income , applicable tax planning strategies , and assessments of current and future economic and business conditions . positive evidence includes the existence of taxes paid in available carryback years as well as the probability that taxable income will be generated in future periods , while negative evidence includes any cumulative losses in the current year and prior two years and general business and economic trends . any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets . any required valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings . positions taken in our tax returns may be subject to challenge by the taxing authorities upon examination . the benefit of an uncertain tax position is initially recognized in the financial statements only when it is more likely than not the position will be sustained upon examination by the tax authorities . such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50 % likely of being realized upon settlement with the tax authority , assuming full knowledge of the position and all relevant facts . differences between our position and the position of tax authorities could result in a reduction of a tax benefit or an increase to a tax liability , which could adversely affect our future income tax expense . 57 we believe our tax policies and practices are critical accounting policies because the determination of our tax provision and current and deferred tax assets and liabilities have a material impact on our net income and the carrying value of our assets . we believe our tax liabilities and assets are properly recorded in the consolidated financial statements at june 30 , 2020 and no valuation allowance was necessary . comparison of financial condition at june 30 , 2020 and june 30 , 2019 total assets increased $ 11.6 million , or 1.6 % , to $ 735.5 million at june 30 , 2020 from $ 723.9 million at june 30 , 2019. the increase was primarily due to a $ 22.0 million increase in net loans and a $ 16.1 million increase in investments , partially offset by a $ 26.1 million decrease in cash and cash equivalents . cash and cash equivalents decreased by $ 26.1 million to $ 33.5 million at june 30 , 2020 , from $ 59.6 million at june 30 , 2019. this decrease was partially the result of a fluctuation in the balance of one large public entity deposit account and the purchase of investment securities . the public entity collects real estate taxes in two installments , due in june and september , and then makes distributions from the account in early july and september . amounts received prior to june 30 , and subsequently distributed the first week of july were $ 45.3 million and $ 55.3 million in 2020 and 2019 , respectively .
| financial position and results of operations our june 30 , 2020 financial condition and results of operations reflect a slightly negative impact on the general element of our allowance for loan losses as a result of covid-19 . while we have not yet experienced any charge-offs related to covid-19 , the general element of our allowance for loan losses calculation and resulting provision for credit losses were impacted by changes in forecasted economic conditions . given that forecasted economic scenarios have darkened since the pandemic was declared in early march 2020 , our need for additional 54 reserve for credit loss increased . refer to our discussions in business-allowance for loan losses-determination of general allowance for remainder of the loan portfolio , md & a below and under risk factors . should economic conditions worsen , we could experience further increases in our required allowance for loan losses and record additional credit loss expense . the execution of the payment deferrals discussed in the following commentary assisted our ratio of past due loans to total loans . it is possible that our asset quality measures could worsen at future measurement periods if the effects of covid-19 are prolonged . our fee income could be reduced due to covid-19 . we are working with covid-19 affected customers by temporarily waiving fees when appropriate including insufficient funds and overdraft fees , and atm fees . at this time , we do not anticipate a material impact on our fee income . our interest income could be reduced due to covid-19 . in keeping with guidance from regulators , we are actively working with covid-19 affected borrowers to defer their payments , interest , and fees . while interest and fees will still accrue to income , through normal gaap accounting , should eventual credit losses on these deferred payments emerge , interest income and fees accrued would need to be reversed .
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this technique develops a modified discount rate that incorporates risk premiums including , among other things , increased probability of default , increased loss upon default and increased liquidity risk . generally , the valuation team uses the yield analysis to corroborate both estimates of value provided by spse and market quotes . market quotes for our investments for which a limited market exists , we generally base fair value on readily available and reliable market quotations , which are corroborated by the valuation team ( generally by using the yield analysis explained above ) . in addition , the valuation team assesses trading activity for similar investments and evaluates variances in quotations and other market insights to determine if any available quoted prices are reliable . typically , the valuation team uses the lower indicative bid price ( ibp ) in the bid-to-ask price range obtained from the respective originating syndication agent story_separator_special_tag the following analysis of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and the notes thereto contained elsewhere in this annual report on form 10-k. historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial condition , results of operations or percentage relationships for any future periods . except per share amounts , dollar amounts in the tables included herein are in thousands unless otherwise indicated . overview general we were incorporated under the general corporation laws of the state of delaware on february 18 , 2005. on june 22 , 2005 , we completed our initial public offering and commenced operations . we operate as an externally managed , closed-end , non-diversified management investment company and have elected to be treated as a bdc under the 1940 act . for federal income tax purposes , we have elected to be treated as a ric under subchapter m of the code . in order to continue to qualify as a ric for federal income tax purposes and obtain favorable ric tax treatment , we must meet certain requirements , including certain minimum distribution requirements . we were established for the purpose of investing in debt and equity securities of established private businesses operating in the u.s. our investment objectives are to : ( 1 ) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses , make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time ; and ( 2 ) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains . to achieve our objectives , our investment strategy is to invest in several categories of debt and equity securities , with each investment generally ranging from $ 5 million to $ 30 million , although investment size may vary , depending upon our total assets or available capital at the time of investment . we seek to avoid investments in high-risk , early stage enterprises . we expect that our investment portfolio over time will consist of approximately 75 % in debt securities and 25 % in equity securities , at cost . as of march 31 , 2016 , our investment portfolio was made up of 71.3 % in debt securities and 28.7 % in equity securities , at cost . we focus on investing in small and medium-sized private businesses in the u.s. that meet certain criteria , including , but not limited to , the following : the sustainability of the business ' free cash flow and its ability to grow it over time , adequate assets for loan collateral , experienced management teams with a significant ownership interest in the borrower , reasonable capitalization of the borrower , including an ample equity contribution or cushion based on prevailing enterprise valuation multiples , and the potential to realize appreciation and gain liquidity in our equity position , if any . we anticipate that liquidity in our equity position will be achieved through a merger or acquisition of the borrower , a public offering of the borrower 's stock or by exercising our right to require the borrower to repurchase our warrants , though there can be no assurance that we will always have these rights . we lend to borrowers that need funds for growth capital or to finance acquisitions or recapitalize or refinance their existing debt facilities . we seek to avoid investing in high-risk , early-stage enterprises . we invest by ourselves or jointly with other funds and or management of the portfolio company , depending on the opportunity and have opportunistically made several co-investments with our affiliate gladstone capital pursuant to the co-investment order . we believe the co-investment order has enhanced and will continue to enhance our ability to further our investment objectives and strategies . if we are participating in an investment with one or more co-investors , whether or not an affiliate of ours , our investment is likely to be smaller than if we were investing alone . business portfolio activity while economic conditions remain challenging , we are seeing many new investment opportunities consistent with our investment strategy of providing a combination of debt and equity in support of management and sponsor-led buyouts of small and medium-sized companies in the u.s. for the fiscal year ended march 31 , 2016 , we invested a total of $ 56.1 million in three new portfolio companies , exited two existing portfolio companies with a combined fair value of $ 5.2 million , partially exited one existing portfolio company with a fair value of $ 26.8 million , and obtained a $ 13.0 million investment in one additional portfolio company as part of a restructuring , resulting in a net expansion of our overall portfolio to 36 portfolio companies and an story_separator_special_tag the resulting proceeds , in part , have allowed us to grow the portfolio by making new investments , generate additional income through these new investments , provide us additional equity capital to help ensure continued compliance with regulatory tests and increase our debt capital while still complying with our applicable debt-to-equity ratios . refer to liquidity and capital resources equity common stock for further discussion of our common stock . 39 regulatory compliance our ability to seek external debt financing , to the extent that it is available under current market conditions , is further subject to the asset coverage limitations of the 1940 act , which require us to have an asset coverage ratio ( as defined in section 18 ( h ) of the 1940 act ) , of at least 200 % on our senior securities representing indebtedness and our senior securities that are stock . as of march 31 , 2016 , our asset coverage ratio on our senior securities representing indebtedness was 483.8 % and our asset coverage ratio on our senior securities that are stock was 221.4 % . investment highlights for the fiscal year ended march 31 , 2016 , we invested $ 69.4 million in new debt and equity investments and extended $ 6.5 million of investments to existing portfolio companies through revolver draws , additions to term notes , or equity investments . from our initial public offering in june 2005 through march 31 , 2016 , we have made investments in 43 companies , excluding investments in syndicated loans , for a total of approximately $ 830 million before giving effect to principal repayments on investments and divestitures . investment activity during the fiscal year ended march 31 , 2016 , the following significant transactions occurred : in may 2015 , we invested $ 16.3 million in brunswick bowling products , inc. ( brunswick ) through a combination of secured first lien debt and equity . brunswick , headquartered in muskegon , michigan , is a leader in the recreation industry and provides industry expertise , products , installation and maintenance for the development and renovation of new and existing centers as well as mixed-use facilities across the entertainment industry . in june 2015 , we sold our investment in roanoke industries corp. ( roanoke ) . as a result of the sale , we received net cash proceeds of $ 0.3 million , resulting in a realized gain of $ 0.2 million . in addition , we received full repayment of our debt investment of $ 1.7 million . in july 2015 , we invested $ 20.9 million in gi plastek , inc. ( gi plastek ) through a combination of secured first lien debt and equity . gi plastek , headquartered in wolfeboro , new hampshire , is a value-added provider of advanced manufacturing solutions for various non-automotive end markets . in august 2015 , ndli , inc. ( ndli ) was acquired by diligent delivery systems ( diligent ) . as part of this acquisition , we restructured our investment in ndli , which resulted in the termination of our debt investments in ndli . we received cash proceeds of $ 1.9 million and a $ 13.0 million secured second lien secured debt investment in diligent , which resulted in a realized loss of $ 2.8 million . diligent , headquartered in houston , texas , has provided professional delivery services since 1994. in september 2015 , we sold our investment in cavert ii holding corp. ( cavert ) . as a result of the sale , we received cash proceeds of $ 3.4 million , resulting in dividend income of $ 1.5 million and repayment of our equity investment at its cost basis of $ 1.8 million . in october 2015 , we sold our investment in funko , llc ( funko ) , which resulted in dividend and other income of $ 0.3 million and a realized gain of $ 17.0 million . in connection with the sale , we received net cash proceeds of $ 15.3 million , full repayment of our debt investment of $ 9.5 million , receivables of $ 3.3 million , recorded within other assets , net on the accompanying consolidated statement of assets and liabilities , and a continuing preferred and common equity investment in funko with a combined cost basis and fair value of $ 0.3 million at the close of the transaction . additionally , we recorded a tax liability of $ 9.9 million for the net unrealized built-in gain that was realized upon the sale , of which $ 8.5 million was subsequently paid . the remaining tax liability of $ 1.4 million is included within other liabilities on the accompanying consolidated statement of assets and liabilities . in december 2015 , we invested $ 19.0 million in nth degree through a combination of secured first lien debt and preferred equity . nth degree , headquartered outside of atlanta , georgia , is a multifaceted face-to-face event marketing and management services organization . 40 in december 2015 , we restructured our investment in galaxy tool holding corporation ( galaxy ) . as a result of the restructure , we converted debt with a cost basis of $ 10.5 million into preferred equity with a new cost basis and fair value of $ 0 , which resulted in a realized loss of $ 10.5 million . in december 2015 , we restructured our investment in tread corporation ( tread ) . as a result of the restructure , we converted debt with a cost basis of $ 9.26 million into preferred equity with a new cost basis and fair value of $ 0.4 million . as part of the transaction , we also exercised our existing common stock warrants for an exercise price of $ 0.2 million . as a result of the transaction , we recognized a realized loss of $ 8.6 million .
| results of operations comparison of the fiscal year ended march 31 , 2016 , to the fiscal year ended march 31 , 2015 replace_table_token_9_th nm = not meaningful investment income total investment income increased by 22.4 % for the year ended march 31 , 2016 , as compared to the prior year . this increase was due to an increase in interest income , which resulted primarily from an increase in the size of our interest-bearing portfolio during the year ended march 31 , 2016 , partially offset by a decline in other income for the same period . interest income from our investments in debt securities increased 26.5 % for the year ended march 31 , 2016 , as compared to the prior year . the level of interest income from investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding during the period multiplied by the weighted average yield . the weighted average principal balance of our interest-bearing investment portfolio during the year ended march 31 , 2016 , was $ 367.6 million , compared to $ 292.2 million for the prior year . this increase was primarily due to $ 53.4 million in new debt investments originated after march 31 , 2015. our loans to one portfolio company , tread , were on non-accrual status as of march 31 , 2016 and 2015 , with an aggregate debt cost basis of $ 1.4 million and $ 11.7 million , respectively . the weighted average yield on our interest-bearing investments , excluding cash and cash equivalents and receipts recorded as other income , was 12.6 % for both years ended march 31 , 2016 and 2015. the weighted average yield may vary from period to period , based on the current stated interest rate on interest-bearing investments . 42 other income for the year ended march 31 , 2016 decreased 8.1 % from the prior year .
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specifically , asu 2014-15 provides a definition of the term `` substantial doubt `` and requires an assessment for a period of one year after the date that the financial statements are issued ( or available to be issued ) . it also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management 's plans and requires an express statement and other disclosures when substantial doubt is not alleviated . the new standard will be effective for all entities in the first annual period ending after december 15 , 2016 and for annual periods and interim periods thereafter . earlier adoption is permitted . we are currently evaluating the impact the adoption of the guidance will have on the statements of consolidated financial position , statements of consolidated operations or statements of consolidated cash flows . in june story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) is designed to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition , results of operations , liquidity and other factors that may affect our future results . the following discussion should be read in conjunction with the consolidated financial statements and related notes that appear elsewhere in this document . industry overview the key driver of our business is demand for steelmaking raw materials from u.s. steelmakers . in 2014 , the u.s. produced approximately 88 million metric tons of crude steel , making the u.s. the third largest producer in the world after china and japan . this represents an approximate 2 percent increase in u.s. crude steel production when compared to 2013. u.s. total steel capacity utilization was approximately 77 percent in 2014 and 2013. additionally , in 2014 , china produced approximately 823 million metric tons of crude steel , or approximately 50 percent of total global crude steel production . these figures represent an approximate 1 percent increase in chinese crude steel production when compared to 2013. average global total steel capacity utilization was about 77 percent in 2014 , an approximate 2 percent decrease from 2013. throughout 2014 , global crude steel production grew about 1 percent compared to 2013. we expect economic growth in the u.s. to continue in 2015 , and correspondingly expect steel demand to remain at healthy levels . while the industry demand will be supported by an improving housing market and a strengthened automotive sector , demand from energy companies is expected to decrease as oil prices remain at depressed levels . additionally , the steel industry should face continued pressure from surging imports , which reached record levels in 2014 , as the strength of the u.s. dollar continues to increase and continued oversupply of the global steel industry . in china , demand for steel should increase slightly compared to 2014 , although at a rate far below growth percentages recorded earlier in the decade . in 2014 , the increase in seaborne supply of iron ore was expected by many , but the slowdown in demand from chinese end markets was unexpected and negatively impacted spot prices for iron ore. we expect seaborne iron ore prices to remain pressured unless there are vast structural changes to the supply/demand picture , including increased chinese demand or iron ore capacity cuts . the global price of iron ore is influenced significantly by the worldwide supply of iron ore and by chinese demand . the global supply of iron ore continues to increase , which has put downward pressure on current spot pricing . however , the impact of this volatility on our u.s. iron ore revenues is dampened because the pricing in our long-term contracts are mostly structured to minimize the short-term impact of the fluctuations in the seaborne iron ore price . as a result of the long-term contracts , as discussed above , our u.s. iron ore revenues only experienced realized revenue rate decreases of 12 percent and 9 percent for the three months and year ended december 31 , 2014 , respectively , when compared to the comparable prior year periods versus the much higher decrease in platts 62 percent fe fines spot price . the platts 62 percent fe fines spot price decreased 45 percent to an average price of $ 74 per ton for the three months ended december 31 , 2014 compared to the respective quarter of 2013. in comparison , the year to date platts 62 percent fe fines spot pricing also has decreased 29 percent to an average price of $ 97 per ton during the year ended december 31 , 2014. these large decreases in platts 62 percent fe fines spot price were driven by insufficient growth in chinese demand to absorb the additional seaborne supply . the spot price volatility impacts our realized revenue rates , particularly in our asia pacific iron ore and eastern canadian iron ore business segments because their contracts correlate heavily to world market spot pricing . the metallurgical coal market continues to be in an oversupplied position due to increased supply from australian producers . those producers , benefiting from a devaluated local currency , are very competitive in european and south american markets . recent reductions in global coal supply have yet to make an impact on pricing . consistent with the above , the quarterly benchmark price for premium low-volatile hard coking coal between australian metallurgical coal suppliers and japanese and korean consumers decreased 21 percent to a full-year average of $ 126 per metric ton in 2014 versus the 2013 full-year average of $ 159 per metric ton . the benchmark pricing has remained relatively flat from the second quarter of 2014 to the fourth quarter of 2014 at approximately $ 120 per metric ton . our consolidated revenues for the years ended december 31 , 2014 and 2013 were $ 4.6 billion and $ 5.7 billion , respectively , with net loss from continuing operations per diluted share of $ 47.52 story_separator_special_tag u.s. iron ore 's realized revenue rate decreased 12 percent and 9 percent for the three months and year ended december 31 , 2014 , respectively , compared to a 45 percent and 29 percent decline in the platts 62 percent fe fines spot price over the same periods . in addition , we maintain materially lower costs compared to our competition as a result of our proximity to u.s. steelmaking operations . our costs are lower as a result of inherent transportation advantages associated with our mine locations near the great lakes which allows for transportation via railroads and loading ports . u.s. iron ore mines also benefit from on-site pellet production and ore production facilities located a short distance from the mines . these advantages translated to a cash production costs in the three months and year ended december 31 , 2014 of $ 59 per ton and $ 64 per ton , respectively , which included the cost to mine , concentrate and pelletize , certain transportation costs and site administration costs . competitive asia pacific iron ore operations although our annual production tonnage is substantially less than our competitors in the seaborne market , the asia pacific iron ore business maintains a competitive position with the major australian iron ore producers . we produce a product mix of approximately 52 percent lump ore and 48 percent fines , which is a significantly higher lump mix than the major producers in australia . this lump ore currently commands a premium in the seaborne market over iron ore fines . further , our asia pacific iron ore segment is a cost competitive producer and requires modest ongoing sustaining capital expenditures to continue our operations . cash production costs during the three months and year ended december 31 , 2014 , were $ 43 per ton and $ 49 per ton , respectively . over the remaining life of the mine , the capital expenditure requirements are estimated to be approximately $ 50 million or $ 1 per ton . recent developments eastern canadian iron ore our wabush scully mine in newfoundland and labrador was idled by the end of the first quarter of 2014 and subsequently began to commence permanent closure in the fourth quarter of 2014. with costs unsustainably high , it was not economically viable to continue running this operation . approximately 500 employees at both the wabush scully mine and the pointe noire rail and port operation in québec were impacted by these actions . on november 19 , 2014 , we announced that we were pursuing exit options for our eastern canadian iron ore operations . during the fourth quarter of 2014 , we disclosed that , despite our cost-cutting progress at our bloom lake mine , we concluded that phase i alone was not economically feasible based on our current operating plans . for the bloom lake mine to be profitable , we concluded that phase ii of the bloom lake mine must be developed to reduce the overall cash cost of operations . we could only develop phase ii of the bloom lake mine if we had been able to secure new equity partners to share in the capital costs , which we estimated to be approximately $ 1.2 billion . as the new equity partners were unable to commit within the short timeframe we required , we determined that the phase ii expansion of the bloom lake mine was no longer a viable option for us and we shifted our focus to considering available possibilities and executing an exit option for eastern canadian iron ore operations that minimized the cash outflows and associated liabilities . in december 2014 , iron ore production at the bloom lake mine was suspended and the bloom lake mine was placed in ‘ ‘ care-and-maintenance '' mode . on january 27 , 2015 , we announced that the bloom lake group commenced restructuring proceedings in montreal , québec , under the ccaa . the bloom lake group had recently suspended operations and for several months we were exploring options to sell certain of our canadian assets , among other initiatives . the decision to seek protection under the ccaa was based on a thorough legal and financial analysis of the options available to the bloom lake group . the bloom lake group was no longer generating any revenues and was not able to meet its obligations as they came due . the initial ccaa order addressed the bloom lake group 's immediate liquidity issues and permits the bloom lake group to preserve and protect its assets for the benefit of all stakeholders while restructuring and sale options are explored . as part of the ccaa process , the court has appointed fti consulting canada inc. as the monitor . the monitor 's role in the ccaa process is to monitor the activities of the bloom lake group and provide assistance to the bloom lake group and its stakeholders in respect of the ccaa process . 55 worldlink arbitration in october 2011 , our wholly owned subsidiary , cqim , along with bloom lake general partner limited and the bloom lake iron ore mine limited partnership , instituted an arbitration claim against the bloom lake mine 's former customer , worldlink resources limited , for material and or fundamental breaches of the parties ' 2007 offtake agreement for the purchase and sale of iron concentrate produced at the bloom lake mine . our subsidiaries filed the arbitration claim with the international court of arbitration of the international chamber of commerce pursuant to the dispute resolution provisions of the offtake agreement . our subsidiaries terminated the offtake agreement with worldlink in august 2011 due to worldlink 's failure to fulfill its obligations under the agreement and worldlink 's demand to renegotiate the price of the iron ore concentrate in spite of being party to a long-term offtake agreement .
| 2015 outlook summary u.s. iron ore ( a ) asia pacific iron ore ( b ) north american coal ( c ) sales volume ( million tons ) 22 11 5.5 production volume ( million tons ) 22 11 5.5 cash production cost per ton $ 55 - $ 60 $ 40 - $ 45 $ 65 - $ 70 cash cost of goods sold per ton $ 60 - $ 65 $ 40 - $ 45 $ 70 - $ 75 dd & a per ton $ 5 $ 2 $ 2 ( a ) u.s. iron ore tons are reported in long tons of pellets . ( b ) asia pacific iron ore tons are reported in metric tons of lumps and fines . ( c ) north american coal tons are reported in short tons . cash production cost and cash cost of goods sold per ton are non-gaap financial measures that management uses in evaluating operating performance . the presentation of these measures is not intended to be considered in isolation from , as a substitute for , or as superior to , the financial information prepared and presented in accordance with u.s. gaap . the presentation of these measures may be different from non-gaap financial measures used by other companies . cash production cost per ton is defined as cost of goods sold and operating expenses per ton less depreciation , depletion and amortization ; as well as period costs , costs of services and inventory effects per ton . cash cost per ton is defined as cost of goods sold and operating expenses per ton less depreciation , depletion and amortization per ton . sg & a expenses and other expectations we are reducing our year-over-year sg & a expenses by approximately $ 70 million . full-year 2015 sg & a expenses are expected to be approximately $ 140 million .
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on august 5 , 2020 , the company announced that the bod concluded its analysis and unanimously approved a plan to revoke the company 's reit election and become a taxable c corporation , effective january 1 , 2021. as a result , the company will no longer be required to operate under reit rules , including the requirement to distribute at least 90 % of its taxable income to its stockholders , which will provide the company with greater flexibility to use its free cash flow . beginning january 1 , 2021 , the company will be subject to federal and state income taxes on its taxable income at applicable tax rates , and will no longer be entitled to a tax deduction for dividends paid . the company continued to operate as a reit for the 2020 tax year , and existing reit requirements and limitations , including those established by the company 's organizational documents , remained in place until january 1 , 2021. the bod also voted unanimously to discontinue the company 's quarterly dividend and prioritize allocating the company 's free cash flow to reduce debt . f-8 2. summary of significant accounting policies basis of presentation the consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles and include the accounts of corecivic on a consolidated basis with its wholly-owned subsidiaries . all intercompany balances and transactions have been eliminated . certain reclassifications have been made to the consolidated statement of story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report on form 10-k , or this annual report . in this annual report , we use the term , the `` company , '' `` corecivic , '' `` we , '' `` us , '' and `` our '' to refer to corecivic , inc. and its subsidiaries unless context indicates otherwise . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including , but not limited to , those described under item 1a , `` risk factors '' and included in other portions of this report . overview we are a diversified government solutions company with the scale and experience needed to solve tough government challenges in flexible , cost-effective ways . through three segments , corecivic safety , corecivic community , and corecivic properties , we provide a broad range of solutions to government partners that serve the public good through corrections and detention management , a network of residential reentry centers to help address america 's recidivism crisis , and government real estate solutions . we have been a flexible and dependable partner for government for more than 35 years . our employees are driven by a deep sense of service , high standards of professionalism and a responsibility to help government better the public good . as of december 31 , 2020 , through our corecivic safety segment , we operated 47 correctional and detention facilities , 42 of which we owned , with a total design capacity of approximately 70,000 beds . through our corecivic community segment , we owned and operated 27 residential reentry centers with a total design capacity of approximately 5,000 beds . in addition , through our corecivic properties segment , we owned 15 properties for lease to third parties and used by government agencies , totaling 2.7 million square feet . we are the nation 's largest owner of partnership correctional , detention , and residential reentry facilities and one of the largest prison operators in the united states . we also believe we are the largest private owner of real estate used by u.s. government agencies . our size and experience provide us with significant credibility with our current and prospective customers , and enable us to generate economies of scale in purchasing power for food services , health care and other supplies and services we offer to our government partners . see item 1 , `` business – overview '' for a description of how we were organized as a real estate investment trust , or reit , as of december 31 , 2020 , and our plans to revoke our reit election and convert to a taxable c corporation effective january 1 , 2021. our business through our corecivic safety and corecivic community segments , we are compensated for providing bed capacity and correctional , detention , and residential reentry services at a per diem rate based upon actual or minimum guaranteed occupancy levels . federal , state , and local governments are constantly under budgetary constraints putting pressure on governments to control correctional budgets , including per diem rates our customers pay to us as well as pressure on appropriations for building new prison capacity . the solutions we provide to our federal customers continue to be a significant component of our business . we believe our ability to provide flexible solutions and fulfill emergent needs of our federal customers would be very difficult and costly to replicate in the public sector . in february 2021 , president biden announced plans to allow certain migrants to pursue asylum in the united states while awaiting their proceedings in immigration courts , reversing a policy of the prior administration , which required these asylum seekers to wait in mexico during the pendency of their immigration court proceedings . 60 on january 26 , 2021 , president biden issued the executive order on reforming our incarceration system to eliminate the use of privately operated criminal detention facilities , or the private prison eo . the private prison eo directs the attorney general to not renew united states department of justice , or doj , contracts with privately operated criminal detention facilities . two agencies of the doj , the federal bureau of prisons , or the bop , and the united states marshals service , or the usms , utilize our services . story_separator_special_tag further , we expect our partners , and prospective partners , to continue to face challenges in maintaining old facilities , developing new facilities , and expanding current facilities for additional capacity , which could result in increased future demand for the solutions we provide . governments continue to experience many significant spending demands which have constrained correctional budgets limiting their ability to expand existing facilities or construct new facilities . we believe the outsourcing of corrections and detention management services to private operators allows governments to manage increasing inmate populations while simultaneously controlling costs . we believe our customers discover that partnering with private operators to provide residential services to their offenders introduces competition to their correctional system , resulting in improvements to the quality and cost of services throughout their correctional system . further , the use of facilities owned and managed by private operators allows governments to expand correctional capacity without incurring large capital commitments and allows them to avoid long-term pension obligations for their employees . we also believe that having beds immediately available to our partners provides us with a distinct competitive advantage when bidding on new contracts . we believe the most significant opportunities for growth are in providing our government partners with available beds within facilities we currently own or that we will develop . over the long-term , we would like to see meaningful utilization of our available capacity and better visibility from our customers into their potential future needs before we develop new correctional or detention capacity on a speculative basis . we will , however , respond to customer demand and may develop or expand correctional and detention facilities when we believe potential long-term returns justify the capital deployment , like the 2019 expansion of our otay mesa detention center in san diego , california . we expanded the otay mesa facility by 512 beds as a result of long-standing demand from the usms and ice and limited detention capacity in the southwest region of the united states . both the usms and ice currently utilize the otay mesa detention center under an existing contract that enables both agencies to utilize the additional capacity . we also believe that owning the facilities in which we provide management services enables us to more rapidly replace business lost compared with managed-only facilities , since we can offer the same beds to new and existing customers and , with customer consent , may have more flexibility in moving our existing populations to facilities with available capacity . our management contracts generally provide our customers with the right to terminate our management contracts at any time without cause . we are actively engaged in marketing our available capacity as solutions to meet the needs of potential customers . historically , we have been successful in substantially filling our inventory of available beds and the beds that we have constructed . for example , in the second quarter of 2019 , we announced that we entered into new contracts under inter-governmental service agreements , or igsas , with ice at our previously idled 910-bed torrance county detention facility in new mexico and with the usms at our previously idled 1,422-bed eden detention center in texas . more recently , in the third quarter of 2020 , we entered into a new contract under an igsa between the city of cushing , oklahoma and the usms , to utilize our 1,600-bed cimarron correctional facility in oklahoma . we had previously announced our intention to idle the cimarron facility during the third quarter of 2020 , predominantly due to a lower number of inmate populations from the state of oklahoma resulting from covid-19 , combined with the consequential impact of covid-19 on the state 's budget . the new management contract commenced on september 15 , 2020. filling these available beds could provide substantial growth in revenues , cash flow , and earnings per share . however , we can provide no assurance that we will be able to fill our available beds . 62 we also offer our customers an attractive portfolio of correctional , detention , and reentry facilities that can be leased for various needs as an alternative to providing `` turn-key '' correctional , detention , and residential reentry bed space and services to our government partners . in december 2019 , we entered into a lease with the kentucky department of corrections , or kydoc , for our previously idled 656-bed southeast correctional complex in wheelwright , kentucky . the lease commence d in mid-2020 and has an initial term of ten years and includes five two-year renewal options . the lease of this facility , along with the lease of our 2,400-bed north fork correctional faci lity to the oklahoma department of corrections , or odoc , originating in 2016 and the lease of our 2 , 56 0- bed california city correctional center to the california department of corrections and rehabilitation originating in 2013 , exemplify our ability to react quickly to our partners ' needs with innovative and flexible solutions that make the best use of taxpayer dollars . we previously operated these three correctional facilities for various state and federal partners . we intend to pursue additional opportunities to lease prison facilities to government and other third-party operators in need of correctional capacity . on january 24 , 2018 , we entered into a 20-year lease agreement with the kansas department of corrections , or kdoc , for a 2,432-bed correctional facility to be constructed in lansing , kansas .
| results of operations our results of operations are impacted by the number of correctional and detention facilities we operated , including 42 we owned and five owned by our government partners ( corecivic safety ) , the number of residential reentry centers we owned and operated ( corecivic community ) , the number of facilities we leased to other operators ( corecivic properties ) , and the facilities we owned that were not in operation . the following table sets forth the changes in the number of facilities operated for the years ended december 31 , 2020 and 2019. replace_table_token_7_th 67 year ended december 31 , 2020 compared to the year ended december 31 , 2019 during the year ended december 31 , 2020 , net income attributable to common stockholders was $ 54.2 million , or $ 0.45 per diluted share , compared with net income attributable to common stockholders of $ 188.9 million , or $ 1.59 per diluted share , for the previous year . financial results in 2020 included $ 13.8 million of incremental expenses directly associated with covid-19 ( reflected in operating expenses ) , and $ 5.2 million of expenses associated with changes in our corporate tax structure ( reflected in general and administrative expenses ) . in addition , financial results in 2020 reflected several special items , including $ 60.6 million of asset impairments , a net loss of $ 13.0 million on sale of real estate assets , $ 7.1 million of expenses associated with debt repayments , and a charge of $ 0.6 million for contingent consideration associated with an acquisition of a business , each as more fully discussed herein .
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the company reviews the allowance for story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes to those statements included herein . in addition to historical financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those discussed under “ risk factors ” and elsewhere herein . see “ special note regarding forward-looking statements. ” overview truecar is a leading automotive digital marketplace that enables car buyers to connect to our network of certified dealers . we are building the industry 's most personalized and efficient car buying experience as we seek to bring more of the purchasing process online . we have established a diverse software ecosystem on a common technology infrastructure , powered by proprietary data and analytics . our company-branded platform is available on our truecar website and mobile applications . in addition , we customize and operate our platform on a co-branded basis for our many affinity group marketing partners , including financial institutions like penfed and american express ; membership-based organizations like consumer reports , aarp , sam 's club , and aaa ; and employee buying programs for large enterprises such as ibm and walmart . we enable users to obtain market-based pricing data on new and used cars , and to connect with our network of truecar certified dealers . we also allow automobile manufacturers , known in the industry as oems , to connect with truecar users during the purchase process and efficiently deliver targeted incentives to consumers . we benefit consumers by providing information related to what others have paid for a make , model and trim of car in their area and price offers on actual vehicle inventory , which we refer to as vin-based offers , from our network of truecar certified dealers . vin-based offers provide consumers with price offers for specific vehicles from specific dealers . we benefit our network of truecar certified dealers by enabling them to attract these informed , in-market consumers in a cost-effective , accountable manner , which we believe helps them to sell more cars profitably . we benefit oems by allowing them to more effectively target their incentive spending at deep-in-market consumers during their purchase process . our network of truecar certified dealers consists primarily of new car franchises , representing all major makes of cars , as well as independent dealers selling used vehicles . truecar certified dealers operate in all 50 states and the district of columbia . our subsidiary , tcds , provides our truecar trade and payments products . our trade solution gives consumers information on the value of their trade-in vehicles and enables them to obtain a guaranteed trade-in price before setting foot in the dealership . this valuation is , in turn , backed by a third-party guarantee to dealers that the vehicles will be repurchased at the indicated price if the dealer does not want to keep them . our payments solution leverages the digital retailing technology of our dealerscience subsidiary , acquired in december 2018 , to help consumers calculate accurate monthly payments . finally , our former alg subsidiary provided forecasts and consulting services regarding determination of the residual value of an automobile at given future points in time . these residual values are used to underwrite automotive loans and leases to determine payments by consumers . in addition , financial institutions use this information to measure exposure and risk across loan , lease , and fleet portfolios . on november 30 , 2020 , we divested alg to j.d . power . see note 4 to our consolidated financial statements included herein for further details . during the year ended december 31 , 2020 , we generated revenues of $ 278.7 million and recorded a net income of $ 76.5 million , which comprised of $ 96.4 million income from discontinued operations offset by $ 19.8 million loss from continuing operations . covid-19 pandemic in march 2020 , the world health organization declared covid-19 , a novel strain of coronavirus , a pandemic , which continues to spread throughout the united states and the world . this has resulted in authorities implementing numerous measures to contain the virus , including quarantines , “ shelter-in-place ” and “ stay-at-home ” orders , travel restrictions , and temporary closures of non-essential businesses . we have taken proactive measures to protect the health and safety of our employees and customers by closing our offices , requiring employees to work from home and suspending travel , in-person meetings and visits with our customers . we expect to continue these measures until the pandemic is adequately contained as determined by authorities . we are monitoring the impact of the pandemic on our business and implementing plans to take appropriate actions to adapt to changing circumstances arising from the pandemic . specifically , we have launched “ buy from home ” badge labeling of dealers 59 offering such solutions designed to help consumers and dealers safely and remotely navigate car buying in response to social distancing guidelines during covid-19 . dealers badged with “ buy from home ” on the truecar platform offer the following features : remote paperwork processing home vehicle delivery verified vehicle sanitization additionally , we are accelerating our investment in digital automotive retailing as we seek to bring more of the purchasing process online to further support the needs of our dealers and consumers during this challenging and changing environment . we have experienced significant disruptions since the outbreak was declared a pandemic . story_separator_special_tag franchise dealer count we define franchise dealer count as the number of franchise dealers in the network of truecar certified dealers who participate in our auto buying program at the end of a given period . this number is calculated by counting the number of brands of new cars sold at each individual location , or rooftop , regardless of the size of the dealership that owns the rooftop . the network is comprised of dealers with a range of unit sales volume per dealer , with dealers representing certain brands consistently achieving higher than average unit sales volume . we view our ability to increase our franchise dealer count , particularly dealers representing high volume brands , as an indicator of our market penetration and the likelihood of converting users of our platform into unit sales . our truecar certified dealer network includes independent non-franchised dealers that primarily sell used cars and are not included in franchise dealer count . our franchise dealer count decreased to 10,589 at december 31 , 2020 from 12,565 at december 31 , 2019 and from 12,674 at december 31 , 2018. the decline in franchise dealer count was primarily due to the impact of the covid-19 pandemic as government authorities imposed restrictions on retail activity and a number of dealers opting to suspend their marketing spend to preserve their profitability during times of economic uncertainty . we expect our franchise dealer count to continue to fluctuate due to the impact of the covid-19 pandemic and the effects of the termination of our partnership with usaa federal savings bank . independent dealer count we define independent dealer count as the number of independent dealers in the network of truecar certified dealers who participate in our auto buying program at the end of a given period that exclusively sell used vehicles and are not directly affiliated with a new car manufacturer . this number is calculated by counting each location , or rooftop , individually , regardless of the size of the dealership that owns the rooftop . our independent dealer count decreased to 3,794 at december 31 , 2020 from 4,395 at december 31 , 2019 and from 3,655 at december 31 , 2018. the decline in independent dealer count was primarily due to suspensions , cancellations or going-out-of-business due to covid-19 . we expect our independent dealer count to continue to fluctuate due to the impact of the covid-19 pandemic . 61 presentation of financial statements our consolidated financial statements include the accounts of our wholly owned subsidiaries in accordance with fasb asc 810 — consolidation . business acquisitions are included in our consolidated financial statements from the date of the acquisition . our purchase accounting resulted in all assets and liabilities of acquired businesses being recorded at their estimated fair values on the acquisition dates . all intercompany balances and transactions have been eliminated in consolidation . we report our financial results as one operating segment , with three distinct service offerings : dealer products and services , oem incentives , and other . our operating results are regularly reviewed by our chief operating decision maker on a consolidated basis , principally to make decisions about how we allocate our resources and to measure our consolidated operating performance . our chief operating decision maker regularly reviews revenue for each of our dealer , oem incentives and other offerings in order to gain more depth and understanding of the factors driving our business . as discussed in note 4 to the accompanying financial statements , the alg divestiture met the criteria to be reported as discontinued operations . therefore , we are reporting the historical results of alg , including the results of operations , cash flows , and related assets and liabilities , as discontinued operations for all periods presented herein . components of operating results revenues our revenues are comprised primarily of dealer revenue and oem incentives revenue . we recognize transaction revenue for certain of our auto buying program and oem incentives arrangements at the time introductions and incentives are delivered based upon expected subsequent vehicle sales between the auto buying program user and the dealer . dealer . dealer revenue is comprised of auto buying program revenue as well as revenue from truecar trade and dealerscience . during 2020 , we introduced truecar access , which offers dealers our subscription-based package that combines our truecar trade solution and payments solution from dealerscience . auto buying program revenue consists of fees paid by dealers participating in our network of truecar certified dealers . dealers pay us these fees on a per-vehicle basis for sales to our users , on a per-introduction basis for sales to our users or in the form of a subscription arrangement . subscription arrangements fall into several types : flat-rate subscriptions , subscriptions subject to downward adjustment based on a minimum number of vehicle sales , which we refer to as guaranteed-sales subscriptions , and subscriptions based on introduction volume , including those subject to downward adjustment based on a minimum number of introductions , which we refer to as guaranteed-introductions subscriptions . additionally , certain dealers pay an incremental subscription fee for add-on products within our auto buying program . under flat-rate subscription arrangements , fees are charged at a monthly flat rate regardless of the number of introductions made to users of our platform by the dealer . under guaranteed-sales subscription arrangements , fees are charged based on the number of guaranteed sales multiplied by a fixed amount per vehicle . to the extent that the actual number of vehicles sold by the dealers to users of our platform is less than the number of guaranteed sales , we provide a credit to the dealer . if the actual number of vehicles sold exceeds the number of guaranteed sales , we are not entitled to any additional fees .
| results of operations the following table sets forth our selected consolidated statements of operations data for each of the periods indicated . replace_table_token_7_th 65 the following table sets forth our selected consolidated statements of operations data as a percentage of revenues for each of the periods indicated . replace_table_token_8_th * less than 0.5 % of revenues comparison of years ended december 31 , 2020 , 2019 and 2018 revenues replace_table_token_9_th year ended december 31 , 2020 compared to year ended december 31 , 2019 . the decrease in our revenues of $ 56.4 million , or 16.8 % , in 2020 as compared to 2019 primarily reflected a decrease in our dealer revenue offset by an increase in other revenue . dealer revenue , oem incentives revenue , and other revenue comprised 90.8 % , 6.0 % , and 3.2 % , respectively , of revenues for 2020 as compared to 94.9 % , 4.9 % , and 0.2 % , respectively , for 2019. the decrease of $ 65.0 million in dealer revenue for 2020 reflected a decrease in our auto buying program revenue of $ 65.8 million primarily due to the impact of covid-19 and concessions we provided to certain subscription arrangements as well as the wind-down of our partnership with usaa , offset by increases within newer revenue streams of $ 0.8 million . these decreases were offset by an increase of $ 8.4 million in other revenue primarily driven by fees earned related to the usaa transition services agreement for the year ended december 31 , 2020. year ended december 31 , 2019 compared to year ended december 31 , 2018 . revenue remained flat in 2019 as compared to 2018. dealer revenue , oem incentives revenue , and other revenue comprised 94.9 % , 4.9 % , and 0.2 % , respectively , of 66 revenues for 2019 as compared to 90.9 % , 9.0 % , and 0.1 % , respectively , of revenues for 2018. the increase of $ 13.4
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, and ( iii ) critical accounting policies used in the preparation of the company 's consolidated financial statements . all dollar amounts are presented in thousands , except daily dollar amounts and per share amounts . general we are a leading provider of energy transportation services , delivering crude oil and petroleum products . our 25 vessel fleet operates as a single reportable segment . we believe that this is appropriate as our chief operating decision maker makes decisions about resource allocations and reviews and measures our results as one line of business with similar regulatory requirements , customers and commodities transported . our active vessel fleet , of which 22 are u.s. flag vessels , consists of three crude oil tankers doing business in alaska , two conventional atbs , two lightering atbs , three shuttle tankers , ten mr tankers , and two non-jones act mr tankers that participate in the u.s. maritime security program . the company also owns and operates two marshall islands flagged mr tankers which trade internationally . revenues are derived predominantly from time charter agreements , which provide a more predictable level of revenues . we derived approximately 18 % of our total shipping revenues and 16 % of our total tce revenues in the spot market and coas for 2020. the ongoing coronavirus pandemic has severely impacted global and national economies . lockdown orders , business closures and travel restrictions among many other events have reduced the demand for many products , including petroleum . this has led to a significant reduction in refinery operations and end user demand for transportation fuels . the reduced demand has created extreme business uncertainty for our customers and the result has been a reluctance to enter into longer term transportation commitments . we believe that as their visibility and confidence in the future returns there will be a resumption of more typical customer behavior and time charter activity will rebound . this has resulted in the non-renewal of charters for vessels whose time charters were ending late in 2020 and early in 2021. in response to this we have placed seven vessels in layup as of march 1 , 2021. this allows us to reduce the costs associated with vessels that are without charter . we anticipate that this situation will resolve itself as vaccines are widely distributed and there is a lifting of the covid-19 restrictions . operations and oil tanker markets our revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by us and the trades in which those vessels operate . rates for the transportation of crude oil and refined petroleum products 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 cargoes need to be transported . in the jones act trades within which the substantial majority of our vessels operate , demand factors for transportation are affected almost exclusively by supply and distribution decisions of oil producers , refiners and distributors based in the united states . further , the demand for u.s. domestic oil shipments is significantly affected by the state of the u.s. and global economies , the level of imports into the u.s. from opec and other foreign producers , oil production in the united states , and the relative price differentials of u.s. produced crude oil and refined petroleum products as compared with comparable products sourced from or destined for foreign markets , including the cost of transportation on international flag vessels to or from those markets . the number of vessels is affected by newbuild deliveries and by the removal of existing vessels from service , principally through storage , deletions , or conversions . our revenues are also affected by the mix of charters between spot ( voyage charter which includes short-term time charter ) and long-term ( time or bareboat charter ) . beginning in the 2020 first quarter , covid-19 has resulted in disruptions in demand and oversupply of oil . many analysts predict that gasoline and diesel demand will recover in 2021. jet fuel demand is anticipated to remain well below 2019 levels through at least the end of 2021. these predictions reflect estimates on the prevalence of covid-19 and the recovery of the u.s. economy . while covid-19 has presented our industry and markets with significant challenges , we believe that we have thus far managed its impact on our business operations well , with all of our jones act and internationally trading vessels able to load , transit and discharge cargo without material interruption . 27 overseas shipholding group , inc. as a result of the covid-19 pandemic , we have implemented procedures to protect the health and safety of our employees , crew and contractors . these procedures and protocols are those mandated or recommended by the centers for disease control and prevention , the u.s. coast guard , local ports and shipyards , and country- and state-specific requirements . they include such actions as providing personal protective equipment , minimizing crew changes , managing the locations where crew members board and depart from our vessels , requiring crew members to disclose symptoms and the health of those they have been in contact with , sanitization of the vessels , mandating face coverings , social distancing and temperature checks , and requiring testing in certain instances . covid-19 has also impacted planned shipyard maintenance and vetting activities , resulting in delays , rescheduling and extensions . these additional procedures and delays have resulted in increased costs , which at this point in time , have not been material but are expected to continue and may increase . having our vessels committed on time charters is a fundamental objective of our chartering strategy . the majority of available vessel operating days are covered with medium-term charters or contracts of affreightment . story_separator_special_tag our ability to successfully implement our strategy is dependent on the continued availability of capital on attractive terms . in addition , our ability to successfully operate our business to meet near-term and long-term debt repayment obligations is dependent on maintaining sufficient liquidity . liquidity working capital from continuing operations at december 31 , 2020 was approximately $ ( 93,000 ) compared with approximately $ ( 104,000 ) at december 31 , 2019. excluding the current portion of operating and finance lease liabilities , working capital was approximately $ 1,700 at december 31 , 2020 compared to $ ( 9,880 ) at december 31 , 2019. the increase in working capital was primarily due to an increase in cash and cash equivalents related to the proceeds we received from the osg 205 llc and osg courageous ii llc term loan and the osg 204 term loan discussed below . the increase was offset by a decrease in working capital due to increases in accounts payable , accrued expenses and other current liabilities and current installments of long-term debt . the increase in accounts payable , accrued expenses and other current liabilities was primarily related to increases in accrued drydock expenses due to ( a ) a 322-day increase in scheduled drydocking from december 31 , 2019 and ( b ) accrued expenses due to the addition of the alaskan explorer , alaskan legend , and alaskan navigator , to our fleet and our acquisition of atc . the increase in current installments of long-term debt was due to the additional debt outstanding at december 31 , 2020 compared to at december 31 , 2019. as of december 31 , 2020 , we had total liquidity on a consolidated basis comprised principally of $ 69,697 of cash and cash equivalents . we manage our cash in accordance with our intercompany cash management system , subject to the requirements of our debt facilities . our cash and cash equivalents , as well as our restricted cash balances , generally exceed federal deposit insurance corporation insurance limits . we place our cash , cash equivalents and restricted cash in what we believe to be creditworthy financial institutions . in addition , certain of our money market accounts invest in u.s. treasury securities or other obligations issued or guaranteed by the u.s. government or its agencies . restricted cash as of december 31 , 2020 was related to requirements under the unsecured senior notes . as of december 31 , 2020 , we had total debt outstanding ( net of original issue discount and deferred finance costs ) of $ 429,120 and a total debt to total capitalization of 53.0 % , compared to $ 368,047 and 51.9 % , respectively , at december 31 , 2019. net debt at december 31 , 2020 was $ 359,423 compared to $ 326,544 at december 31 , 2019. sources , uses and management of capital we generate significant cash flows from our complementary mix of time charters , voyage charters and contracts of affreightment . net cash provided by operating activities in the year ended december 31 , 2020 was $ 52,668. in addition to operating cash flows , our other current potential sources of funds are proceeds from additional issuances of equity securities , additional borrowings and proceeds from the opportunistic sales of our vessels . in the past , we have also obtained funds from the issuance of long-term debt securities . we use capital to fund working capital requirements , maintain the quality of our vessels , comply with u.s. and international shipping standards and environmental laws and regulations and repay or repurchase our outstanding loan facilities . we may also use cash generated by operations to finance capital expenditures to modernize and grow our fleet . we are presently assessing the impact of the discontinuation of libor , expected by year-end 2021. the covid-19 pandemic has resulted in a significant reduction in demand for oil and refined petroleum products worldwide which has had a direct impact on our business . in an effort to conserve costs , several of the vessels in our fleet have been placed in layup in late 2020 and 2021. in recognition that certain of the financial covenants that were in place in each of our vessel financing facilities did not appropriately reflect the current situation , in march 2021 , the company obtained waivers and amendments of certain financial covenants in each of its vessel financing facilities , with respect to fourth quarter 2020 and later periods ' compliance requirements . 31 overseas shipholding group , inc. in november 2020 , two of the company 's subsidiaries , osg 205 llc and osg courageous ii llc , entered into a construction loan in the original principal amount of $ 49,150 of which $ 46,711 was drawn down to finance a new 204,000-barrel u.s. flag oil and chemical atb barge , osg 205 , and to refinance the tug to which the barge is being paired , the osg courageous . the company made a prepayment of $ 15,811 , which included accrued interest on its term loan , due 2023. on december 3 , 2020 , upon completion and delivery of the osg 205 , the remainder of the construction loan was drawn down and the construction loan was converted to a term loan . the loan is guaranteed by the company , bears a fixed rate of interest of 6.37 % and has a seven-year term maturing on december 1 , 2027. in june 2020 , one of the company 's subsidiaries , osg 204 llc , entered into a loan with wintrust commercial finance and other syndicate lenders in the aggregate original principal amount of $ 32,933 to finance a new 204,000-barrel u.s. flag oil and chemical atb barge .
| results from vessel operations during the year ended december 31 , 2020 , shipping revenues increased by $ 63,145 , or 17.8 % compared to 2019. the increase primarily resulted from the addition to our fleet of two marshall islands flagged mr tankers , overseas gulf coast and overseas sun coast , which entered service during the fourth quarter of 2019 , three crude oil tankers , alaskan explorer , alaskan legend and alaskan navigator , which were purchased in march 2020 , and two atbs , osg 204 and osg endurance and osg 205 and osg courageous , which were delivered at the end of may 2020 and beginning of december 2020 , respectively . the increase was offset by ( a ) two fewer atbs in our fleet , ( b ) a 322-day increase in scheduled drydocking , ( c ) a decrease in delaware bay lightering volumes , discussed above , and ( d ) a 160-day increase in lay-up days primarily due to one vessel that was redelivered from time charter during the third quarter of 2020 and placed in lay-up , a decision taken in light of the lack of demand due to covid-19 economic impact . reconciliations of tce revenues , a non-gaap measure , to shipping revenues as reported in the consolidated statements of operations follows : replace_table_token_3_th consistent with general practice in the shipping industry , we use tce revenues , which represents shipping revenues less voyage expenses , as a measure to compare revenue generated from a voyage charter to revenue generated from a time charter . tce revenues , a non-gaap measure , provides additional meaningful information in conjunction with shipping revenues , the most directly comparable gaap measure , because it assists management in decisions regarding the deployment and use of our vessels and in evaluating their financial performance .
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the fair value of employee share options is determined on the date of grant using the black-scholes option pricing model . the company story_separator_special_tag industrial products ipg sells a wide array of maintenance , repair and operational ( `` mro '' ) products , as well as other industrial and general business supplies , which are marketed in north america . most of these products are manufactured by other companies ; however , the company does offer a selection of products that are manufactured for our own design and marketed under the trademarks global , globalindustrial.com and nexel relius , paramount and interion . industrial products accounted for 63 % , 61 % and 56 % of our net sales from continuing operations in 2017 , 2016 and 2015 , respectively . 21 on january 30 , 2015 , ipg completed its acquisition of the plant equipment group , a business-to-business direct marketer of mro products , from takkt america for $ 25.9 million in cash ; post-closing working capital adjustments were de minimis . this acquisition expanded the company 's regional footprint and its market share . europe technology products group etg sells information and communication technology ( `` ict '' ) products and consumer electronics ( `` ce '' ) . these products are marketed primarily in france and to a much lesser extent belgium . substantially all of these products are manufactured by other companies . on march 24 , 2017 the company sold its sarl businesses and its continuing etg operations now only include those in france . prior year comparatives will include france and the divested german operations which was sold in september 2016. france accounted for approximately 37 % , 37 % and 32 % ( excluding sales of the sold germany operations in 2016 and 2015 ) of our net sales from continuing operations in 2017 , 2016 and 2015 , respectively . in september 2016 the company sold certain assets of its misco germany operations which had been reported as part of its etg segment . as this disposition was not a strategic shift with a major impact as defined under asu 2014-08 , prior and current year results of the german operations are presented within continuing operations in the consolidated financial statements . for the year ended december 31 , 2016 , net sales of misco germany included in continuing operations were $ 33.9 million and the net loss , including approximately $ 1.7 million of intercompany charges , was $ 6.4 million . in both of these above mentioned product groups , we offer our customers a broad selection of products , prompt order fulfillment and extensive customer service . corporate and other at december 31 , 2016 , the company sold all of its issued and outstanding membership interests of its rebate processing business which had been reported as part of its corporate and other ( “ corporate ” ) segment . as this disposition was also not a strategic shift with a major impact as defined under asu 2014-08 , prior and current year results of the rebate processing business are presented within continuing operations in the consolidated financial statements . for the year ended december 31 , 2016 , net sales of the rebate processing business included in continuing operations were $ 3.7 million and the net loss was $ 2.3 million . the company recorded a gain on this sale of approximately $ 3.9 million . north american technology products group as discussed above , the company sold certain b2b assets of natg in december 2015 and substantially completed wind-down activities in 2016. the natg segment sold primarily ict and ce products . these products were marketed in the united states , canada and puerto rico . most of these products were manufactured by other companies ; however the company did offer a selection of products that were manufactured to our own designs and marketed on a private label basis . natg sales included in continuing operations in 2017 and 2016 were 0 % and 8 % in 2015 of our net sales . discontinued operations as discussed above , for 2017 and prior year periods the company 's discontinued operations include the results of the sarl businesses sold in march 2017 and the natg business sold in december 2015. total net sales for the discontinued operations were $ 117.0 million , $ 521.6 million and $ 1.7 billion for the years ended 2017 , 2016 and 2015 , respectively . see note 2 and 10 to the consolidated financial statements included in item 15 of this form 10-k for additional financial information about our business segments as well as information about our geographic operations . operating conditions the north american industrial products market is highly fragmented and we compete against multiple distribution channels . the etg market for computer products and electronics is subject to intense price competition and is characterized by narrow gross profit margins . in both ipg and etg , distribution is working capital intensive , requiring us to incur significant costs associated with the warehousing of many products , including the costs of maintaining inventory , leasing warehouse space , inventory management systems , and employing personnel to perform the associated tasks . we supplement our on-hand product availability by maintaining relationships with major distributors and manufacturers , utilizing a combination of stock and drop-shipment fulfillment . the primary component of our operating expenses historically has been employee-related costs , which includes items such as wages , commissions , bonuses , employee benefits and equity based compensation , as well as marketing expenses , primarily 22 comprised of digital marketing spend , and occupancy related charges associated with our distribution and call center facilities . we continually assess our operations to ensure that they are efficient , aligned with market conditions and responsive to customer needs . in the discussion of our results of operations we refer to business to business channel sales and period to period constant currency comparisons . story_separator_special_tag a change of 10 % in our inventory reserves at december 31 , 2017 would impact net income by approximately $ 0.2 million . 24 goodwill and intangible assets . we apply the provisions of relevant accounting guidance in our valuation of goodwill , trademarks , domain names , client lists and other intangible assets . relevant accounting guidance requires that goodwill and indefinite lived intangibles be reviewed at least annually for impairment or more frequently if indicators of impairment exist . the amount of an impairment loss would be recognized as the excess of the asset 's carrying value over its fair value . our impairment testing involves judgments and uncertainties , quantitative and qualitative , related to the use of discounted cash flow models and forecasts of future results , both of which involve significant judgment and may not be reliable . significant management judgment is necessary to evaluate the operating environment and economic conditions that exist to develop a forecast for a reporting unit . assumptions related to the discounted cash flow models we use include the inputs used to determine the company 's weighted average cost of capital including a market risk premium , the beta of a reporting unit , reporting unit specific risk premiums and terminal growth values . critical assumptions related to the forecast inputs used in our discounted cash flow models include projected sales growth , gross margin percentages , new business opportunities , working capital requirements , capital expenditures and growth in selling , general and administrative expense . we also use our company 's market capitalization and comparable company market data to validate our reporting unit valuations . we have not made any material changes to our goodwill policy in the past four years and we do not anticipate making any material changes to this policy in the future . in the fourth quarter of 2016 , the company conducted an evaluation of certain intangible assets of its mexico operation in its ipg segment and concluded that they were impaired and a charge of $ 0.1 million , pre-tax was recorded . in our discontinued etg segment , impairment charges of $ 0.3 million were recorded in the fourth quarter of 2016 , related to impairment of intangible assets in the united kingdom . we have approximately , in aggregate , $ 14.5 million in goodwill and intangible assets at december 31 , 2017. we do not believe it is reasonably likely that the estimates or assumptions used to determine whether any of our remaining goodwill or intangible assets are impaired will change materially in the future . however if the inputs used in our discounted cash flow models or our forecasts are materially different than actual experience we could incur impairment charges that are material . long-lived assets . management exercises judgment in evaluating our long-lived assets for impairment and in their depreciation and amortization methods and lives including evaluating undiscounted cash flows . the impairment analysis for long lived assets requires management to make judgments about useful lives and to estimate fair values of long lived assets . it may also require us to estimate future cash flows of related assets using discounted cash flow model . our estimates of future cash flows involve assumptions concerning future operating performance and economic conditions . while we believe that our estimates of future cash flows are reasonable , different assumptions regarding such cash flows could materially affect our evaluations . we have not made any material changes to our long lived assets policy in the past four years and we do not anticipate making any material changes to this policy in the future . in the fourth quarter of 2016 , the company , after conducting an evaluation of the long-lived assets in its united kingdom operations , recorded an impairment charge of $ 1.7 million within etg discontinued operations segment . we do not believe it is reasonably likely that the estimates and assumptions used to determine long lived asset impairment will vary materially in the future . however if our estimates are materially different than our actual experience we could have a material gain or loss adjustment . a change of 10 % in the carrying value of our long lived assets would impact net income by approximately $ 1.5 million . 25 vendor accruals . our contractual agreements with certain suppliers provide us with funding or allowances for costs such as price protection , markdowns and advertising as well as funds or allowances for purchasing volumes . generally , allowances received as a reimbursement of identifiable costs are recorded as an expense reduction when the cost is incurred . sales related allowances are generally determined by our level of purchases of product and are deferred and recorded as a reduction of inventory carrying value and are ultimately included as a reduction of cost of goods when inventory is sold . management makes assumptions and exercises judgment in estimating period end funding and allowances earned under our various agreements . estimates are developed based on the terms of our vendor agreements and using existing expenditures for which funding is available , determining products whose market price would indicate coverage for markdown or price protection is available and estimating the level of our performance under agreements that provide funds or allowances for purchasing volumes . estimates of funding or allowances for purchasing volume will include projections of annual purchases which are developed using current actual purchase data and historical purchase trends . accruals in interim periods could be materially different if actual purchase volumes differ from projections . we have not made any material changes to our vendor accrual policy in the past four years nor do we anticipate making any material changes to this policy in the future . if actual results are different from the projections used we could have a material gain or loss adjustment . a change of 10 % in our vendor accruals at december 31 , 2017 would impact net income by approximately $ 0.4 million . income taxes .
| highlights from 2017 the discussion of our results of operations and financial condition that follows will provide information that will assist in understanding our financial statements and information about how certain accounting principles and estimates affect the consolidated financial statements . this discussion should be read in conjunction with the consolidated financial statements included herein . ipg sales increased 10.6 % to $ 791.8 million and operating profit increased 102.9 % to $ 69.6 million . on a constant currency basis , average daily sales increased 11.0 % . etg sales increased 5.0 % to $ 473.6 million and operating profit increased 69.0 % to $ 24.5 million . on a constant currency basis , average daily sales increased 3.8 % . consolidated operating income grew 157.4 % to $ 71.3 million compared to $ 27.7 million in the prior year . 28 gaap results of operations key performance indicators * ( in millions ) : replace_table_token_4_th * excludes discontinued operations ( see note 3 of notes to consolidated financial statements ) . * * includes special charges , net ( see note 3 of notes to consolidated financial statements ) . nm=not meaningful 29 non-gaap results of operations replace_table_token_5_th * percentages are calculated using sales data in hundreds of thousands . for the year ended december 31 , 2017 , 2016 and 2015 , ipg had 253 , 254 and 257 selling days , respectively and france had 251 , 253 and 256 selling days , respectively . * * percentages are calculated using sales data excluding misco germany , in hundreds of thousands . 1 on december 1 , 2015 the company closed on the sale of certain assets of its north american technology group ( “ natg ” ) .
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our actual results may differ substantially from those expressed in or implied by any forward-looking statements herein due to a number of factors , including but not limited to the risks and uncertainties described in this item 7 , in item 1a “ risk factors ” and elsewhere in this annual report . these forward-looking statements reflect our views and assumptions only as of the date such forward-looking statements are made . except as required by law , we assume no responsibility for updating any forward-looking statements , whether as a result of new information , future events or otherwise . the following discussion should be read in conjunction with our audited consolidated financial statements and the related notes and other financial information appearing elsewhere in this annual report and other reports and filings made with the sec . overview kratos is a government contractor at the forefront of the dod 's recapitalization of strategic weapon systems to address peer and near peer threats and its related rapid innovation initiatives . kratos is a leading technology , intellectual property , proprietary product and system company focused on the u.s. and its allies ' national security . kratos is a recognized industry leader in the rapid development , demonstration and fielding of disruptive , transformative and high technology systems and products at an affordable cost . at kratos , affordability is a technology . kratos ' primary focus areas are unmanned systems , space and satellite communications , microwave electronics , cybersecurity/warfare , rocket , hypersonic and missile defense systems , turbine technologies , c5isr systems and training systems . we believe that our technology , intellectual property , proprietary products and designed-in positions on our customers ' programs , platforms and systems , and our ability to rapidly develop , demonstrate and field affordable leading technology systems gives us a competitive advantage . we believe that our extensive past performance qualifications and demonstrated ability to meet or exceed our customers ' demanding requirements creates a high barrier to entry into our markets . our workforce is primarily engineering and technically oriented with a significant number of kratos employees holding national 45 security clearances . much of our work is performed at customer locations , or in a secure manufacturing facility . our primary end customers are national security related agencies . our entire organization is focused on executing our strategy of being the leading technology and intellectual property based product and system company in our industry . our primary end customers are u.s. government agencies , including the dod , intelligence agencies , and other national and homeland security related agencies . we also conduct business with local , state and foreign governments and domestic and international commercial customers . in fiscal 2020 , 2019 and 2018 , we generated 73 % , 71 % and 72 % , respectively , of our total revenues from contracts with the u.s. government ( including all branches of the u.s. military and including fms ) , either as a prime contractor or a subcontractor . we believe our stable customer base , strong customer relationships , intellectual property , specialized and differentiated products , broad array of contract vehicles , “ designed in ” positions on strategic national security platforms , our targeted investments in strategic growth areas , large employee base possessing specialized skills , security clearances , specialized manufacturing facilities and equipment , extensive list of past performance qualifications , and significant management and operational capabilities position us for success . we were incorporated in the state of new york on december 19 , 1994 and began operations in march 1995. we reincorporated in the state of delaware in 1998. industry background on december 27 , 2020 , the consolidated appropriations act , 2021 , was signed into law . the $ 2.3 trillion spending bill combines $ 900 billion in stimulus relief for the covid-19 pandemic in the united states with a $ 1.4 trillion omnibus spending bill for the fy 2021 ( combining 12 separate annual appropriations bills ) . the bills allocate $ 695.9 billion for the dod , a decrease of $ 9.7 billion from fy 2020. the federal budget and debt ceiling are expected to continue to be the subject of considerable debate , which could have a significant impact on defense spending broadly and the company 's programs in particular . the u.s. government 's fiscal year ends september 30. the budget environment , including covid-19 spending increases proposed by the new biden administration , and uncertainty surrounding the debt ceiling and the appropriations process , remain significant short and long-term risks . considerable uncertainty exists regarding how future budget and program decisions will unfold , including the defense spending priorities of the administration and congress and what challenges budget reductions ( required by the bca and otherwise ) will present for the defense industry . if annual appropriations bills are not timely enacted , the u.s. government may again operate under a cra , restricting new contract or program starts , restricting increased funding or additional quantities on existing contracts , presenting resource allocation and forecasting challenges and placing limitations on some planned program budgets , and we may face another government shutdown of unknown duration . if a prolonged government shutdown of the dod were to occur , it could result in program cancellations , disruptions and or stop work orders and could limit the u.s. government 's ability to effectively progress programs and to make timely payments , and our ability to perform on our u.s. government contracts and successfully compete for new work . we believe continued budget pressures , cras or u.s. government shutdowns would have serious negative consequences for the security of our country and the defense industrial base , including the company and the customers , employees , suppliers , investors , and communities that rely on companies in the defense industrial base . it is likely budget and program decisions made in such an uncertain environment would have long-term implications for our company and the entire defense industry . story_separator_special_tag from a customer and solutions perspective , we view our business as an integrated whole , leveraging skills and assets wherever possible . discontinued operations on february 28 , 2018 , the company entered into a stock purchase agreement to sell the operations of kratos public safety & security solutions , inc. , a delaware corporation and wholly owned subsidiary of the company ( “ pss ” ) , to securitas electronic security , inc. , a delaware corporation ( “ buyer ” ) . on june 11 , 2018 , we completed the sale of all of the issued and outstanding capital stock of pss to buyer for a purchase price of $ 69 million in cash , subject to a closing net working capital adjustment ( the “ transaction ” ) . to date , we have received approximately $ 70 million of aggregate net cash proceeds from the transaction , after taking into account amounts that were paid by us pursuant to a negotiated transaction services agreement between us and the buyer , receipt of approximately $ 6.8 million in net working capital retained by the company , and associated transaction fees and expenses , excluding the impact of the final settlement and determination of the closing net working capital adjustment . we are currently in dispute with the buyer regarding the closing net working capital adjustment . 47 the amount in dispute is approximately $ 8 million . the company has recorded a net break-even on the sale of the pss business which includes the aggregate net proceeds described above that have been collected , excluding the impact of the final settlement and determination of the closing net working capital adjustment . the resolution of the ongoing dispute will be recorded in future periods when resolved . for additional information regarding discontinued operations , see note 9 of the notes to consolidated financial statements contained within this annual report . key financial statement concepts as of december 27 , 2020 , we consider the following factors to be important in understanding our financial statements . the company 's business with the u.s. government and prime contractors is generally performed under fixed-price , cost reimbursable , or time and materials contracts . cost reimbursable contracts for the u.s. government provide for reimbursement of costs plus the payment of a fee . some cost reimbursable contracts include award and incentive fees that are awarded based on performance on the contract . under time and materials contracts , we are reimbursed for labor hours at negotiated hourly billing rates and reimbursed for travel and other direct expenses at actual costs plus applied general and administrative expenses . for the majority of contracts , we satisfy the underlying performance obligations over time as the customer obtains control or receives benefits as work is performed on the contract . as a result , under asc 606 revenue is recognized over a period of time utilizing the percentage-of-completion cost-to-cost method . in accordance with asc 606 , we evaluate whether a contract with a customer exists by evaluating a number of criteria including whether collection of consideration is reasonably assured ; comprehensive collection history ; results of our communications with customers ; the current financial position of the customer ; and the relevant economic conditions in the customer 's country . if we have had no prior experience with the customer , we may review reports from various credit organizations to ensure that the customer has a history of paying its creditors in a reliable and effective manner . if the financial condition of our customers were to deteriorate and adversely affect their financial ability to make payments , allowances would be required . we monitor our policies and procedures with respect to our contracts on a regular basis to ensure consistent application under similar terms and conditions as well as compliance with all applicable government regulations . in addition , costs incurred and allocated to contracts with the u.s. government are routinely audited by the dcaa . we manage and assess the performance of our businesses based on our performance on individual contracts and programs obtained generally from government organizations with consideration given to our “ critical accounting principles and estimates ” discussed below . due to the federal acquisition regulation rules that govern our business , most types of costs are allowable , and we do not focus on individual cost groupings ( such as cost of sales or general and administrative costs ) as much as we do on total contract costs , which are a key factor in determining contract operating income . as a result , in evaluating our operating performance , we look primarily at changes in sales and service revenues and operating income , including the effects of significant changes in operating income . changes in contract revenue and cost estimates are reviewed on a contract-by-contract basis and are revised periodically throughout the life of the contract such that adjustments to profit resulting from revisions are made cumulative to the date of the revision in accordance with accounting principles generally accepted in the u.s. ( “ gaap ” ) . significant management judgments and estimates , including the estimated costs to complete the project , which determine the project 's percentage complete , must be made and used in connection with the revenue recognized in any accounting period . material differences may result in the amount and timing of our revenue for any period if management makes different judgments or utilizes different estimates . effective december 31 , 2018 , we adopted the requirements of asu 2016-02 , leases , also referred to as “ asc 842 ” , utilizing the optional transition method , as discussed in note 1 to the accompanying consolidated financial statements . asc 842 requires that lessees recognize assets and liabilities for the rights and obligations underlying leases with a lease term of more than one year .
| results of operations comparison of results for the year ended december 27 , 2020 to the year ended december 29 , 2019 revenues . revenues by reportable segment for the years ended december 27 , 2020 and december 29 , 2019 are as follows ( in millions ) : replace_table_token_3_th revenues increased $ 30.2 million to $ 747.7 million for the year ended december 27 , 2020 from $ 717.5 million for the year ended december 29 , 2019. revenues in our kgs segment increased $ 4.6 million due to revenues from the recent asc signal acquisition , which contributed an aggregate of approximately $ 21.9 million , and increases in our microwave products , defense and rocket support and c5isr businesses of approximately $ 17.9 million . these increases were offset by reduced revenues in our legacy services , commercial satellite and training solutions business of $ 36.2 million primarily reflecting the completion and rescoping of certain international and foreign military sales contracts and reductions in our commercial satellite business as a result of the completion of large foreign satellite infrastructure deployments and from impacts resulting from covid-19 . revenues in our us segment increased $ 25.6 million primarily due to work performed on certain confidential drone programs , and due to contributions of approximately $ 2.5 million from the recent tdi and 5-d acquisitions . product sales increased $ 54.1 million to $ 499.0 million for the year ended december 27 , 2020 from $ 444.9 million for the year ended december 29 , 2019 , primarily as a result of increased production activity in our us segment , increased production in our microwave products , modular systems and rocket support businesses and increases from our recent asc signal acquisition , offset partially by reductions in our commercial satellite and training solutions businesses .
| 6,749 |
as a percentage of net sales , gross profit rate increased approximately 260 basis points to 30.7 % , from 28.1 % in the prior year . for the year ended december 31 , 2016 , selling , general and administrative ( “ sg & a ” ) expenses increased $ 24.8 million , or 11.4 % , compared with 2015 , primarily driven by the increase in expense in pension and other postretirement benefits of $ 14.9 million . for the year ended december 31 , 2016 , net loss was $ 19.9 million , compared with net income of $ 63.1 million in 2015 , and net loss attributable to common shareholders was $ 20.8 million , compared with net income attributable to common shareholders of $ 64.1 million in 2015 . income from continuing operations was $ 44.6 million for the year ended december 31 , 2016 , compared with income from continuing operations of $ 99.9 million in 2015 . 2016 transactional activity business acquisitions acquisition of cappelle : as discussed in note 4 , in the fourth quarter of 2016 , the company acquired 100 % of the share capital of belgium-based cappelle pigments nv ( “ cappelle ” ) , a leader in specialty , high-performance inorganic and organic pigments used in coating s , inks and plastics , for 40 . 0 million ( approximately $ 42.4 million ) . acquisition of esl : as discussed in note 4 , in the fourth quarter of 2016 , the company acquired 100 % of the membership interest of electro-science laboratories , inc. ( “ esl ” ) , a leader in electronic packaging materials for $ 78.0 million . acquisition of delta performance products : as discussed in note 4 , in the third quarter of 2016 , the company acquired certain assets of delta performance products , llc , for a cash purchase price of $ 4.4 million . acquisition of pinturas : as discussed in note 4 , in the second quarter of 2016 , the company acquired 100 % of the equity of privately held pinturas benicarló , s.l . ( “ pinturas ” ) for 16.5 million in cash ( approximately $ 18.4 million ) . acquisition of ferer : as discussed in note 4 , in the first quarter of 2016 , the company completed the purchase of 100 % of the equity of privately held istanbul-based ferer dis ticaret ve kimyasallar anonim sirketi a.s. ( “ ferer ” ) for approximately $ 9.4 million in cash . disposition of the europe-based polymer additives business as discussed in note 3 , in the third quarter of 2016 , the company completed the disposition of the europe-based polymer additives business to plahoma two ag , an affiliate of the livia group . outlook the company delivered strong performance throughout 2016. sales increased 6.5 % primarily due to acquisitions acquired within the last year . in addition , gross profit , as a percentage of net sales , increased to 30.7 % from 28.1 % . partially offsetting the higher gross profit were increased sg & a costs , primarily driven by an increase in pension and postretirement benefits expense and incentive compensation expense . our effective tax ra te for 2016 was 28.6 % . for 2017 , we expec t gro ss margin will continue to improve . w e anticipate benefitting from strategic actions taken to improve growth in our core businesses and will continue to benefit from recent acquisitions . raw material costs are expected to increase in 2017 , however ou r expectation is to offset these cost increases through pricing actions , product reformulations and optimization actions . in addition , foreign currency exchange rates continue to be volatile , and we anticipate changes in rates will adversely impact reported results . 20 we remain focused on the integration of our recent acquisitions and continue to work toward achieving the identified synergies . we will continue to focus on opportunities to optimize our cost structure and make our business processes and systems more efficient , and to leverage tax planning opportunities . we continue to expect cash flow from operating activities to be positive for 2017 , providing additional liquidity . 21 results of operations - consolidated comparison of the years ended december 31 , 2016 and 2015 for the year ended december 31 , 2016 , income from continuing operations was $ 44.6 million , compared with income from continuing operations of $ 99.9 million in 2015 . for the year ended december 31 , 2016 , net loss was $ 19.9 million , compared with net income of $ 63.1 million in 2015 . for the year ended december 31 , 2016 , net loss attributable to common shareholders was $ 20.8 million , or $ 0.25 loss per share , compared with net income attributable to common shareholders of $ 64.1 million , or $ 0.74 earnings per share in 2015 . net sales replace_table_token_4_th net sales increased by $ 70.0 million , or 6.5 % , in the year ended december 31 , 2016 , compared with the prior year . the n et sales increas e was driven by higher sal es in pig me nts , powders and oxides of $ 81.6 mi llion , partially offset by a decrease in sales in performance colors and glass of $ 5.3 million and performance coatings of $ 6.4 million . the increase in net sales was primarily driven by the sales from nubiola of $ 66.3 million and sales from al salomi of $ 22.1 million , partially offset by a decrease in sales of frits an d glazes from latin america of $ 23.9 million . gross profit gross profit increased $ 49.5 million , or 16.4 % , in 2016 to $ 351.2 million , compared with $ 301.7 million in 2015 and , as a percentage of net sales , it increased 260 basis points to 30.7 % . story_separator_special_tag the most significant driver of the decrease in sg & a expenses in 2015 was the change in the mark-to-market loss and curtailment and settlement effects on our defined benefit pension plans and postretirement health care and life insurance benefit plans of $ 80.3 million , and is included within the pension and other postretirement benefits line above . the expense in 2014 was primarily related to changes in actuarial assumptions used in calculating the value of the u.s. pension liability . in addition , during 2014 , the company adopted the use of new mortality tables within its calculation assumptions , which had a one-time impact of increasing the liability . the new mortality tables reflect underlying increases in life expectancy of participants , thus driving longer benefit payment periods . the impact of the change in mortality assumption on the u.s. pension liability was an increase of the liability of approximately $ 18 million . excluding the impacts of the pension and other postretirement benefits expense , sg & a expenses increased 190 basis points from 18.1 % in 2014 to 20.0 % in 2015. included in sg & a expenses were $ 8.1 million and $ 12.5 million of expenses attributable to nubiola and vetriceramici , which were acquired in the third quarter of 2015 and the fourth quarter of 2014 , respectively . the increase in business development costs of $ 10.1 million was a result of higher costs associated with professional fees that were related to business development activities . these increases were offset by lower incentive compensation expense of $ 6.6 million , which is based on certain performance metrics , and lower bad debt expenses of $ 2.0 million . the decrease in sg & a is also a result of foreign currency impacts . 26 the following table presents sg & a expenses attributable to sales , research and development and operations costs as strategic services and other sg & a expenses as functional services . replace_table_token_15_th sg & a expenses were $ 69.1 million lower in 2015 , compared with 2014. the decrease in sg & a expenses was driven by lower expenses in functional services from the change in the mark-to-market loss and curtailment and settlement effects on our defined benefit pension plans and postretirement health care and life insurance benefit plans of $ 80.3 million , partially offset by an increase in business development expenses of $ 10.1 million . lower sg & a expenses were also driven by lower incentive and stock-based compensation expense , partially offset by higher expenses in strategic services driven by the vetriceramici and nubiola acquisitions . restructuring and impairment charges replace_table_token_16_th restructuring and impairment charges increased in 2015 compared with 2014. the primary drivers were the increase in employee severance cost of $ 1.3 million in 2015 compared with 2014 and the early termination cost of a contract associated with restructuring a corporate function of $ 2.8 million during in 2015. the increase in restructuring and impairment charges was partially mitigated by a decrease of $ 2.5 million due to a lease termination charge that occurred in 2014. interest expense replace_table_token_17_th interest expen se in 2015 decreased $ 1.1 million compared with 2014 , primarily due to the redemption of the 7.875 % senior notes and refinancing of the 2013 revolving credit facility during the third quarter of 2014. the decrease was partially offset by less interest capitalization associated with long-term capital projects , which was driven by the substantial completion of the antwerp , belgium facility in the fourth quarter of 2015. income tax expense in 2015 , we recorded an income tax benefit of $ 45.1 million , or ( 82.3 % ) of income before income taxes , compared to an income tax benefit of $ 34.2 million , or 79.9 % of loss before taxes in 2014. the 2015 effective tax rate was less than the statutory income tax rate of 35 % primarily as a result of $ 3.8 million benefit related to greater levels of income earned in lower tax jurisdictions , a $ 3.1 million benefit for the release of the valuation allowances related to deferred tax assets that we re utilized in the current year and $ 63.3 million benefit for the release of valuation allowances in certain jurisdictions , which are deemed no longer necessary based upon a 27 change from a cumulative three-year loss to income and our expectation of sufficient future taxable income to be able to realize the respective benefits , offset by $ 2.4 million expense related to ne w uncertain tax positions and $ 1.7 million expense related to non-deductible expenses . the 2014 effective tax rate was greater than the statutory income tax rate of 35 % primarily as a result of a $ 17.4 million benefit related to the release of valuation allowances for deferred tax assets that were utilized in the 2014 , the release of valuation allowances deemed no longer necessary and the expiration of fully valued tax attributes , $ 15.2 million of benefit related to 2014 domestic foreign tax credit generated and utilized , and foreign tax rate differences from the statutory income tax rate of 35 % . results of operations - segment information comparison of the years ended december 31 , 2016 and 2015 performance coatings replace_table_token_18_th net sales declined in performance coatings compared with 2015 , primarily driven by a decreas e in sales of $ 20.9 million in frits and glazes , and $ 8.4 millio n due to the sale of our venez uela business , partially mitigated by $ 22.1 million in sales from al salomi . the decrease in net sales was impacted by unfavorable foreign currency impacts of $ 3 4.4 million and lower product pricing of $ 15.9 million , partially offset by increased sales volume and mix of $ 44 .0 million .
| primarily as a result of a $ 5.5 million benefit related to greater levels of income earned in lower tax jurisdictions , $ 4.8 million net benefit for the release of valuation allowances related to deferred tax assets that were utilized in the current year , $ 2.0 million in net benefit for the release of valuation allowances , which are deemed no longer necessary based upon changes in the current and expected future years operating profits , $ 1.8 million benefit related to notional interest deductions , $ 2.8 million benefit for the generation of tax credits offset by a $ 4.1 million expense related to the impairment of book basis goodwill and a $ 2.1 million expense related to non-deductible expenses . the 2015 effective tax rate was less than the statutory income tax rate of 35 % primarily as a result of a $ 3.8 million benefit related to greater levels of income earned in lower tax jurisdictions , $ 3.1 million benefit for the release of the valuation allowances related to deferred tax assets that wer e utilized in the current year and $ 63.3 million benefit for the release of valuation allowances in certain jurisdictions , which are deemed no longer necessary based upon a change from a cumulative three-year loss to income and our expectation of sufficient future taxable income to be able to realize the respective benefits , offset by $ 2.4 million expense related to ne w uncertain tax positions and $ 1.7 million expense related to non-deductible expenses . comparison of the years ended december 31 , 2015 and 2014 for the year ended december 31 , 2015 , income from continuing operations was $ 99.9 million , compared with a loss from continuing operations of $ 8.6 million in 2014 .
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long-lived assets - property and equipment and non-current assets are reviewed for impairment whenever events or changes in circumstances indicate that the net book value of the asset may not be recoverable . an impairment loss is recognized if the sum of the expected future cash flows ( undiscounted and before interest ) from the use of the asset is less than the net book value of the asset . generally , the amount of the impairment loss is measured as the difference between the net book value of the asset and the estimated fair value of the related asset . the company has not recorded any impairment loss for the fiscal years ended december 31 , 2014 , 2013 and 2012 . fair value of financial instruments - the fair value of financial instruments is determined by reference to various market data and other valuation techniques , as appropriate . financial assets and liabilities are classified based story_separator_special_tag general the company is a leading operator of retail-based pawn stores in the united states and mexico . the company 's pawn stores generate significant retail sales from the merchandise acquired through collateral forfeitures and over-the-counter purchases from customers . the company 's pawn stores are also a convenient source for small consumer loans to help customers meet their short-term cash needs . personal property such as consumer electronics , jewelry , power tools , sporting goods and musical instruments are pledged as collateral for the loans . in addition , some of the company 's pawn stores offer consumer loans or credit services products . the company 's strategy is to focus on growing its retail-based pawn operations in the united states and mexico through new store openings and acquisition opportunities as they arise . pawn operations accounted for approximately 95 % of the company 's consolidated revenue from continuing operations during fiscal 2014 compared to 93 % during fiscal 2013 . the company 's pawn revenue is derived primarily from merchandise sales of forfeited pawn collateral and used goods purchased directly from the general public and from pawn loan fees . the company accrues pawn loan fee revenue on a constant-yield basis over the life of the pawn loan for all pawns that the company deems collection to be probable based on historical pawn redemption statistics . if a pawn loan is not repaid prior to the expiration of the loan term , including any automatic extension period , if applicable , the property is forfeited to the company and transferred to inventory at a value equal to the principal amount of the loan , exclusive of accrued interest . the company operates a small number of stand-alone consumer finance stores in texas and mexico . these stores provide consumer financial services products including credit services , consumer loans and check cashing . certain of the company 's pawn stores also offer credit services and or consumer loans as an ancillary product . consumer loan and credit services revenue accounted for approximately 5 % of consolidated revenue from continuing operations for fiscal 2014 compared to 7 % during fiscal 2013 , and was derived primarily from credit services fees . the company recognizes service fee income on consumer loans and credit services transactions on a constant-yield basis over the life of the loan or credit extension , which is generally 180 days or less . the net defaults on consumer loans and credit services transactions and changes in the valuation reserve are charged to the consumer loan credit loss provision . the credit loss provision associated with the company 's cso program and consumer loans are based primarily upon historical credit loss experience , with consideration given to recent credit loss trends , delinquency rates , economic conditions and management 's expectations of future credit losses . for an additional discussion of the credit loss provision and related allowances and accruals , see “ —results of continuing operations. ” stores included in the same-store revenue calculations presented in this annual report are those stores that were opened prior to the beginning of the prior-year comparative fiscal period and remained open through the end of the measurement period . also included are stores that were relocated during the year within a specified distance serving the same market where there is not a significant change in store size and where there is not a significant overlap or gap in timing between the opening of the new store and the closing of the existing store . unless otherwise stated , non-retail sales of scrap jewelry are included in same-store revenue calculations . operating expenses consist of all items directly related to the operation of the company 's stores , including salaries and related payroll costs , rent , utilities , facilities maintenance , advertising , property taxes , licenses , supplies and security . administrative expenses consist of items relating to the operation of the corporate offices , including the compensation and benefit costs of corporate management , area supervisors and other operations management personnel , collection operations and personnel , accounting and administrative costs , information technology costs , liability and casualty insurance , outside legal and accounting fees and stockholder-related expenses . 34 the following table details selected operating metrics regarding the company 's loan products , inventories and store locations ( 1 ) : replace_table_token_8_th ( 1 ) inventory and loan amounts for stores in mexico are based on translating the mexican peso to the u.s. dollar at the exchange rate as of each year end . the exchange rates used for december 31 , 2014 , 2013 , and 2012 were 14.7 to 1 , 13.1 to 1 , and 13.0 to 1 , respectively . see “ —non-gaap financial information—constant currency results ” below . ( 2 ) amounts shown represent the gross amount owed by customers before allowances . active cso program extensions of credit outstanding from the independent third-party lender are not included on the company 's balance sheet . ( 3 ) amounts shown represent the gross amount owed by customers before allowances . story_separator_special_tag the company 's maximum loss exposure under all of the outstanding letters of credit issued on behalf of its customers to the independent lender as of december 31 , 2014 was $ 11,907,000 . according to the letter of credit , if the borrower defaults on the extension of credit , the company will pay the independent lender the principal , accrued interest , insufficient funds fee , and late fees , all of which the company records in the consumer loan and credit services loss provision . the company is entitled to seek recovery directly from its customers for amounts it pays the independent lender in performing under the letters of credit . the company records the estimated fair value of the liability under the letters of credit as a component of accrued liabilities . an allowance is provided for losses on active consumer loans and service fees receivable based upon expected default rates , net of estimated future recoveries of previously defaulted consumer loans and service fees receivable . the company considers consumer loans to be in default if they are not repaid on the due date and writes off the principal amount and service fees receivable as of the default date , leaving only active advances in the reported balance . net defaults and changes in the consumer loan allowance are charged to the consumer loan loss provision . inventories - inventories represent merchandise acquired from forfeited pawns and merchandise purchased directly from the general public . inventories from forfeited pawns are recorded at the amount of the pawn principal on the unredeemed goods , exclusive of accrued interest . inventories purchased directly from customers are recorded at cost . the cost of inventories is determined on the specific identification method . inventories are stated at the lower of cost or market value ; accordingly , inventory valuation allowances are established , if necessary , when inventory carrying values are in excess of estimated selling prices , net of direct costs of disposal . management has evaluated inventories and determined that a valuation allowance is not necessary . 37 goodwill - goodwill represents the excess of the purchase price over the fair value of the net assets acquired in each business combination . the company performs its goodwill impairment assessment annually as of december 31 , and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . the company 's reporting units , which are tested for impairment , are u.s. pawn operations , u.s. consumer loan operations and mexico operations . the company assesses goodwill for impairment at a reporting unit level by first assessing a range of qualitative factors , including , but not limited to , macroeconomic conditions , industry conditions , the competitive environment , changes in the market for the company 's products and services , regulatory and political developments , entity specific factors such as strategy and changes in key personnel , and overall financial performance . if , after completing this assessment , it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value , the company proceeds to the two-step impairment testing methodology . foreign currency transactions - the company has significant operations in mexico , where the functional currency for the company 's mexican subsidiaries is the mexican peso . accordingly , the assets and liabilities of these subsidiaries are translated into u.s. dollars at the exchange rate in effect at each balance sheet date , and the resulting adjustments are accumulated in other comprehensive income ( loss ) as a separate component of stockholders ' equity . revenue and expenses are translated at the average exchange rates occurring during the year-to-date period . prior to translation , any u.s. dollar-denominated transactions of the mexican-based subsidiaries are remeasured into mexican pesos using current rates of exchange for monetary assets and liabilities and historical rates of exchange for non-monetary assets and liabilities . gains and losses from remeasurement of dollar-denominated monetary assets and liabilities in mexico are included in store operating expenses . the company 's management reviews and analyzes certain operating results , in mexico , on a constant currency basis because the company believes this better represents the company 's underlying business trends . amounts presented on a constant currency basis are denoted as such . see “ —non-gaap financial information ” for additional discussion of constant currency operating results . 38 results of continuing operations twelve months ended december 31 , 2014 compared to twelve months ended december 31 , 2013 . the following table details the components of the company 's revenue for the fiscal year ended december 31 , 2014 as compared to the fiscal year ended december 31 , 2013 ( in thousands ) . constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates . the average value of the mexican peso to the u.s. dollar decreased 4 % , from 12.8 to 1 during fiscal 2013 to 13.3 to 1 during fiscal 2014 . the end-of-period value of the mexican peso to the u.s. dollar decreased 12 % , from 13.1 to 1 at december 31 , 2013 , to 14.7 to 1 at december 31 , 2014 . as a result of these currency exchange movements , revenue from mexican operations translated into fewer u.s. dollars relative to the prior year , and net assets of mexican operations as of year end translated into fewer u.s. dollars relative to the prior year end . while the strength of the u.s. dollar compared to the mexican peso decreased the translated dollar-value of revenue generated in mexico , the cost of sales and operating expenses decreased as well . the scrap jewelry generated in mexico is exported and sold in u.s. dollars , which does not contribute to the company 's peso-denominated earnings stream .
| combined revenue results the increase in year-over-year revenue of 8 % ( 10 % on a constant currency basis ) reflected a 14 % increase ( 17 % on a constant currency basis ) in combined retail sales and pawn fee revenue from new and existing pawn stores , offset by a decrease in wholesale scrap jewelry revenue and consumer loan fees . revenue generated by the stores opened or acquired since january 1 , 2013 , increased by $ 36,071,000 in mexico and $ 53,307,000 in the united states in fiscal 2014 compared to fiscal 2013 . excluding wholesale scrap jewelry sales and consumer loan fees , the company 's same-store core revenue from retail sales and pawn fees increased 2 % on a consolidated , constant currency basis from fiscal 2013 to fiscal 2014 . same-store core sales in mexico increased 4 % ( on a constant currency basis ) , offset by a decrease in same-store core sales of 3 % in the u.s. as compared to the prior year . same-store wholesale scrap jewelry revenue decreased 37 % in total , reflecting lower gold prices and reduced volumes from customers selling gold to the company . the company believes it will continue to experience overall growth in pawn revenue in fiscal 2015 from acquisitions , the opening of new stores and maturation of existing stores . store operating expenses store operating expenses increased by 10 % to $ 198,986,000 during fiscal 2014 compared to $ 181,321,000 during fiscal 2013 , primarily as a result of the 10 % increase in the weighted-average store count , which included a number of large , mature stores added through acquisitions , partially offset by a decline in same-store operating expenses , which decreased 5 % on a constant currency basis compared to the prior-year period and a 4 % decline in the average value of the mexican peso .
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the flight support group also manufactures and sells specialty parts as a subcontractor for aerospace and industrial original equipment manufacturers and the united states ( `` u.s. '' ) government . additionally , the flight support group is a leading supplier , distributor , and integrator of military aircraft parts and support services primarily to foreign military organizations allied with the u.s. and a leading manufacturer of advanced niche components and complex composite assemblies for commercial aviation , defense and space applications . further , the flight support group engineers , designs and manufactures thermal insulation blankets and parts as well as removable/reusable insulation systems for aerospace , defense , commercial and industrial applications , manufactures expanded foil mesh for lightning strike protection in fixed and rotary wing aircraft and is a distributor of aviation electrical interconnect products and electromechanical parts . the electronic technologies group consists of heico electronic technologies corp. ( “ heico electronic ” ) and its subsidiaries , which primarily : designs and manufactures electronic , microwave and electro-optical equipment , high-speed interface products , high voltage interconnection devices and high voltage advanced power electronics . the electronic technologies group collectively designs , manufactures and sells various types of electronic , data and microwave , and electro-optical products , including power supplies , laser rangefinder receivers , infrared simulation , calibration and testing equipment ; power conversion products serving the high-reliability military , space and commercial avionics end-markets ; underwater locator beacons used to locate data and voice recorders utilized on aircraft and marine vessels ; emergency locator beacons utilized on commercial and military aircraft ; electromagnetic interference shielding for commercial and military aircraft operators , electronics companies and telecommunication equipment suppliers ; traveling wave tube amplifiers and microwave power modules used in radar , electronic warfare and on-board jamming and countermeasure systems ; advanced high-technology interface products that link devices such as telemetry receivers , digital cameras , high resolution scanners , simulation systems 31 index and test systems to computers ; high voltage energy generators , high voltage interconnection devices , cable assemblies and wire for the medical equipment , defense and other industrial markets ; high voltage power supplies found in satellite communications , ct scanners and in medical and industrial x-ray systems ; three-dimensional microelectronic and stacked memory products that are principally integrated into larger subsystems equipping satellites and spacecraft ; harsh environment connectivity products and custom molded cable assemblies ; radio frequency ( `` rf '' ) and microwave amplifiers , transmitters and receivers used to support military communications on unmanned aerial systems , other aircraft , helicopters and ground-based data/communications systems ; communications and electronic intercept receivers and tuners for military and intelligence applications ; wireless cabin control systems , solid state power distribution and management systems and fuel level sensing systems for business jets and for general aviation , as well as for the military/defense market ; microwave modules , units and integrated sub-systems for commercial and military satellites ; crashworthy and ballistically self-sealing auxiliary fuel systems for military rotorcraft ; nuclear radiation detectors for law enforcement , homeland security and military applications ; high performance active antenna systems for commercial aircraft , precision guided munitions , other defense applications and commercial uses ; silicone material for a variety of demanding applications ; precision power analog monolithic , hybrid and open frame components for a certain wide range of defense , industrial and medical applications ; high-reliability ceramic-to-metal feedthroughs and connectors used in the industrial and medical markets ; technical surveillance countermeasures equipment to detect devices used for espionage and information theft ; and rf sources , detectors , and controllers for a certain wide range of aerospace and defense applications . our results of operations have been affected by recent acquisitions as further detailed in note 2 , acquisitions , of the notes to consolidated financial statements . presentation of results of operations and liquidity and capital resources the following discussion and analysis of our results of operations and liquidity and capital resources includes a comparison of fiscal 2019 to fiscal 2018. a similar discussion and analysis that compares fiscal 2018 to fiscal 2017 may be found in item 7 , `` management 's discussion and analysis of financial condition and results of operations , ” of our form 10-k for the fiscal year ended october 31 , 2018 . 32 index story_separator_special_tag interest expense interest expense increased to $ 21.7 million in fiscal 2019 , up from $ 19.9 million in fiscal 2018. the increase was principally due to higher interest rates partially offset by a lower weighted average balance outstanding under our revolving credit facility . other income ( expense ) other income ( expense ) in fiscal 2019 and 2018 was not material . income tax expense in december 2017 , the united states ( `` u.s. '' ) government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the “ tax act ” ) . the tax act contains significant changes to previous tax law , some of which became immediately effective in fiscal 2018 including , among other things , a reduction in the u.s. federal statutory tax rate from 35 % to 21 % effective january 1 , 2018 resulting in a blended rate of 23.3 % for fiscal 2018 and the implementation of a territorial tax system resulting in a one-time transition tax on the unremitted earnings of our foreign subsidiaries . certain other provisions of the tax act became 35 index effective for heico in fiscal 2019 including a new tax on global intangible low-taxed income ( “ gilti ” ) , a new deduction for foreign-derived intangible income ( “ fdii ” ) , the repeal of the domestic production activity deduction and increased limitations on the deductibility of certain executive compensation . story_separator_special_tag further details on acquisitions may be found in note 2 , acquisitions , of the notes to consolidated financial statement . net cash used in investing activities totaled $ 113.5 million in fiscal 2018 and related primarily to acquisitions of $ 59.8 million ( net of cash acquired ) , capital expenditures of $ 41.9 million and investments related to the heico lcp of $ 11.5 million . further details on acquisitions may be found in note 2 , acquisitions , of the notes to consolidated financial statement . financing activities net cash used in financing activities in fiscal 2019 totaled $ 159.7 million . during fiscal 2019 , we made $ 283.0 million in payments on our revolving credit facility , paid $ 110.9 million in distributions to noncontrolling interests , redeemed common stock related to stock option exercises aggregating $ 64.0 million and paid $ 18.7 million in cash dividends on our common stock . additionally , we borrowed $ 313.0 million under our revolving credit facility to fund certain of our fiscal 2019 acquisitions and a certain distribution to a noncontrolling interest holder . net cash used in financing activities in fiscal 2018 totaled $ 207.5 million . during fiscal 2018 , we made payments on our revolving credit facility aggregating $ 204.0 million , redeemed common stock related to stock option exercises aggregating $ 25.0 million , paid $ 15.4 million in cash dividends on our common stock and made distributions to noncontrolling interests aggregating $ 13.1 million . additionally , we borrowed $ 56.0 million on our revolving credit facility principally for tax payments , to fund a fiscal 2018 acquisition and for capital expenditures . 38 index in november 2017 , we entered into a $ 1.3 billion revolving credit facility agreement ( `` credit facility '' ) with a bank syndicate , which matures in november 2022. under certain circumstances , the maturity of the credit facility may be extended for two one-year periods . the credit facility also includes a feature that will allow us to increase the capacity by $ 350 million to become a $ 1.65 billion facility through increased commitments from existing lenders or the addition of new lenders . borrowings under the credit facility may be used to finance acquisitions and for working capital and other general corporate purposes , including capital expenditures . borrowings under the credit facility accrue interest at our election of the base rate or the eurocurrency rate , plus in each case , the applicable rate ( based on our total leverage ratio ) . the base rate for any day is a fluctuating rate per annum equal to the highest of ( i ) the prime rate ; ( ii ) the federal funds rate plus .50 % ; and ( iii ) the eurocurrency rate for an interest period of one month plus 100 basis points . the eurocurrency rate is the rate per annum obtained by dividing libor for the applicable interest period by a percentage equal to 1.00 minus the daily average eurocurrency reserve rate for such interest period , as such capitalized terms are defined in the credit facility . the applicable rate for eurocurrency rate loans ranges from 1.00 % to 2.00 % . the applicable rate for base rate loans ranges from 0 % to 1.00 % . a fee is charged on the amount of the unused commitment ranging from .125 % to .30 % ( depending on our total leverage ratio ) . the credit facility also includes $ 100 million sublimits for borrowings made in foreign currencies and for swingline borrowings , and a $ 50 million sublimit for letters of credit . outstanding principal , accrued and unpaid interest and other amounts payable under the credit facility may be accelerated upon an event of default , as such events are described in the credit facility . the credit facility is unsecured and contains covenants that require , among other things , the maintenance of a total leverage ratio and an interest coverage ratio , as such capitalized terms are defined in the credit facility . we were in compliance with all financial and nonfinancial covenants of the credit facility as of october 31 , 2019 . 39 index contractual obligations the following table summarizes our contractual obligations as of october 31 , 2019 ( in thousands ) : replace_table_token_10_th ( 1 ) estimated interest payments assumes the $ 553.0 million outstanding balance under our revolving credit facility and related interest rate of 3.0 % as of october 31 , 2019 , will remain constant through the credit facility 's maturity date in fiscal 2023. actual interest payments may vary significantly based on future borrowings , repayments and interest rate fluctuations . see note 5 , long-term debt , of the notes to consolidated financial statements and `` liquidity and capital resources , '' above for additional information regarding our long-term debt obligations . ( 2 ) inclusive of $ 2.3 million in interest charges . see note 5 , long-term debt , of the notes to consolidated financial statements for additional information regarding our capital lease obligations . ( 3 ) see note 16 , commitments and contingencies – lease commitments , of the notes to consolidated financial statements for additional information regarding our operating lease obligations . ( 4 ) includes contingent consideration aggregating $ 18.3 million related to a fiscal 2016 , 2017 and 2019 acquisition . see note 8 , fair value measurements , of the notes to consolidated financial statements for additional information . ( 5 ) also includes an aggregate $ 3.3 million of commitments principally for capital expenditures and inventory . all purchase obligations of inventory and supplies in the ordinary course of business ( i.e. , with deliveries scheduled within the next year ) are excluded from the table .
| results of operations the following table sets forth the results of our operations , net sales and operating income by segment and the percentage of net sales represented by the respective items in our consolidated statements of operations ( in thousands ) : replace_table_token_8_th 33 index comparison of fiscal 2019 to fiscal 2018 net sales our consolidated net sales in fiscal 2019 increased by 16 % to a record $ 2,055.6 million , up from net sales of $ 1,777.7 million in fiscal 2018. the increase in consolidated net sales principally reflects an increase of $ 132.7 million ( a 19 % increase ) to a record $ 834.5 million in net sales within the etg and an increase of $ 142.2 million ( a 13 % increase ) to a record $ 1,240.2 million in net sales within the fsg . the net sales increase in the etg reflects organic growth of 10 % and net sales of $ 66.1 million contributed by fiscal 2019 and 2018 acquisitions . the etg 's organic growth is mainly attributable to increased demand for our defense and aerospace products resulting in net sales increases of $ 60.6 million and $ 14.0 million , respectively . the net sales increase in the fsg principally reflects organic growth of 13 % . the fsg 's organic growth is mainly attributable to increased demand and new product offerings within our aftermarket replacement parts , specialty products and repair and overhaul services product lines resulting in net sales increases of $ 95.4 million , $ 31.5 million and $ 10.8 million , respectively .
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“ risk factors ” in this annual report on form 10-k. the following discussion of our financial condition and results of operations should be read in conjunction with the “ financial statements and supplementary data ” as set out in part ii , item 8 of this annual report on form 10-k. overview we are a company focused on oil and gas exploration and production in colombia . our colombian properties represented 100 % of our proved reserves nar at december 31 , 2018 . for the year ended december 31 , 2018 , 100 % of our revenue and other income was generated in colombia ( year ended december 31 , 2017 - 98 % ; year ended december 31 , 2016 - 97 % ) . we are headquartered in calgary , alberta , canada . as of december 31 , 2018 , we had estimated proved reserves nar of 54.3 mmboe , of which 68 % were proved developed reserves and 99 % were oil . as discussed under items 1 and 2 . “ business and properties , ” in 2018 , we completed certain asset acquisitions to further enhance our strategy . financial and operational highlights story_separator_special_tag measure . oil and gas production and sales volumes , boepd replace_table_token_18_th ( 1 ) december 31 , 2017 and 2016 figures include production nar of 576 boepd and 717 boepd , respectively , and sales volumes of 580 boepd and 713 boepd , respectively , related to operations in brazil . oil and gas production nar for the year ended december 31 , 2018 increase d by 8 % to 29,053 boepd compared with 26,785 boepd in 2017 . production increased as a result of a successful drilling and a workover campaign in the acordionero and costayaco fields . royalties as a percentage of production for the year ended december 31 , 2018 increased compared to prior year as a result of the increase in oil prices , higher api in the acordionero field and this field reaching the threshold cumulative production of 5 million barrels that triggers high price royalties . 33 oil and gas production nar for the year ended december 31 , 2017 increase d by 16 % to 26,785 boepd compared with 23,187 boepd in 2016 . production increased as a result of a successful drilling and workover campaign in the acordionero field . operating netbacks replace_table_token_19_th ( 1 ) operating netback is a non-gaap measure which does not have any standardized meaning prescribed under gaap . refer to “ financial and operating highlights - non-gaap measures ” for a definition and reconciliation of this measure . 2017 and 2016 figures include $ 6,271 and $ 5,837 of operating netback from operations in brazil . oil and gas sales for the year ended december 31 , 2018 increase d to $ 613.4 million compared to $ 421.7 million in 2017 and $ 289.3 million in 2016 primarily as a result of increased sales volumes and average realized oil prices . the following table shows the effect of changes in realized price and sales volumes on our oil and gas sales for the three years ended december 31 , 2018 : replace_table_token_20_th on a per boe basis , average realized prices increase d by 35 % to $ 58.53 for the year ended december 31 , 2018 compared to $ 43.29 in 2017 . the increase in realized prices was consistent with an increase in benchmark oil prices . average brent oil prices for the year ended december 31 , 2018 increase d by 31 % compared to 2017 . in 2018 , we sold our oil at the following month average brent price ( `` m+1 '' ) and benefited from this structure up to the fourth quarter of 2018. however , with the sharp decrease in the brent oil price in the fourth quarter 2018 , this structure impacted the average realized oil price during the quarter as m+1 brent was $ 60.37 per bbl versus the average monthly brent oil price ( `` m '' ) of $ 68.08 per bbl . this marketing structure ended in december 2018. in 2019 , we plan to price our oil sales based on m , less appropriate quality and transportation discounts . on a per boe basis , average realized prices increase d by 31 % to $ 43.29 for the year ended december 31 , 2017 compared to $ 33.00 in 2016 . the increase in realized prices was consistent with higher benchmark oil prices . average brent oil prices for the year ended december 31 , 2017 increase d by 24 % compared with 2016 . 34 we have options to sell our oil through multiple pipelines and trucking routes . each transportation route has varying effects on realized prices and transportation expenses . the following table shows the percentage of oil volumes we sold in colombia using each transportation method for each of the three years ended december 31 , 2018 : replace_table_token_21_th volumes not sold at the wellhead receive a higher realized price , but incur higher transportation expenses . volumes sold at the wellhead have the opposite effect of lower realized price , offset by lower transportation expense . transportation expenses for the year ended december 31 , 2018 increased by 15 % to $ 29.0 million , compared with $ 25.1 million in 2017 . on a per boe basis , transportation expenses increase d 7 % to $ 2.77 from $ 2.58 , in 2017 . the increase in transportation expenses per boe was due to less volume sold at wellhead where the transportation is netted against sales price and higher volume sold from the acordionero field , which is subject to transportation costs . transportation expenses for the year ended december 31 , 2017 decrease d 21 % to $ 25.1 million , compared with $ 31.8 million in 2016 . on a per boe basis , transportation expenses decrease d 29 % to $ 2.58 from $ 3.62 in 2016 . story_separator_special_tag since december 31 , 2017 , we drilled 28 wells and grew production nar 8 % to 29,053 boepd in 2018 from 26,785 boepd in 2017 . the decrease in stock-based compensation was a result of the decrease in the stock price during the fourth quarter of 2018. g & a expenses , on a per boe basis , after stock-based compensation increased 6 % to $ 4.01 in 2017 , mainly as a result of 2017 psus and dsus grants combined with the increase in the stock price during the fourth quarter of 2017. g & a expenses , on a per boe basis , before stock-based compensation decreased 2 % in 2018 compared to 2017 and 1 % in 2017 compared to 2016 . severance expenses for the years ended december 31 , 2018 , 2017 and 2016 , severance expenses were $ 2.4 million , $ 1.3 million and $ 1.3 million , respectively , due to headcount optimization . transaction expenses for the years ended december 31 , 2018 and 2017 transaction expenses were nil , compared to $ 7.3 million in 2016 , which were related to our acquisitions of petrolatina and petroamerica . equity tax expense for the years ended december 31 , 2018 , 2017 and 2016 , the equity tax expense was nil , $ 1.2 million and $ 3.1 million , respectively , and was calculated based on our colombian legal entities ' balance sheet at january 1st of each of these periods . the equity tax expense expired as of january 1 , 2019 , and the modified version re-introduced in the 2018 colombian tax reform is not applicable to our colombian legal entities . foreign exchange gains and losses for the years ended december 31 , 2018 , 2017 and 2016 , we had foreign exchange loss es of $ 10.0 million and $ 2.1 million and gain s of $ 1.5 million , respectively . under gaap , deferred taxes are considered a monetary liability and require translation from local currency to u.s. dollar functional currency at each balance sheet date . the main sources of the foreign exchange losses and gains were revaluation of taxes receivable and payable , investment in petrotal shares and deferred tax liabilities . the following table presents the change in the colombian peso against the u.s. dollar for each of the three years ended december 31 , 2018 : 37 replace_table_token_26_th financial instrument gains and losses the following table presents the nature of our financial instruments gains and losses for each of the three years ended december 31 , 2018 : replace_table_token_27_th loss on sale of business units and gain on acquisition loss on sale for the year ended december 31 , 2017 related to the sale of our brazil business unit on june 30 , 2017 and our peru business unit on december 18 , 2017 . gain on acquisition for the year ended december 31 , 2016 related to the acquisition of petroamerica . income tax expense and recovery replace_table_token_28_th current income tax expense increase d in the year ended december 31 , 2018 , compared with 2017 and 2016 primarily as a result of higher taxable income in colombia . the deferred income tax expense for the year ended december 31 , 2018 of $ 5.0 million was primarily a result of excess tax depreciation compared to accounting depreciation in colombia , which was partially offset by the impact of the release of the valuation allowance in colombia . in general , tax depreciation for capital expenditures investments incurred prior to 2017 is on straight line over five years and accounting depreciation is based on the unit of production method . the deferred income tax expense in 2017 was the result of tax depreciation being higher than accounting depreciation in colombia . the deferred income tax recovery in the years ended december 31 , 2016 of $ 204.8 million was due to the ceiling test impairment in colombia . in 2016 , income tax recovery associated with impairment losses in brazil and peru was offset by a full valuation allowance . our effective tax rate was 32 % for the year ended december 31 , 2018 , compared with 185 % in 2017 . the decrease in the effective tax rate was primarily due to a decrease in the valuation allowance resulting from the recognition of previously unrecognized tax 38 benefits in colombia . this was partially offset by an increase in the impact of foreign taxes as a result of higher colombian earnings which were taxed at the higher colombian statutory rate and other non-deductible expenses . our effective tax rate was 185 % for the year ended december 31 , 2017 compared with 28 % in 2016 . the increase in the effective tax rate was primarily due to the increase in the impact of foreign taxes , primarily as a result of the difference between the tax rates in colombia and us and applying this difference to a deferred tax expense during 2017 versus a deferred tax recovery during 2016 ; increase in the valuation allowance mainly due to $ 20.9 million of foreign tax credits in the us arising from the us legislated one-time deemed repatriation of foreign earnings ; non-deductible third-party royalty in colombia ; and , stock based compensation . these were partially offset by decreases resulting from the sale of brazil and peru , other local taxes , and other permanent differences . the difference between our effective tax rate of 32 % for the year ended december 31 , 2018 , and the 21 % u.s. statutory rate was primarily due to an increase to the impact of foreign taxes , non-deductible third party royalty in colombia and other permanent differences . these are partially offset by a decrease in the valuation allowance .
| key highlights net income in 2018 was $ 102.6 million , or $ 0.26 per share basic and diluted compared to net loss of $ 31.7 million , or $ ( 0.08 ) per share basic and diluted in 2017 . ebitda ( 1 ) more than doubled 106 % to $ 376.7 million in 2018 compared with $ 182.5 million in 2017 . net debt ( 1 ) to ebitda was 1.0 times at december 31 , 2018. funds flow from operations ( 1 ) for 2018 increase d by 39 % to $ 306.4 million compared with $ 220.2 million in 2017 . 28 oil and gas sales for 2018 increased 45 % to $ 613.4 million compared with $ 421.7 million in 2017 . achieved a new company milestone with record high average production before royalties in 2018 of 36,209 boepd , 15 % higher compared to 31,426 boepd ( 2 ) in 2017 and 38 % higher than 26,216 in 2016 . total company 's 2018 average production nar was 29,053 boepd , 8 % higher compared with 2017 . total company 's 2018 oil and gas sales volumes increased by 8 % to 28,717 boepd compared with 2017 . oil and gas sales per boe for 2018 were $ 58.53 , 35 % higher compared with 2017 . operating netback ( 1 ) per boe for 2018 was $ 41.85 per boe , 42 % higher compared with 2017 . operating expenses per boe for 2018 were $ 10.62 per boe , 18 % higher compared with 2017 primarily as a result of higher power generation and equipment rental costs required to manage the capacity limitations in acordionero field as a result of rapid production growth workover expenses per boe for 2018 increased by 46 % to $ 3.29 compared with 2017 primarily as a result of pump failures due to unreliable power . quality and transportation discount per boe for 2018 was $ 13.16 .
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ggp is an affiliate of glendale ii mall associates , the lessor of the company 's glendale mall restaurant location . in accordance with the note agreement , an event of default would occur if the borrower defaults under the lease between the company and glendale ii mall associates . upon the occurrence of an event of default , the entire balance of the note payable and accrued interest would become due and payable , and the balance due becomes subject to a default interest rate ( which is 5 % higher than the defined interest rate ) . as of december 30 , 2018 , the company was delinquent in its payments to ggp under the note , accordingly , the full amount is in current . f- 14 giggles n ' hugs , inc. notes to consolidated financial statements note 5 – convertible note payable – past due on august 24 , 2015 , the company entered into an unsecured note payable agreement with an investor for which the company issued a $ 50,000 convertible note payable , which accrues interest at a rate of 5 % per annum and matures on august 31 , 2016. the lender may also convert all or a portion of the note payable at any time into shares of common stock at a price of $ 0.10 per share . the balance of the note was $ 50,000 as of december 30 , 2018 and december 31 , 2017 and was past due . note 6 – settled notes st. george investments on december 18 , 2015 , the company issued a six-month unsecured promissory note in the principal sum of $ 265,000 in favor of st. george investments , llc , pursuant to the terms of a securities purchase agreement of the same date . the note went into default when the company failed to make payment on the due date . consequently , on july 8 , 2016 , the company entered into an exchange agreement with st. george investments , llc , to replace the original promissory note with a new convertible promissory note ( “ note ” ) . the note carries a conversion clause that allows the holder to have a cashless conversion into shares of common stock for all or part of the principal , at a price equal to the average market price for 20 days prior to the conversion .. as of january 1 , 2017 , the amount due under the promissory note was $ 193,450 . during january and february of 2017. the holder converted $ 48,914 of its debt into 15,660,611 shares of common stock with a fair value of $ 48,914 . in addition , the company paid $ 7,517 of the principal balance . on march 23 , 2017 , st. george investments , llc ( “ st . george ” ) served an arbitration demand and summons claiming that the company had breached its obligations under a convertible note by preventing st. george from converting the remaining balance of the note to common stock . the parties disagreed as to the conversion price set in the note agreement due to execution by the parties of different versions of the document . st. george claimed for additional damages . the company believed these claims lacked merit and the company retained counsel to vigorously defend story_separator_special_tag overview and outlook our operations giggles is an upscale , family-friendly restaurant with play areas for children 10 years and younger . the restaurant also features daily live entertainment and shows . the restaurant design is intended to create a fun , casual , family atmosphere where children can interact with parents and each other and where everyone enjoys freshly prepared , organic , nutritious and reasonably priced meals . the original giggles n ' hugs opened its doors in february of 2008 and was located in the posh brentwood district of los angeles . the unique design and 1,500 square-foot play area was a huge success and solidified our proof of concept . however , due to the limited size of the location , our ability to offer “ drop-off ” services , one of our most popular features , was hindered . drop-off services allow parents to drop their children off in our play area and go shopping while their children play in a supervised environment . in addition , other factors such as lack of available parking , the location 's strip mall characteristics , and isolated location became problematic . as a result , we decided it was in our best interest to close the restaurant and secure a larger venue elsewhere . with the successful launch and proof of concept that was realized at our brentwood location , the company decided to expand to the westfield shopping mall in century city in december of 2010. the century city mall began a $ 700 million remodeling of the westfield shopping mall , which closed 90 % of the retailers , including the giggles n ' hugs store . on may 13 , 2016 , giggles n ' hugs , inc. entered into a termination of lease agreement with century city mall , llc ( “ landlord ” ) , accelerating the termination date of the lease dated january 13 , 2010 for its store located in westfield century city , los angeles , california . pursuant to the agreement , the lease terminated june 30 , 2016 and the landlord agreed to a monetary reimbursement of $ 350,000 which was received by june 26 , 2016. as such , sales from june 30 , 2016 and forward only include operations from two stores . the company continues to operate its restaurants in westfield mall in topanga , california and in the glendale galleria mall in glendale , california . 12 story_separator_special_tag considered to be due on demand . off-balance sheet arrangements we do not have any off-balance sheet arrangements that story_separator_special_tag ggp is an affiliate of glendale ii mall associates , the lessor of the company 's glendale mall restaurant location . in accordance with the note agreement , an event of default would occur if the borrower defaults under the lease between the company and glendale ii mall associates . upon the occurrence of an event of default , the entire balance of the note payable and accrued interest would become due and payable , and the balance due becomes subject to a default interest rate ( which is 5 % higher than the defined interest rate ) . as of december 30 , 2018 , the company was delinquent in its payments to ggp under the note , accordingly , the full amount is in current . f- 14 giggles n ' hugs , inc. notes to consolidated financial statements note 5 – convertible note payable – past due on august 24 , 2015 , the company entered into an unsecured note payable agreement with an investor for which the company issued a $ 50,000 convertible note payable , which accrues interest at a rate of 5 % per annum and matures on august 31 , 2016. the lender may also convert all or a portion of the note payable at any time into shares of common stock at a price of $ 0.10 per share . the balance of the note was $ 50,000 as of december 30 , 2018 and december 31 , 2017 and was past due . note 6 – settled notes st. george investments on december 18 , 2015 , the company issued a six-month unsecured promissory note in the principal sum of $ 265,000 in favor of st. george investments , llc , pursuant to the terms of a securities purchase agreement of the same date . the note went into default when the company failed to make payment on the due date . consequently , on july 8 , 2016 , the company entered into an exchange agreement with st. george investments , llc , to replace the original promissory note with a new convertible promissory note ( “ note ” ) . the note carries a conversion clause that allows the holder to have a cashless conversion into shares of common stock for all or part of the principal , at a price equal to the average market price for 20 days prior to the conversion .. as of january 1 , 2017 , the amount due under the promissory note was $ 193,450 . during january and february of 2017. the holder converted $ 48,914 of its debt into 15,660,611 shares of common stock with a fair value of $ 48,914 . in addition , the company paid $ 7,517 of the principal balance . on march 23 , 2017 , st. george investments , llc ( “ st . george ” ) served an arbitration demand and summons claiming that the company had breached its obligations under a convertible note by preventing st. george from converting the remaining balance of the note to common stock . the parties disagreed as to the conversion price set in the note agreement due to execution by the parties of different versions of the document . st. george claimed for additional damages . the company believed these claims lacked merit and the company retained counsel to vigorously defend story_separator_special_tag overview and outlook our operations giggles is an upscale , family-friendly restaurant with play areas for children 10 years and younger . the restaurant also features daily live entertainment and shows . the restaurant design is intended to create a fun , casual , family atmosphere where children can interact with parents and each other and where everyone enjoys freshly prepared , organic , nutritious and reasonably priced meals . the original giggles n ' hugs opened its doors in february of 2008 and was located in the posh brentwood district of los angeles . the unique design and 1,500 square-foot play area was a huge success and solidified our proof of concept . however , due to the limited size of the location , our ability to offer “ drop-off ” services , one of our most popular features , was hindered . drop-off services allow parents to drop their children off in our play area and go shopping while their children play in a supervised environment . in addition , other factors such as lack of available parking , the location 's strip mall characteristics , and isolated location became problematic . as a result , we decided it was in our best interest to close the restaurant and secure a larger venue elsewhere . with the successful launch and proof of concept that was realized at our brentwood location , the company decided to expand to the westfield shopping mall in century city in december of 2010. the century city mall began a $ 700 million remodeling of the westfield shopping mall , which closed 90 % of the retailers , including the giggles n ' hugs store . on may 13 , 2016 , giggles n ' hugs , inc. entered into a termination of lease agreement with century city mall , llc ( “ landlord ” ) , accelerating the termination date of the lease dated january 13 , 2010 for its store located in westfield century city , los angeles , california . pursuant to the agreement , the lease terminated june 30 , 2016 and the landlord agreed to a monetary reimbursement of $ 350,000 which was received by june 26 , 2016. as such , sales from june 30 , 2016 and forward only include operations from two stores . the company continues to operate its restaurants in westfield mall in topanga , california and in the glendale galleria mall in glendale , california . 12 story_separator_special_tag considered to be due on demand . off-balance sheet arrangements we do not have any off-balance sheet arrangements that
| results of operations replace_table_token_2_th * not divisible by zero net sales . during the fiscal year ended december 30 , 2018 , net sales reflected a drop of $ 22,222. a decline of 1 % , from the year ended december 31 , 2017 was attributable to decreased party sales . cost of operations . cost of operations consist of cost of goods sold , restaurant utilities , supplies , administrative and other operating expense , labor costs , and occupancy cost . during the year ended december 30 , 2018 , cost of operations was $ 1,920,493 , the increase of $ 36,677 , or 2 % in comparison to the prior year due to the major factor of increased food costs and occupancy expenses . general and administrative costs . total general and administrative costs decreased by $ 883,966 ( 49 % ) from comparison in prior year . the significant decrease is mainly attributable to the fair value of $ 531,000 for warrants issued as payment for professional services rendered occurred in 2017. for which there was no corresponding cost in 2018. additionally , the reduction of legal fees and other non-employee stock compensation also the factor . depreciation expenses . depreciation expenses declined by $ 24,077 ( 9 % ) compared to the same period in the previous year . the decrease was due to some assets have been fully depreciated . loss from operations . the loss from operations during the year ended december 30 , 2018 decreased by $ 849,144 ( 57 % ) as compared to the prior period mainly was attributable to substantial decreased general and administrative expenses . net loss . the net loss decreased by $ 931,041 ( 57 % ) due to the factors noted above . 13 liquidity and capital resources as of december 30 , 2018 , we had $ 57,642 in cash and cash equivalents .
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we believe the economic environment is complicated and risky and will continue to present challenges to us and our industry in the near future . we are primarily a commercial mortgage lender that originates loans to small businesses that are principally collateralized by first liens on the real estate of the related business . our outstanding loans are predominantly ( 94 % at december 31 , 2012 ) to borrowers in the hospitality industry . we are organized as a reit . our loan underwriting is consistent and , among other things , typically requires ( 1 ) significant equity investments by the borrower in the property , ( 2 ) personal guarantees from the principals of the borrower , ( 3 ) operating experience by the borrower and ( 4 ) evidence of adequate repayment ability . we do not originate any higher-risk loans such as option arm products , junior lien mortgages , high loan-to-value ratio mortgages , interest only loans , subprime loans or loans with initial teaser rates . we also do not originate any residential loans . our business of originating loans is affected by general commercial real estate fundamentals and the overall economic environment . we have designed our strategy to be flexible so that we can adjust our loan origination activities in anticipation of , and in reaction to , changes in the commercial real estate capital and property markets and the overall economy as well as changes to the specific characteristics of the underlying real estate assets that serve as collateral for the majority of our investments . we are focusing our origination efforts on sba 7 ( a ) program loans which require less capital due to the ability to sell the government guaranteed portion of such loans . we utilize the sba 7 ( a ) program to originate small business loans , primarily secured by real estate , and then sell the government guaranteed portion to investors . the underwriting criteria of the sba 7 ( a ) program are less stringent than our non-sba 7 ( a ) program loan originations ; thus , we are able to originate loans that we would not otherwise be able to originate as a result of the sba guarantee . we believe that our commercial lending business has strong long-term fundamentals . however , due to prolonged recessionary economic conditions , we have experienced , and may continue to experience , the following : loan origination limitations due to the lack of availability of longer-term liquidity ; reduced operating margins due to lack of economies of scale ; limited access to capital , and if such capital is available , at increased costs ; an increase in loan defaults ; an increase in modifications to loan terms and troubled debt restructurings ; an increase in the holding periods related to reo with a corresponding increase in expenses related to these assets ; an increase in loan loss reserves and asset impairments ; and reduced cash available for distribution to shareholders , particularly as our portfolio yield was reduced by lower variable interest rates , scheduled maturities , prepayments and non-performing loans . we seek to position ourselves to be able to take advantage of opportunities once market conditions permit and to maximize shareholder value over time . to do this , we will continue to focus on : enhancing cash flows from our investment portfolio ; originating quality assets and earning interest and fees ; paying dividends to our shareholders ; 24 increasing our volume of sba 7 ( a ) program loan originations ; repositioning and marketing of non-performing assets ; exploring alternative financing sources ; and developing an expanded business plan . we believe that these are the appropriate steps to position us for long-term growth . business strategy the board of trust managers ( board ) , with the assistance of executive management , has taken a proactive approach to developing our strategic growth initiatives that are being implemented to take advantage of our core competencies , capitalize on opportunities to drive long-term growth and maximize value for our shareholders . we remain committed to enhancing our core operations by continuing to focus on maintaining and increasing our sba 7 ( a ) program loan origination volume , placing a revised emphasis on our sbic loan origination volume and increasing our loan originations outside of our sba and sbic programs . in 2011 , the sba 7 ( a ) program was modified to increase the maximum loan guarantee from 75 % of up to $ 2.0 million to 75 % of up to $ 5.0 million . due to our limited amount of available capital , we refrained from taking advantage of this program enhancement . during the fourth quarter of 2012 , we commenced an initiative to increase our originations of larger sba 7 ( a ) program loans . we increased our marketing efforts to identify more loan origination opportunities for sba eligible loans with a principal amount greater than $ 2.0 million . due to the recent commencement of this initiative and increased competition , our marketing efforts to date have resulted in limited success and at december 31 , 2012 , we had two outstanding commitments for sba 7 ( a ) program loans with a principal amount in excess of $ 2.0 million . despite increased efforts , in many instances since either the opportunities did not meet our underwriting standards , the borrower did not meet sba 7 ( a ) program eligibility requirements or the loan was able to be financed through more traditional lending sources , we have not yet been able to increase our larger balance sba 7 ( a ) program loan originations as significantly as we hoped . however , we remain optimistic that our marketing efforts will result in additional larger balance sba 7 ( a ) program loan origination opportunities . story_separator_special_tag the lagging impact of the adverse economic conditions may continue to have an adverse effect on our reo and the limited service hospitality industry which may result in additional impairment losses and the effect on our results of operations and financial condition may be material . currently , we are in the process of foreclosing on the collateral underlying three limited service hospitality properties . our provision for loan losses ( excluding reductions and recoveries of loan losses ) as a percentage of our weighted average outstanding loans receivable subject to credit risk ( our loans receivable excluding sba 7 ( a ) loans receivable , subject to secured borrowings since the sba has guaranteed payment of the principal ) increased to 1.25 % during 2012 from 0.40 % during 2011. during 2012 , our provision for loan losses increased to $ 1,934,000 from $ 460,000 in 2011. the predominant reason for the increase in provision for loan losses during 2012 was foreclosures of the underlying collateral of loans during 2012 and loans currently in the process of foreclosure . realized losses of $ 333,000 and $ 257,000 during 2012 and 2011 , respectively , were recognized upon liquidation of the collateral underlying loans . based on loans currently in the process of foreclosure , we anticipate that realized losses during 2013 will be greater than losses realized during 2012. however , there can be no assurance that the foreclosure processes will be completed as expected ( or be completed at all ) or that the estimated liquidation value of the assets underlying these loans will not decline . liquidity our unsecured revolving credit facility ( the revolver ) matures on june 30 , 2014. the interest rate is prime less 50 basis points or the 30-day libor plus 2 % , at our option . the amount available under the revolver automatically increased from $ 35 million to $ 40 million on january 1 , 2013 . 26 we currently are targeting 2013 loan origination volume of between $ 55 million and $ 65 million of which $ 40 million to $ 50 million would be sba 7 ( a ) program loans . lodging industry trends based on a forecast provided by leading lodging industry analyst pricewaterhousecoopers llp ( pwc ) , as well as various other industry analysts , we anticipate that the overall fundamentals of the lodging industry will remain strong in 2013. demand has exceeded supply growth resulting in industry pricing power and as a result , average daily rate ( adr ) is expected to increase in all sectors of the lodging industry during 2013. pwc expects growth in occupancy and adr to result in a 5.9 % increase in revenue per available room ( revpar ) in 2013. for our borrowers , the stronger market ( if achieved ) could improve revenues that will benefit cash flow and the ability to cover their debt service . in addition , as the market rebounds , we would expect that values of hospitality properties will increase and become more stable and that there will be an increase in qualified buyers for our foreclosed properties . however , there is concern that any positive trends could reverse quickly . with a pace of economic recovery that remains subdued , and political and economic uncertainties looming , it is possible that the united states could fall back into another recession . strategic alternatives and severance during 2011 , we received certain inquiries expressing a preliminary interest in potential strategic transactions . the board established a special committee of all independent trust managers to evaluate these inquiries as well as other potential strategic alternatives that could enhance shareholder value . the special committee hired a financial advisor to assist it in the evaluation . on a cumulative basis , we expensed $ 4,648,000 related to the evaluation of strategic alternatives . the special committee and its advisors evaluated the indications of interest received and conducted a process that resulted in extensive discussions and due diligence with one interested party . the special committee ultimately determined that it was in the best interests of our shareholders to terminate such discussions . the special committee and the board determined , in connection with the strategic alternatives evaluation process , that it was in the best interests of our shareholders to continue to operate as an independent entity and focus aggressively on developing an expanded business plan to improve operating performance and long-term growth potential . upon the recommendation of the special committee , the board suspended the formal strategic alternative process in the fourth quarter of 2012 and the special committee was disbanded . in addition , during the fourth quarter of 2012 , we recorded a one-time severance charge of $ 2.1 million relating to a separation agreement with our previous chief executive officer , lance rosemore . jan salit , previously our chief operating officer and chief investment officer , was promoted to chief executive officer . secondary market loan sales general during 2012 , we sold $ 27.0 million of the guaranteed portion of sba 7 ( a ) program loans . beginning january 1 , 2010 , loans were sold for ( 1 ) cash premiums and 100 basis points ( 1 % ) ( the minimum spread required to be retained pursuant to sba regulations ) as the servicing spread on the sold portion of the loan , ( 2 ) future servicing spreads averaging 188 basis points ( including the 100 basis points required to be retained ) and cash premiums of 10 % ( i.e. , hybrid loan sales or hybrid ) or ( 3 ) future servicing spreads averaging 438 basis points ( including the 100 basis points required to be retained ) and no cash premiums .
| results of operations year ended december 31 , 2012 compared to the year ended december 31 , 2011 overview replace_table_token_16_th revenues increased during 2012 primarily due to an increase in recognized premium income from the sale of the government guaranteed portion of our sba 7 ( a ) program loans and an increase in interest income while our expenses increased during 2012 primarily due to ( 1 ) costs associated with evaluating strategic alternatives of $ 3,870,000 , ( 2 ) severance and related benefits expense related to the departure of our chief executive officer of $ 2,114,000 and ( 3 ) an increase in net provision for loan losses of $ 1,474,000 primarily related to our limited service hospitality properties currently in the process of foreclosure . more detailed comparative information on the composition of and changes in our revenues and expenses is provided below . revenues interest income increased 2.3 % to $ 13,896,000 during 2012 compared to $ 13,571,000 during 2011. our weighted average loans receivable increased 2.1 % to $ 238.2 million during 2012 compared to $ 233.2 million during 2011. in addition , the weighted average interest rate increased from 5.6 % at december 31 , 2011 to 5.8 % at december 31 , 2012. at december 31 , 2012 , 83 % of our loans had variable interest rates . for the first quarter of 2013 ( set on january 1 , 2013 ) , the base libor decreased to 0.31 % from 0.36 % ( set on october 1 , 2012 ) during the fourth quarter of 2012. as a result , assuming no change in our outstanding libor-based loans , we would have a reduction of $ 52,000 in interest income on an annual basis . premium income results from certain sales of the government guaranteed portion of sba 7 ( a ) program loans into the secondary market .
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the company 's liability for these rebates consists of an estimate of claims for the current quarter and estimated future claims that will be made for product sales that have been recognized as revenue but remain in story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains certain statements that are not strictly historical and are “ forward-looking ” statements within the meaning of the private securities litigation reform act of 1995 and involve a high degree of risk and uncertainty . actual results may differ materially from those projected in the forward-looking statements due to other risks and uncertainties . all forward-looking statements included in this section are based on information available to us as of the date hereof , and we assume no obligation to update any such forward-looking statement , except as required by law . company overview we are a commercial-stage biopharmaceutical company focused on the development and commercialization of novel life-saving therapies for life-threatening diseases or other public health threats for civilian , government and military use . our united states , or u.s. , food and drug administration , or fda , approved commercial product , nuzyra ® ( omadacycline ) is a once-daily oral and intravenous antibiotic for the treatment of adult patients with community-acquired bacterial pneumonia , or cabp , and acute skin and skin structure infections , or absssi , caused by susceptible pathogens . seysara ® ( sarecycline ) is an fda-approved product with respect to which we have exclusively licensed in the u.s. and the people 's republic of china , hong kong and macau , or the greater china region , certain rights to almirall , llc , or almirall . seysara is currently being marketed by almirall in the u.s. as a once-daily oral therapy for the treatment of moderate to severe acne vulgaris . with respect to our technology as it relates to sarecycline , we retain development and commercialization rights in all countries other than the u.s. and the greater china region , and in february 2020 , we exclusively licensed from almirall certain technology owned or in-licensed by almirall or its affiliates that is necessary or useful to develop or commercialize sarecycline outside of the u.s. almirall plans to develop sarecycline for acne in china , with a submission to the china national medical products administration , or nmpa , expected in 2023. in december 2019 , we entered into a five-year contract with an option to extend to ten years with the biomedical advanced research and development authority , or barda , a division of the u.s. department of health and human services , or hhs , office of the assistant secretary for preparedness and response , or aspr , herein referred to as the barda contract . the barda contract supports the development of nuzyra for the treatment of pulmonary anthrax , fda post-marketing requirements , or pmrs , associated with the initial nuzyra approval , and an option for barda to procure up to 10,000 treatment courses of nuzyra for the strategic national stockpile , or sns , for use against potential biothreats . under the terms of the barda contract , we have been awarded initial funding of approximately $ 59.4 million for the development of nuzyra for the treatment of pulmonary anthrax and the purchase of an initial 2,500 treatment courses of nuzyra to add to the current sns . barda has also exercised two options that awarded additional funding including approximately $ 76.8 million for existing fda pmrs that began in april 2020 and approximately $ 20.4 million for manufacturing-related requirements that also began in april 2020. remaining option funding includes the potential for approximately $ 12.7 million to support the development of nuzyra for the prophylaxis of anthrax and a maximum of approximately $ 115.3 million to provide for three additional purchases of nuzyra for the sns , each of which will be triggered at barda 's discretion upon us demonstrating continued progress in the anthrax development program . we have made significant progress in the pulmonary anthrax development program under the barda contract . a pharmacokinetic , or pk , study in rabbits was recently completed , which will lead into the pilot efficacy studies in this species . in addition , we have evaluated minimum inhibitory concentrations , or mics , of omadacycline against approximately 100 anthrax strains . omadacycline continued to demonstrate potent mics and is considered effective against all bacteria tested . the collection of isolates had a strain resistant to doxycycline and a strain resistant to ciprofloxacin , the two antibiotics currently in the sns after approval for the treatment of anthrax many years ago . omadacycline activity was not impacted in either of those resistant strains . together with barda , we continue to make progress advancing our efforts to onshore the manufacturing of nuzyra to the u.s. we have completed the knowledge transfer of our manufacturing process for the active pharmaceutical ingredient , or api , of omadacycline to our u.s. onshoring partners and are currently in the development stage of the initiative . the process flow , equipment selection and facility modifications have been planned and process development and engineering are expected to be completed in 2021. the manufacturing process validation will begin in early 2022 , with the goal of commercial supply production in the u.s. by 2023 . story_separator_special_tag we expect to continue to incur significant expenses and operating losses for the next several years . while our barda contract is expected to significantly strengthen our cash position , unless we can generate a sufficient amount of revenue from our commercial products , we may need to raise additional capital in order to support and accelerate the commercialization of omadacycline and to advance the development of our other indications for omadacycline , such as ntm , or other product candidates . if we can not generate a sufficient amount of product or royalty revenue to finance our cash requirements , we expect to finance our future cash needs primarily through a combination of public or private equity offerings , debt or other structured financings , strategic collaborations and grant funding . we may be unable to raise capital when needed or on attractive terms , which would force us to delay , limit , reduce or terminate our development programs or commercialization efforts . we will need to generate significant revenue to achieve and sustain profitability , and we may never be able to do so . business update regarding covid-19 the covid-19 pandemic continues to present a substantial public health and economic challenge around the world and is continuing to affect our employees , health care institutions , patients , communities and business operations , as well as the u.s. economy and financial markets . the covid-19 related restrictions on in-person promotional access to health care institutions and the overall impact of covid-19 restrictions on the health care and hospital environments could restrict the full potential of nuzyra 's growth . the length of time and full extent to which the covid-19 pandemic will directly or indirectly impact our business , results of operations and financial condition will depend on future developments that are highly uncertain and can not be accurately predicted , including new information that may emerge concerning covid-19 , the actions taken to contain it or treat its impact and the economic impact on local , regional , national and international markets . to date , we and our partners have been able to continue to supply our products to our patients worldwide and currently do not anticipate any interruptions in supply for the foreseeable future . regarding our clinical programs , enrollment in our study designed to show that an oral-only loading dose regimen will have a comparable pharmacokinetic profile to the approved iv loading dose regimen in patients with cabp that was established in the phase 3 registration study was stopped early in 2021 due to covid-19 restrictions at the clinical centers . we continue to assess the potential impact of the covid-19 pandemic on our business and operations , including our sales , expenses , supply chain and other clinical studies . our office-based employees have been working from home since early march 2020. we suspended in-person interactions by our customer-facing personnel in healthcare settings during the majority of the second quarter of 2020. during this period of suspended in-person interactions , we engaged with our customers remotely in an effort to continue to support and educate healthcare professionals . in late june 2020 , our customer-facing personnel began re-engaging with our customers in a manner consistent with guidance issued by the centers for disease control and prevention and other state and local mandates . our customer-facing personnel are now operating through a hybrid model of both virtual and in-person engagement . our third-party contract manufacturing partners continue to operate their manufacturing facilities at or near normal levels . while we currently do not anticipate any interruptions in our supply chain , it is possible that the covid-19 pandemic and response efforts may have an impact in the future on our and or our third-party suppliers ' and contract manufacturing partners ' ability to manufacture our products or the products of our partners . the covid-19 pandemic has prevented technical service , quality assurance and supply operations personnel from traveling to our third-party contract manufacturing partners in europe . for additional information on the various risks posed by the covid-19 pandemic , refer to item 1a . risk factors and item 3. quantitative and qualitative disclosures about market risk included in this report . 87 financial operations overview product revenue , net product revenue , net , is recognized when earned on sales of nuzyra , which was approved by the fda in october 2018 and launched in the u.s. in february 2019. nuzyra is sold principally to a limited number of specialty distributors and specialty pharmacy providers in the u.s. these customers subsequently resell our product to health care providers or dispense the product to patients . in addition to distribution agreements with customers , we enter into arrangements with health care providers and payers that provide for government mandated and or privately negotiated rebates , chargebacks and discounts with respect to the purchase of our product . product revenue is recognized net of reserves for all variable consideration , including rebates , chargebacks , discounts and product returns . government contract service revenue government contract service revenue is recognized when earned under our barda contract and represents the reimbursement by barda of costs incurred by us for work performed to develop nuzyra for the treatment of pulmonary anthrax plus a small fixed administrative fee . refer to note 5 , government contract revenue in the accompanying notes to the consolidated financial statements included in this annual report on form 10-k for further discussion of the barda contract and related revenue recognition . government contract grant revenue the allocated consideration of government contract grant revenue is recognized when earned under our barda contract and represents the reimbursement by barda of costs incurred by us for fda post-marketing requirements , or pmrs , associated with the approval of nuzyra , including cabp and pediatric studies , as well as a five-year post-marketing bacterial surveillance study .
| results of operations comparison of the years ended december 31 , 2020 and 2019 replace_table_token_5_th product revenue , net net product revenue recognized on sales of nuzyra in the u.s. was $ 38.8 million and $ 11.5 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively . the increase in net product revenue is primarily the result of an increase in sales volume due to higher customer demand . government contract service revenue government contract service revenue earned under our barda contract was $ 3.3 million during the year ended december 31 , 2020. no such government contract service revenue was earned during the year ended december 31 , 2019 as the barda contract was executed in december 2019. government contract grant revenue government contract grant revenue earned under our barda contract was $ 3.4 million during the year ended december 31 , 2020. no such government contract grant revenue was earned during the year ended december 31 , 2019 as the barda contract was executed in december 2019. collaboration and royalty revenue collaboration and royalty revenue were $ 1.5 million and $ 5.0 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively . 91 collaboration and royalty revenue for the year ended december 31 , 2020 was comprised of $ 1.3 million of royalty revenues earned on sales of seysara in the u.s. by almirall under the almirall collaboration agreement ( as defined below ) , and $ 0.2 million of royalty revenues earned on sales of xerava in the u.s. by tetraphase pharmaceuticals , inc. under the tetraphase license agreement ( as defined below ) .
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we prefer markets in which we can establish a strong presence and achieve high gross margins . as of march 31 , 2020 , we managed our operations in four reportable segments , or divisions : sterilization and disinfection control , instruments , biopharmaceutical development , and continuous monitoring ( formerly referred to as cold chain monitoring ) , each of which are described further in results of operations below . non-reportable operating segments ( including our cold chain packaging division which ceased operations during the year ) and unallocated corporate expenses are reported within corporate and other . our revenues come from product sales , which includes hardware and software , and consumables ; as well as services , which include installation , discrete maintenance services , and ongoing maintenance contracts . revenues increase as a result of organic or inorganic revenues growth . inorganic revenues growth is driven by acquisitions . gross profit is affected by our product mix , manufacturing efficiencies , and price competition . historically , as we have integrated our acquisitions and taken advantage of manufacturing efficiencies , our gross margin percentages for some products have improved . there are , however , differences in gross margin percentages between product lines , and ultimately the mix of sales will continue to impact our overall gross margin . page 19 strategy we strive to create shareholder value and further our purpose of protecting the vulnerable tm by growing our business both organically and through further acquisitions , by improving our operating efficiency , and by continuing to hire , develop and retain top talent . organic revenues growth organic revenues growth is primarily driven by the expansion of our customer base , increase in sales volumes , and price increases . our ability to increase organic revenues is effected by general economic conditions , both domestic and international , customer capital spending trends , competition , and the introduction of new products . we typically evaluate costs and pricing annually . our policy is to price our products competitively and , where possible , we pass along cost increases to our customers in order to maintain our margins . inorganic revenue growth - acquisitions over the past decade , we have consummated a number of transactions accounted for as business combinations as part of our growth strategy . the acquisitions of these businesses , which are in addition to organic revenues growth , have allowed us to expand our product offering , globalize our company , and increase the scale at which we operate , which in turn affords us the ability to improve our operating efficiency , extend our customer base , and further the pursuit of our purpose to protect the vulnerable tm . on october 31 , 2019 , we completed the largest acquisition in our company 's history , whereby we acquired 100 % of the outstanding shares in gyros protein technologies holding ab ( `` gpt '' and the `` gpt acquisition '' ) for a final adjusted cash purchase price of $ 181,547 net of cash acquired , which we funded using cash and cash equivalents . the newly-acquired company is a new reportable segment , which we refer to as the biopharmaceutical development division . we began consolidating the results of the division into our financial statements beginning on november 1 , 2019 , the first full day following the acquisition . on april 1 , 2019 , we completed a business acquisition ( the “ ibp acquisition ” ) whereby we acquired the common stock of ibp medical gmbh , a company whose business manufactures medical meters used to test various parameters of dialysis fluid ( dialysate ) , and the proper calibration and operation of a dialysis machine . improving our operating efficiency we maximize the value in both our existing businesses and those that we acquire by implementing efficiencies in our manufacturing and administrative operations . we achieve efficiencies using the four pillars that make up the mesa way , which is our customer-centric , lean-based system for continuously improving and operating a set of high-margin , niche business . the mesa way is focused on : measuring what matters using our customers ' perspective and setting high standards for performance ; empowering teams to improve operationally and exceed customer expectations ; steadily improving using lean-based tools designed to help us identify the root cause of opportunities and prioritize the biggest opportunities ; and always learn so that performance continuously improves . hire , develop , and retain top talent at the center of our organization are talented people who are capable of taking on new challenges using a team approach . it is our exceptionally talented workforce that works together and uses our lean-based tool set to find ways to continuously improve our products , our services , and ourselves , resulting in long-term value creation for our shareholders . novel coronavirus pandemic during march 2020 , the impact from the spreading of a novel strain of coronavirus ( `` covid-19 '' ) was declared a global pandemic by the world health organization and a national public health emergency in the united states . the consequences of the outbreak and impact to the economy continues to evolve and the full extent of the impact is uncertain as of the date of this filing . the pandemic has affected our operating segments in various ways . some of our operating segments have encountered challenges , while headwinds in the sterilization and disinfection control division have been offset by temporary advanced buying by certain customers to protect their supply chains . during january and february , some of the instrument sales in our biopharmaceutical development division were delayed as a result of government restrictions in china that postponed non-emergency health care activities , prohibiting us from delivering products to businesses there . story_separator_special_tag worldwide and regional economic conditions could also reduce the demand for our products and services as our customers reduce or delay capital equipment and other types of purchases . we expect this trend to continue and to result in lower sales in our instruments , biopharmaceutical development , and continuous monitoring , and divisions until the broader healthcare industry returns to normal levels . please refer to `` the ongoing covid-19 pandemic and any possible occurrence of other epidemics or other widespread public health problems could have a material adverse effect on our business and financial condition '' within item 1a . risk factors . we are working on several research and development projects that , if completed , may result in enhanced or new products for both existing customers and new markets . we are hopeful that we will have enhanced or new products and services available for sale in the coming fiscal year . as discussed in note 10 . `` indebtedness '' and note 11 . `` stock transactions and stock-based compensation '' within item 8. financial statements and supplementary data we completed a convertible debt offering and an equity offering of our common stock , which provided $ 252,065 , net of discounts and debt issuance costs . we used a significant portion of the money raised to fund the gpt acquisition , and we intend to use the remaining funds in the future to continue our acquisition strategy and for general corporate purposes . excluding the results of cold chain packaging , which we exited during fiscal year 2020 , overall revenues increased 20 % , organic revenues growth was 2 % , and gross profit increased 7 % for the year ended march 31 , 2020 . results by reportable segment are as follows : replace_table_token_2_th page 21 story_separator_special_tag gross margin includes $ 8,502 of amortization of the inventory step-up recorded in purchase accounting related to the gpt acquisition . excluding the step-up amortization , gross margin for the period ended march 31 , 2020 would have been $ 8,884 , and gross profit margin would have been 64 % . continuous monitoring our continuous monitoring division designs , develops , and markets systems which are used to monitor various environmental parameters such as temperature , humidity , and differential pressure to ensure that critical storage and processing conditions are maintained in hospitals , pharmaceutical and medical device manufacturers , blood banks , pharmacies , and laboratory environments . continuous monitoring products and systems have a longer life , and their purchase by our customers is discretionary , so sales are sensitive to general economic conditions . continuous monitoring products may be sold in conjunction with a perpetual or subscription-based software license , which may be required for the related hardware to function . service demand is driven by our customers ' quality control and regulatory environments , which require periodic repair and recalibration or certification of our continuous monitoring systems . replace_table_token_7_th continuous monitoring total revenues decreased 1 % during the year ended march 31 , 2020. the decrease was a result of a 7 % decrease in organic revenues , partially offset by a full year of revenues from the point six wireless acquisition which was completed partway through our year ended march 31 , 2019. the business was also significantly impacted during the three months ended march 31 , 2020 resulting from the shut down and slowing of many facets of global society and the economy during the three months ended march 31 , 2020 in response to the covid-19 outbreak . specifically , we have not been able to go on-site to many of our customers ' facilities to install systems . continuous monitoring gross profit margin percentage decreased 10 percentage points for the year ended march 31 , 2020 , primarily due to lower than planned service revenues volumes while we continued to pay many of our salaried technicians who were unable to complete revenue-generating orders , and higher than expected hardware prices from certain vendors . subsequent to march 31 , 2020 , we reorganized this business unit , which we believe will allow it to operate more efficiently . this reorganization is one step in our road map to improve the division 's operations and resulting gross margin percentage . corporate and other corporate and other primarily consists of results from our cold chain packaging division which was dissolved during the year ended march 31 , 2020 and is no longer considered a reportable segment , as well as unallocated corporate expenses . replace_table_token_8_th we made the decision to exit the packaging business ( which formerly comprised the cold chain packaging reportable segment ) because it has historically been our least profitable segment and was no longer aligned with our long-term strategic goals . during the year ended march 31 , 2020 , we stopped providing consulting services , and we stopped seeking or accepting new customers . we reduced the division 's costs by relocating most of the administrative functions to our headquarters in lakewood , colorado , and eliminating the division 's sales force . throughout the year ended march 31 , 2020 , we assisted our customers in transitioning their business to other packaging vendors . during the three months ended december 31 , 2019 , we completed the process of liquidating our remaining inventory and exiting the business . we incurred $ 51 and $ 150 of costs associated with exiting the packaging business , consisting of severance and facility closure expenses during the years ended march 31 , 2020 and march 31 , 2019 , respectively . all amounts have been paid and no further exit costs are expected to be incurred . page 23 operating expenses operating expenses for the year ended march 31 , 2020 increased 12 % in total compared to the year ended march 31 , 2019 . operating expenses decreased 2 % in total during the year ended march 31 , 2019 compared to the year ended march 31 , 2018 .
| results of operations our results of operations and period-over-period change are discussed in the following section . the tables and discussion below should be read in conjunction with the accompanying consolidated financial statements and the notes thereto appearing in item 8. financial statements and supplementary data ( in thousands , except percent data ) . refer to item 7 . `` management 's discussion and analysis of financial condition and results of operations '' in our annual report on form 10-k for the year ended march 31 , 2019 , filed on june 3 , 2019 , as amended , for a comparison of fiscal year 2019 results of operations to the fiscal year 2018 results of operations . our condensed consolidated results of operations are as follows : replace_table_token_3_th nm - not meaningful . reportable segments sterilization and disinfection control our sterilization and disinfection control division manufactures and sells biological , cleaning , and chemical indicators . biological , cleaning , and chemical indicators are used to assess the effectiveness of sterilization and disinfection processes in the hospital , dental , medical device , and pharmaceutical industries . the division also provides testing and laboratory services , mainly to the dental industry . sterilization and disinfection control products are disposable and are used on a routine basis , thus product sales are less sensitive to general economic conditions . replace_table_token_4_th sterilization and disinfection control revenues increased 7 % as a result of organic revenues growth , which was achieved through volume increases with existing customers , acquisition of new customers , and to a lesser extent , modest price increases . sales in our sterilization and disinfection control division increased throughout the fourth quarter as the consumable and critical nature of the products sold in that division makes it necessary for customers to continue to purchase them , despite economic uncertainty .
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under this credit agreement ( the “ working capital loans ” ) , pdmcx can borrow up to 140.0 story_separator_special_tag overview we sell substantially all of our photomasks to semiconductor designers and manufacturers , and manufacturers of fpds . photomask technology is also being applied to the fabrication of other higher-performance electronic products such as photonics , micro-electronic mechanical systems , and certain nanotechnology applications . our selling cycle is tightly interwoven with the development and release of new semiconductor and display designs and applications , particularly as they relate to the semiconductor industry 's migration to more advanced product innovation , design methodologies , and fabrication processes . the demand for photomasks primarily depends on design activity rather than sales volumes from products manufactured using photomask technologies . consequently , an increase in semiconductor or display sales does not necessarily result in a corresponding increase in photomask sales . however , the reduced use of customized ics , reductions in design complexity , other changes in the technology or methods of manufacturing or designing semiconductors , or a slowdown in the introduction of new semiconductor or display designs could reduce demand for photomasks ‒ even if the demand for semiconductors and fpds increases . advances in semiconductor , display , and photomask design and production methods that shift the burden of achieving device performance away from lithography could also reduce the demand for photomasks . historically , the microelectronic industry has been volatile , experiencing periodic downturns and slowdowns in design activity . these downturns have been characterized by , among other things , diminished product demand , excess production capacity , and accelerated erosion of selling prices with a concomitant effect on revenue and profitability . we are typically required to fulfill customer orders within a short period of time , sometimes within twenty-four hours . this results in a minimal level of backlog orders , typically one to two weeks of backlog for ic photomasks and two to three weeks of backlog for fpd photomasks . the global microelectronics industry is driven by end markets which have been closely tied to consumer-driven applications of high-performance devices , including , but not limited to , mobile display devices , mobile communications , and computing solutions . while we can not predict the timing of the industry 's transition to volume production of next-generation technology nodes , or the timing of up and down-cycles with precise accuracy , we believe that such transitions and cycles will continue into the future , beneficially and adversely affecting our business , financial condition , and operating results as they occur . we believe our ability to remain successful in these environments is dependent upon the achievement of our goals of being a service and technology leader and efficient solutions supplier , which we believe should enable us to continually reinvest in our global infrastructure . we are focused on improving our competitiveness by advancing our technology and reducing costs and , in connection therewith , have invested and plan to continue to invest in manufacturing equipment to serve the high-end markets . as we face challenges in the current and near term that require us to make significant improvements in our competitiveness , we continue to evaluate further cost reduction initiatives . state-of-the-art production for semiconductor masks is considered to be 28 nanometer and smaller for ics and generation 10.5+ and amoled and ltps display-based process technologies for fpds . however , 32 nanometer and above geometries for semiconductors and generation 8 and below ( excluding amoled and ltps ) process technologies for displays constitute the majority of designs currently being fabricated in volume . at these geometries , we can produce full lines of photomasks , and there is no significant technology employed by our competitors that is not available to us . we expect advanced-generation designs to continue to move to production throughout fiscal 2021 , and we believe we are well positioned to service an increasing volume of this business as a result of our investments in manufacturing processes and technology in the regions where our customers are located . the photomask industry has been , and is expected to continue to be , characterized by technological change and evolving industry standards . in order to remain competitive , we will be required to continually anticipate , respond to , and utilize changing technologies . in particular , we believe that , as semiconductor geometries continue to become smaller , and display designs become larger or otherwise more advanced , we will be required to manufacture even more complex optically-enhanced reticles , including optical proximity correction and phase-shift photomasks . additionally , demand for photomasks has been , and could in the future be , adversely affected by changes in high-performance electronics fabrication methods that affect the type or quantity of photomasks used , such as changes in semiconductor demand that favor field-programmable gate arrays and other semiconductor designs that replace application-specific ics , or the use of certain chip-stacking methodologies that lessen the emphasis on conventional lithography technology . furthermore , increased market acceptance of alternative methods of transferring circuit designs onto semiconductor wafers could reduce or eliminate the need for photomasks in the production of semiconductors . as of the end of fiscal year 2020 , one alternative method , direct-write lithography , has not been proven to be a commercially viable alternative to photomasks , as it is considered to be too slow for high-volume semiconductor wafer production , and we have not experienced a significant loss of revenue as a result of this or other alternative semiconductor design methodologies . however , should direct-write lithography or any other alternative method of transferring ic designs to semiconductor wafers without the use of photomasks achieve market acceptance , and we do not anticipate , respond to , or utilize these or other changing technologies due to resource , technological , or other constraints , our business and results of operations could be materially adversely affected . story_separator_special_tag the purpose of the rights agreement is to deter trading of our common stock that would result in a change in control ( as defined in internal revenue control section 382 ) , thereby preserving our future ability to use our historical federal net operating losses and other tax attributes ( as defined in the rights agreement ) . each right entitles the registered holder to purchase from the company one one-thousandth of a share of series a preferred stock , par value $ 0.01 per share , at a price of $ 33.63 , subject to adjustment . the rights , which are described in the company 's current report on form 8-k filed on september 24 , 2019 , are in all respects subject to and governed by the provisions of the rights agreement . the rights will expire at the earliest to occur of ( i ) the date on which our board of directors determines , in its sole discretion , that the rights agreement is no longer necessary for the preservation of material valuable tax attributes , or the tax attributes have been fully utilized and may no longer be carried forward , and ( ii ) the close of business on september 22 , 2022. in the fourth quarter of fiscal 2019 , pdmc , the company 's majority-owned ic subsidiary in taiwan , paid a dividend of which 49.99 % , or approximately $ 18.9 million , was paid to noncontrolling interests . in the fourth quarter of fiscal 2019 , upon our request , a financing entity made an advance payment of $ 3.5 million to an equipment vendor . we entered into a master lease agreement ( “ mla ” ) with this financing entity , which became effective in july 2019. the mla enables us to request advance payments or other funds to finance equipment to be leased or purchased in the u.s. in connection with this mla , we have been approved for financing of $ 35 million for the purchase of a high-end lithography tool . interest on this borrowing is variable and payable monthly at thirty-day libor plus 1 % ( 1.15 % at october 31 , 2020 ) , and will continue to accrue until the borrowing is repaid or , as allowed under the mla , we enter into a lease for the equipment . during the first quarter of fiscal 2021 , this financing entity made an additional payment of $ 28 million to the equipment vendor on our behalf . in the fourth quarter of fiscal 2019 , the company 's board of directors authorized the repurchase of up to $ 100 million of its common stock , pursuant to a repurchase plan under rule 10b5-1 of the securities act of 1933 ( as amended ) . we repurchased 2.5 million shares at a cost of $ 27.9 million ( an average price of $ 11.34 per share ) under this authorization . the repurchase program was terminated on march 20 , 2020. in the second quarter of fiscal 2019 , we repaid , upon maturity , the entire $ 57.5 million principal amount of the convertible senior notes we issued in april 2016. in the first quarter of fiscal 2019 , pdmc paid a dividend , of which 49.99 % , or approximately $ 26.1 million , was paid to noncontrolling interests . in the first quarter of fiscal 2019 , pdmcx was approved for credit of 345.0 million rmb ( approximately $ 51.4 million , at the balance sheet date ) , subject to certain limitations related to pdmcx registered capital at the time of the initial approval , pursuant to which pdmcx has and will enter into separate loan agreements ( “ the project loans ” ) for intermittent borrowings . the project loans , which are denominated in rmb , are being used to finance certain capital expenditures in china . pdmcx granted liens on its land , building , and certain equipment as collateral for the project loans . as of october 31 , 2020 , pdmcx had outstanding 336.0 million rmb ( $ 50.1 million ) against this approval . payments on these borrowings are due semiannually through december 2025. see note 7 of the consolidated financial statements for additional information on these loans . 23 in the first quarter of fiscal 2019 , pdmcx received approval for unsecured credit of $ 25.0 million , pursuant to which pdmcx may enter into separate loan agreements . under this credit agreement ( the “ working capital loans ” ) , pdmcx can borrow up to 140.0 million rmb to pay value-added taxes ( “ vat ” ) and up to 60.0 million rmb to fund operations ; combined total borrowings are limited to the equivalent of $ 25.0 million . as of october 31 , 2020 , pdmcx had outstanding 8.0 million rmb ( $ 1.2 million ) to fund operations , with repayments due one year from the borrowing dates of the separate loan agreements . as of october 31 , 2020 , pdmcx had outstanding 93.2 million rmb ( $ 13.9 million ) borrowed to pay vat . payments on these borrowings are due semiannually , in increasing amounts , through july 2023. see note 7 of the consolidated financial statements for additional information on these loans . in the fourth quarter of fiscal 2018 , the company 's board of directors authorized the repurchase of up to $ 25 million of its common stock , to have been executed in open-market transactions or in accordance with a repurchase plan under rule 10b5-1 of the securities act of 1933 ( as amended ) . the share repurchase program commenced , under rule 10b5-1 , on october 22 , 2018 , and was terminated on february 1 , 2019. in total , we repurchased 1.5 million shares at a cost of $ 13.8 million ( an average of $ 9.41 per share ) under this authorization .
| results of operations the following tables present selected operating information expressed as a percentage of revenue : replace_table_token_6_th replace_table_token_7_th note : all the following tabular comparisons , unless otherwise indicated , are for the three months ended october 31 , 2020 ( q4 fy20 ) , august 2 , 2020 ( q3 fy20 ) and october 31 , 2019 ( q4 fy19 ) , and for the fiscal years ended october 31 , 2020 ( fy20 ) and october 31 , 2019 ( fy19 ) . please refer to the md & a in our 2019 annual report on form 10-k for comparative discussion of our fiscal years ended october 31 , 2019 and october 31 , 2018 . 25 revenue our quarterly revenues can be affected by the seasonal purchasing practices of our customers . as a result , demand for our products is typically reduced during the first , and sometimes the second , quarters of our fiscal year , by the north american , european , and asian holiday periods , as some of our customers reduce their development and , consequently , their buying activities during those periods . at the beginning of fiscal year 2020 , we changed the threshold for the definition of high-end fpd , from g8 and above and active matrix organic light-emitting diode ( amoled ) display screens , to g10.5 + , amoled , and low-temperature polysilicon ( ltps ) display screens , to reflect the overall advancement of technology in the fpd industry . our definition of high-end ic products remains as 28 nanometer or smaller . high-end photomasks typically have higher selling prices ( asps ) than mainstream products . the following tables present changes in revenue disaggregated by product type and geographic origin , in q4 fy20 and fy20 from revenue in prior reporting periods . columns may not total due to rounding .
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in determining the estimated fair values of reporting units in a quantitative goodwill impairment test , we generally use a blend , of the following recognized valuation methods : the income approach ( discounted cash flows model ) and the market valuation approach , which we believe compensates for the inherent risks of using either model on a stand-alone basis . the discounted cash flows model indicates the fair value of the reporting units based on the present value of the cash flows that we expect the reporting units to generate in the future . our significant estimates in the discounted cash flows model include : weighted average cost of capital ; long-term rate of growth and profitability of the reporting unit ; income tax rates and working capital effects . the market valuation approach indicates the fair value of the business based on a comparison to story_separator_special_tag story_separator_special_tag using mobile phones to conduct ecommerce activity and mobile average monthly unique visitor growth continues to drive overall user growth on our platform . we continue to support investments and product enhancements that improve the consumer experience as opposed to maximizing the number of display advertising impressions we can sell in a given period . historically , this preference has limited the number and type of display advertising opportunities we make available to customers , which , in turn , has hampered tripadvisor-branded display-based advertising revenue growth , particularly on mobile phone . however , we continue to explore product enhancements and media advertising products that can deliver increased value to both consumers and travel partners , as well as generate more revenue for our business . other hotel revenue , which consists primarily of hotel revenue from non-tripadvisor branded sites , has decreased in recent periods primarily due to increased marketing efficiency from paid online marketing channels , which has reduced revenue and improved hotel segment profit . we have also taken certain steps to re-align operations within some of these other hotel brands which have had a material adverse impact to revenue performance during 2018 , while increasing hotel segment profitability . non-hotel segment tripadvisor 's non-hotel offerings – experiences , restaurants and rentals – enable consumers to discover and book great travel experiences across a diversified spectrum of travel offerings . our key priority in our non-hotel segment remains revenue growth . to achieve this , we continue to invest in product , supply and marketing to improve the experience for consumers and suppliers on our platform . we believe scaling and presenting a greater selection of offerings will deepen our relationships with consumers , will drive more bookings and marketing opportunities for more travel partners and will increase monetization on our platform . 38 during 2018 , non-hotel revenue growth was driven by growth in consumer demand , bookable supply and bookings in our experiences an d restaurants offerings . rentals revenue declined primarily due to competition in the alternative accommodations marketplace as well as our strategic resource re-allocation within non-hotel to experiences and restaurants . tax reform the 2017 tax act was signed into law on december 22 , 2017 , and has resulted in significant changes to the u.s. corporate income tax system . these changes include a federal statutory rate reduction from 35 % to 21 % , the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation . the 2017 tax act also transitions international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-u.s. earnings , which has the effect of subjecting certain earnings of our foreign subsidiaries to u.s. taxation as global intangible low-taxed income ( “ gilti ” ) . these changes were effective beginning january 1 , 2018. the 2017 tax act also includes a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries ' previously untaxed foreign earnings ( the “ transition tax ” ) . changes in tax rates and tax laws are accounted for in the period of enactment . during the year ended december 31 , 2017 , we recorded a charge totaling $ 73 million related to our estimate at that time of the provisions of the 2017 tax act , principally due to the transition tax . the transition tax , recorded of $ 67 million , which will not accrue interest , will be paid over an eight-year period , of which $ 31 million remained unpaid at december 31 , 2018. we also recorded a charge of $ 6 million for the remeasurement of our net deferred tax assets . these estimates as of december 31 , 2017 were reflected in our financial results in accordance with staff accounting bulletin no . 118 ( “ sab 118 '' ) , which provided for a measurement period of one year to complete the accounting for certain elements of the tax reform . the impact of adjustments recorded during the measurement period by the company during the year ended december 31 , 2018 was not material . refer to “ note 11 : income taxes ” in the notes to the consolidated financial statements in item 8 on this annual report on form 10-k for further information on the financial statement impact of the 2017 tax act . 39 results of operations selected financial data ( in millions , except per share amounts and percentages ) year ended december 31 , % change 2018 2017 2016 2018 vs. 2017 2017 vs. 2016 revenue $ 1,615 $ 1,556 $ 1,480 4 % 5 % costs and expenses : cost of revenue 86 72 71 19 % 1 % selling and marketing 778 849 756 ( 8 ) % 12 % technology and content 275 243 243 13 % 0 % general and administrative 177 157 143 13 % 10 % depreciation 82 79 69 4 % 14 % amortization of intangible assets 34 32 32 6 % 0 % total costs and expenses 1,432 1,432 1,314 0 % 9 % operating income 183 124 166 48 % ( story_separator_special_tag when a cpc bid is submitted , the partner agrees to pay us the bid amount each time a consumer clicks on the link to that partner 's website . bids can be submitted periodically – as often as daily– on a property-by-property basis . primary factors used to determine the placement of partner links on our site include , but are not limited to , nightly room rate , the size of the bi d relative to other bids , and other variables . h otel shoppers visiting via mobile phones currently monetize at a significantly lower rate than hotel shoppers visiting via desktop or tablet . our hotel segment transaction-based revenue is comprised of revenu e from our hotel instant booking feature , which enables the merchant of record , generally an ota or hotel partner , to pay a pre-determined commission rate to tripadvisor fo r each consumer that completes a hotel reservation via our website . the key drivers of tripadvisor-branded click-based and transaction revenue include average monthly unique hotel shoppers and revenue per hotel shopper , the latter of which measures how effectively we convert our hotel shoppers into revenue . we measure performance by calculating revenue per hotel shopper on an aggregate basis by dividing total tripadvisor-branded click-based and transaction revenue by total average monthly unique hotel shoppers on tripadvisor-branded websites for the periods presented . while we believe that total traffic growth , or growth in monthly visits from unique visitors , is reflective of our overall brand growth , we also track and analyze sub-segments of our traffic and their correlation to revenue generation and utilize data regarding hotel shoppers as one of the key indicators of revenue growth . hotel shoppers are visitors who view either a listing of hotels in a city or on a specific hotel page . the number of hotel shoppers tends to vary based on seasonality of the travel industry and general economic conditions , as well as other factors outside of our control . the table below summarizes our revenue per hotel shopper calculation and growth rate , in the aggregate , for the periods presented ( in millions , except calculated revenue per hotel shopper and percentages ) : replace_table_token_5_th 2018 vs. 2017 revenue per hotel shopper decreased 2 % during the year ended december 31 , 2018 when compared to the same period in 2017 , according to our internal log files . the decrease was primarily driven by travel partners bidding to lower cpcs in our click-based metasearch auction during the second half of 2017 , which created difficult year-over-year growth comparisons during the first half of 2018 , as well as a greater percentage of hotel shoppers visiting tripadvisor-branded websites and apps on mobile phones , partially offset by our success in product improvements and increasing traffic quality , as discussed above . 42 our aggregate average monthly unique hotel shoppers on tripadvisor-branded websites decreased by 4 % during the year ended december 31 , 2018 when compared to the same period in 2017 , according to our internal log files . the decrease wa s primarily due to significantly reducing our direct marketing spend on our least-profitable paid online marketing campaigns , as well as product enhancements focused on increasing traffic quality , which we believe limits our ability to grow hotel shoppers in the near term , as discussed above , partially offset by the general trend of an increasing number of hotel shoppers visiting our websites and apps on mobile phones which we continued to experience during 2018 . 2017 vs. 2016 revenue per hotel shopper decreased 9 % during the year ended december 31 , 2017 when compared to the same period in 2016 , according to our internal log files . the decrease was primarily driven by travel partners bidding to lower cpcs in our click-based metasearch auction during the second half of 2017 , and the general trend of a greater percentage of hotel shoppers visiting tripadvisor-branded websites and apps on mobile phones , which grew significantly faster than traffic from desktop and tablet devices , as well as dilution from product testing related to the second-quarter 2017 launch of our redesigned website and apps , and the timing of our hotel instant booking feature rollout in certain non-u.s. markets during the first half of 2016. our aggregate average monthly unique hotel shoppers on tripadvisor-branded websites increased by 10 % during the year ended december 31 , 2017 when compared to the same period in 2016 , according to our internal log files . the increase in hotel shoppers is primarily due to the general trend of an increasing number of hotel shoppers visiting our websites on mobile phones , as well as growth in our paid online marketing channels , partially offset by marketing spend tradeoffs resulting from increased brand advertising investment in our television campaign , as discussed above . tripadvisor-branded display-based advertising and subscription revenue for the years ended december 31 , 2018 , 2017 and 2016 , 27 % , 24 % and 24 % , respectively , of our hotel segment revenue was derived from our tripadvisor-branded display-based advertising and subscription revenue , which primarily consists of revenue from display-based advertising and subscription-based hotel advertising revenue . 2018 vs. 2017 our tripadvisor-branded display-based advertising and subscription revenue increased by $ 16 million or 5 % , during the year ended december 31 , 2018 when compared to the same period in 2017 , primarily attributable to revenue from our new media ad product during 2018 , which enables hotels to enhance their visibility on tripadvisor hotel pages . the increase was partially offset by the general trend of an increasing percentage of our traffic visiting our websites on mobile phones , which yield smaller impression opportunities due to the smaller screen size .
| on and results of operations overview tripadvisor is an online travel company and our mission is to help people around the world to plan , book and experience the perfect trip . we seek to achieve our mission by providing consumers and travel partners a global platform with rich consumer-generated content , price comparison tools and online reservation and related services for destinations , accommodations , travel activities and experiences , and restaurants . tripadvisor , inc. , by and through its subsidiaries , owns and operates a portfolio of leading online travel brands . our flagship brand , tripadvisor , is the world 's largest travel site based on average monthly unique visitors , which reached 490 million in our seasonal peak during the year ended december 31 , 2018 , according to our internal log files . our tripadvisor-branded websites include www.tripadvisor.com in the united states and localized versions of the tripadvisor website in 48 markets and 28 languages worldwide . tripadvisor features approximately 730 million reviews and opinions on approximately 8.1 million places to stay , places to eat and things to do – including 1.3 million hotels , inns , b & bs and specialty lodging , 875,000 rental properties , 4.9 million restaurants and 1.0 million travel activities and experiences worldwide . we also enable consumers to compare prices and or book a number of these travel experiences on either a tripadvisor website or mobile app , or on the website or mobile app of one of our travel partners . in addition to the flagship tripadvisor brand , we manage and operate other travel media brands , connected by the common goal of providing consumers the most comprehensive travel-planning and trip-taking resources in the travel industry . for additional information about our portfolio of brands and our business model , see the disclosure set forth in part i , item 1 . “ business ” , under the caption “ overview. ” our reporting structure includes two reportable segments : hotel and non-hotel .
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currently the company does not have any items classified as level 1. level 2 valuations based on observable inputs ( other than level 1 prices ) , such as quoted prices for similar assets at the measurement date ; quoted prices in markets that are not active ; or other inputs that are observable , either directly or indirectly . level 3 valuations based on inputs that are unobservable and significant to the overall fair value measurement , and involve management judgment . the company uses the black-scholes option pricing model to determine the fair value of the instruments . if the inputs used to measure fair value fall in different levels of the fair value hierarchy , a financial security 's hierarchy level is based upon the lowest level of input that is significant to the fair value measurement . the following table presents the company 's warrants measured at fair value on a recurring basis as of march 31 , 2011 and march 31 , 2010 classified using the valuation hierarchy : level 3 level 3 carrying value carrying value march 31 , 2011 march 31 , 2010 derivative liabilities $ 156,497 $ 334,363 the following table provides a reconciliation of the beginning and ending balances for the company 's derivative liabilities measured at fair value using level 3 inputs : replace_table_token_15_th f-15 cryoport , inc. notes to consolidated financial statements ( continued ) note 6. line of credit on november 5 , 2007 , story_separator_special_tag this annual report on form 10-k contains forward-looking statements that have been made pursuant to the provisions of the private securities litigation reform act of 1995 and concern matters that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements . discussions containing forward-looking statements may be found in the material set forth under business , management 's discussion and analysis of financial condition and results of operations and in other sections of this form 10-k. words such as may , will , should , could , expect , plan , anticipate , believe , estimate , predict , potential , continue or similar words are intended to identify forward-looking statements , although not all forward-looking statements contain these words . although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable as of the date of this annual report on form 10-k , we can not guarantee future results , levels of activity , performance or achievements , and our actual results may differ substantially from the views and expectations set forth in this annual report on form 10-k. we expressly disclaim any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations . readers are urged to carefully review and consider the various disclosures made by us , which attempt to advise interested parties of the risks , uncertainties , and other factors that affect our business , set forth in detail in item 1a of part i , under the heading risk factors. the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes to those statements contained elsewhere in this annual report on form 10-k. overview we are a provider of an innovative cold chain frozen shipping system dedicated to providing superior , affordable cryogenic shipping solutions that ensure the safety , status and temperature , of high value , temperature sensitive materials . we have developed cost effective reusable cryogenic transport containers ( referred to as shippers ) capable of transporting biological , environmental and other temperature sensitive materials at temperatures below minus 150° celsius . these dry vapor shippers are one of the first significant alternatives to dry ice shipping and achieve 10-plus day holding times compared to one to two day holding times with dry ice . our value proposition comes from providing both safe transportation and an environmentally friendly , long lasting shipper , and through our value added services that offer a simple , hassle-free solution for our customers . these value-added services include an internet-based web portal that enables the customer to initiate scheduling , shipping and tracking of the progress and status of a shipment , and provides in-transit temperature and custody transfer monitoring services of the shipper . the cryoport service also provides a fully ready charged shipper containing all freight bills , customs documents and regulatory paperwork for the entire journey of the shipper to our customers at their pick up location . our principal focus has been the further development and commercial launch of cryoport express ® portal , an innovative it solution for shipping and tracking high-value specimens through overnight shipping companies , and our cryoport express ® shipper , a dry vapor cryogenic shipper for the transport of biological and pharmaceutical materials . a dry vapor cryogenic shipper is a container that uses liquid nitrogen in dry vapor form , which is suspended inside a vacuum insulated bottle as a refrigerant , to provide storage temperatures below minus 150° celsius . the dry vapor shipper is designed using innovative , proprietary , and patented technology which prevents spillage of liquid nitrogen and pressure build up as the liquid nitrogen evaporates . a proprietary foam retention system is employed to ensure that liquid nitrogen stays inside the vacuum container , even when placed upside-down or on its side , as is often the case when in the custody of a shipping company . biological specimens are stored in a specimen chamber , referred to as a well , inside the container and refrigeration is provided by harmless cold nitrogen gas evolving from the liquid nitrogen entrapped within the foam retention system surrounding the well . story_separator_special_tag our significant accounting policies are described in the notes to the audited consolidated financial statements contained elsewhere in this annual report on form 10-k. included within these policies are our critical accounting policies. critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management 's most subjective and complex judgments due to the need to make estimates about matters that are inherently uncertain . although we believe that our estimates and assumptions are reasonable , actual results may differ significantly from these estimates . changes in estimates and assumptions based upon actual results may have a material impact on our results of operations and or financial condition . we believe that the critical accounting policies that most impact the consolidated financial statements are as described below . revenue recognition per use revenues we recognize revenues from product sales when there is persuasive evidence that an arrangement exists , when title has passed , the price is fixed or determinable , and we are reasonably assured of collecting the resulting receivable . the company records a provision for claims based upon historical experience . actual claims in any future period may differ from the company 's estimates . during its early years , the company 's limited revenue was derived from the sale of our reusable product line . the company 's current business plan focuses on per-use leasing of the shipping container and value-added services that will be used by us to provide an end-to-end and cost-optimized shipping solution . the company provides shipping containers to their customers and charges a fee in exchange for the use of the container . the company ' arrangements are similar to the accounting standard for leases since they convey the right to use the containers over a period of time . the company retains title to the containers and provides its customers the use of the container for a specified shipping cycle . at the culmination of the customer 's shipping cycle , the container is returned to the company . as a result of our new business plan , during the quarter ended september 30 , 2009 , the company reclassified the containers from inventory to fixed assets upon commencement of the loaned-container program . inventory the company writes down its inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand , future pricing and market conditions . inventory reserve costs are subject to estimates made by the company based on historical experience , inventory quantities , age of inventory and any known expectations for product changes . if actual future demands , future pricing or market conditions are less favorable than those projected by management , additional inventory write-downs may be required and the differences could be material . such differences might significantly impact cash flows from operating activities . once established , write-downs are considered permanent adjustments to the cost basis of the obsolete or unmarketable inventories . 24 during its early years , the company 's limited revenue was derived from the sale of our reusable product line . the company 's current business plan focuses on per-use leasing of the shipping container and value-added services that will be used by us to provide an end-to-end and cost-optimized shipping solution . the company provides shipping containers to its customers and charges a fee in exchange for the use of the container . the company ' arrangements are similar to the accounting standard for leases since they convey the right to use the containers over a period of time . the company retains title to the containers and provides its customers the use of the container for a specified shipping cycle . at the culmination of the customer 's shipping cycle , the container is returned to the company . as a result of our current business plan , during fiscal year 2010 , the company reclassified the containers from inventory to fixed assets upon commencement of the loaned-container program . the company 's current inventory consists of accessories that are sold and shipped to customers along with loaned containers and not returned to the company with the containers at the culmination of the customer 's shipping cycle . property and equipment fixed assets are stated at cost , net of accumulated depreciation and amortization . depreciation and amortization of fixed assets are provided using the straight-line method over the following useful lives : cryogenic shippers 3 years furniture and fixtures 7 years machinery and equipment 5-7 years leasehold improvements lesser of lease term or estimated useful life betterments , renewals and extraordinary repairs that extend the lives of the assets are capitalized ; other repairs and maintenance charges are expensed as incurred . the cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts , and the gain or loss on disposition is recognized in current operations . intangible assets intangible assets are comprised of patents and trademarks and software development costs . the company capitalizes costs of obtaining patents and trademarks which are amortized , using the straight-line method over their estimated useful life of five years . the company capitalizes certain costs related to software developed for internal use . software development costs incurred during the preliminary or maintenance project stages are expensed as incurred , while costs incurred during the application development stage are capitalized and amortized using the straight-line method over the estimated useful life of the software , which is five years . capitalized costs include purchased materials and costs of services including the valuation of warrants issued to consultants . long-lived assets the company assesses the recoverability of its long-lived assets by determining whether the depreciation and amortization of long-lived assets over their remaining lives can be recovered through projected undiscounted cash flows .
| results of operations years ended march 31 , 2011 and 2010 revenues . net revenues were $ 475,504 in fiscal 2011 , as compared to $ 117,956 in fiscal 2010. the increase of $ 357,548 or 303 % was the result of our current business plan focusing on per-use leasing of our shipping containers and added-value services that will be used by us to provide an end-to-end and cost-optimized shipping solution to life science companies moving pharmaceutical and biological samples in clinical trials and pharmaceutical distribution . the less than anticipated increase in shipper revenues during the two fiscal years was also the result of delays in the company securing adequate funding for the manufacturing and full commercialization of the cryoport express ® system . gross loss and cost of revenues . gross loss for 2011 was 174 % of revenues , or $ 827,484 as compared to 508 % , or $ 599,754 for fiscal 2010. the increase in gross loss in absolute dollars and the decrease in gross loss as a percentage of revenues for the year ended march 31 , 2011 , as compared to the year ended march 31 , 2010 , was primarily the result of the increase in revenues from the per-use leasing of the shipping containers . the increase in cost of revenues from $ 717,710 for the year ended march 31 , 2010 to $ 1,302,988 for the year ended march 31 , 2011 , was primarily the result of increased revenues . the cost of revenues exceeded revenues due to fixed manufacturing costs and plant underutilization . selling , general and administrative expenses .
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( q ) commitments and contingencies liabilities for loss contingencies arising from claims , assessments , litigation , fines , and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated . legal costs incurred in connection with loss contingencies are expensed as incurred . f-14 ( r ) segment information the company 's chief operating decision maker reviews the financial results of the company in total when evaluating financial performance and for purposes of allocating resources . the company has thus determined that it operates in a single cloud-based software solution reporting segment . ( s ) recently adopted accounting standards in may 2014 , the fasb story_separator_special_tag the statements included herein that are not based solely on historical facts are “ forward looking statements. ” such forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties . our actual results could differ materially from those anticipated by us in these forward-looking statements as a result of various factors , including those discussed below and under part i , item 1a . “ risk factors. ” overview we are a cloud-based provider of payroll and human capital management ( “ hcm ” ) software solutions for medium-sized organizations , which we define as those having between 20 and 1,000 employees . our comprehensive and easy-to-use solutions enable our clients to manage their workforces more effectively . our product suite delivers a unified platform for professionals to make strategic decisions in the areas of payroll , core hr , workforce management , talent and benefits , all while promoting a modern workplace and improving employee engagement . effective management of human capital is a core function in all organizations and requires a significant commitment of resources . our solutions were specifically designed to meet the payroll and hcm needs of medium-sized organizations . we designed our cloud-based platform to provide a unified suite of modules using a multi-tenant architecture . our solutions are highly flexible and configurable and feature a modern , intuitive user experience . our platform offers automated data integration with over 300 related third-party systems , such as 401 ( k ) , benefits and insurance provider systems . our payroll solution was the first of our current offerings introduced into the market . we believe payroll is the most critical system of record for medium-sized organizations and an essential gateway to other hcm functionalities . we have invested in , and we intend to continue to invest in , research and development to expand our product offerings and advance our platform . we believe there is a significant opportunity to grow our business by increasing our number of clients and we intend to invest in our business to achieve this purpose . we market and sell our solutions through our direct sales force . we have increased our sales and marketing expenses as we have added sales representatives and related sales and marketing personnel . we intend to continue to grow our sales and marketing organization across new and existing geographic territories . in addition to growing our number of clients , we intend to grow our revenue over the long term by increasing the number and quality of products that clients purchase from us . to do so , we must continue to enhance and grow the number of solutions we offer to advance our platform . we believe that delivering a positive service experience is an essential element of our ability to sell our solutions and retain our clients . we seek to develop deep relationships with our clients through our unified service model , which has been designed to meet the service needs of mid-market organizations . we expect to continue to invest in and grow our implementation and client service organization as our client base grows . we believe we have the opportunity to continue to grow our business over the long term , and to do so we have invested , and intend to continue to invest , across our entire organization . these investments include increasing the number of personnel across all functional areas , along with improving our solutions and infrastructure to support our growth . the timing and amount of these investments vary based on the rate at which we add new clients , add new personnel and scale our application development and other activities . many of these investments will occur in advance of experiencing any direct benefit from them , which will make it difficult to determine if we are effectively allocating our resources . we expect these investments to increase our costs on an absolute basis , but as we grow our number of clients and our related revenues , we anticipate that we will gain economies of scale and increased operating leverage . as a result , we expect our gross and operating margins will improve over the long term . as our business has grown , we have become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions . if general economic conditions were to deteriorate , including declines in private sector employment growth and business productivity , increases in the unemployment rate and changes in interest 41 rates , we may experience delays in our sales cycles , increased pressure from prospective clients to offer discounts and increased pressure from existing clients to renew expiring recurring revenue agreements for lower amounts . paylocity holding corporation is a delaware corporation , which was formed in november 2013. our business operations , excluding interest earned on certain cash holdings and expenses associated with certain secondary stock offerings , have historically been , and are currently , conducted by its wholly owned subsidiaries , and the financial results presented herein are entirely attributable to the results of its operations . story_separator_special_tag we derive revenue from a client based on the solutions purchased by the client , the number of client employees as well as the amount , type and timing of services provided with respect to those client employees . as such , the number of client employees on our system is not a good indicator of our financial results in any period . recurring fees attributable to our cloud-based payroll and hcm solutions accounted for approximately 95 % , 94 % and 94 % of our total revenues during the years ended june 30 , 2017 , 2018 and 2019 , respectively . while the majority of our agreements with clients are generally cancellable by the client on 60 days ' notice or less , we also began entering into term arrangements in fiscal 2018 , which are generally over two years in length . our agreements do not include general rights of return and do not provide clients with the right to take possession of the 43 software supporting the services being provided . we recognize recurring fees in the period in which services are provided and the related performance obligations have been satisfied . interest income on funds held for clients we earn interest income on funds held for clients . we collect funds for employee payroll payments and related taxes in advance of remittance to employees and taxing authorities . prior to remittance to employees and taxing authorities , we earn interest on these funds through demand deposit accounts with financial institutions with which we have automated clearing house , or ach , arrangements . we also earn interest by investing a portion of funds held for clients in highly liquid , investment-grade marketable securities . implementation services and other implementation services and other revenues primarily consist of implementation fees charged to new clients for professional services provided to implement our payroll and hcm solutions . implementations of our payroll solutions typically require only three to four weeks at which point the new client 's payroll is first processed using our solution . we implement additional hcm products as requested by clients and leverage the data within our payroll solution to accelerate our implementation processes . with the adoption of topic 606 , we defer and amortize implementation fees related to our proprietary products over a period generally up to 24 months , which previously were recognized upon completion . refer to note 2 of the notes to the consolidated financial statements included in part ii , item 8 : “ financial statements and supplementary data ” for additional information regarding the adoption of topic 606. cost of revenues cost of recurring revenues cost of recurring revenues is generally expensed as incurred and includes costs to provide our payroll and other hcm solutions primarily consisting of employee-related expenses , including wages , stock-based compensation , bonuses and benefits , relating to the provision of ongoing client support , payroll tax filing and distribution of printed checks and other materials . these costs also include amortization of capitalized internal-use software costs , delivery costs and computing costs , as well as bank fees associated with client fund transfers . we expect to realize cost efficiencies over the long term as our business scales , resulting in improved operating leverage and increased margins . we capitalize a portion of our internal-use software costs , which are then all amortized as a cost of recurring revenues . we amortized $ 9.4 million , $ 14.3 million and $ 16.9 million of capitalized internal-use software costs in fiscal 2017 , 2018 and 2019 , respectively . cost of implementation services and other cost of implementation services and other consists primarily of employee-related expenses , including wages , stock-based compensation , bonuses and benefits involved in the implementation of our payroll and other hcm solutions for new and existing clients . with the adoption of topic 606 , cost of implementation services related to our proprietary products are capitalized and amortized over a period of 7 years , which previously were expensed as incurred . we intend to grow our business through acquisition of new clients , and doing so will require increased personnel to implement our solutions . therefore , our cost of implementation services and other is expected to increase in absolute dollars for the foreseeable future . refer to note 2 of the notes to the consolidated financial statements included in part ii , item 8 : “ financial statements and supplementary data ” for additional information regarding the adoption of topic 606. operating expenses sales and marketing sales and marketing expenses consist primarily of employee-related expenses for our direct sales and marketing staff , including wages , commissions , stock-based compensation , bonuses , benefits , marketing expenses and other related 44 costs . with the adoption of topic 606 , we capitalize certain selling and commission costs related to new contracts or purchases of additional services by our existing clients , which were previously expensed as incurred . commissions are typically paid within two months after the start of service . bonuses paid to sales staff for attainment of certain annual performance criteria are accrued in the fiscal year and are subsequently paid annually in the first fiscal quarter of the following year . we generally recognize these costs over a period of 7 years . refer to note 2 of the notes to the consolidated financial statements included in part ii , item 8 : “ financial statements and supplementary data ” for additional information regarding the adoption of topic 606. we will seek to grow our number of clients for the foreseeable future and therefore our sales and marketing expense is expected to continue to increase in absolute dollars as we grow our sales organization and expand our marketing activities . research and development research and development expenses consist primarily of employee-related expenses for our research and development and product management staff , including wages , stock-based compensation , bonuses and benefits .
| results of operations the following table sets forth our statements of operations data for each of the periods indicated . replace_table_token_10_th 46 the following table sets forth our statements of operations data as a percentage of total revenue for each of the periods indicated . replace_table_token_11_th comparison of fiscal years ended june 30 , 2017 , 2018 and 2019 revenues ( $ in thousands ) replace_table_token_12_th recurring fees recurring fees for the year ended june 30 , 2019 increased by $ 82.5 million , or 23 % , to $ 437.0 million from $ 354.4 million for the year ended june 30 , 2018. recurring fees increased primarily as a result of incremental revenues from new and existing clients . excluding clients acquired as part of the beneflex acquisition , the number of clients using our payroll and hcm software solutions at june 30 , 2019 increased by 21 % to approximately 20,200 from approximately 16,700 at june 30 , 2018. recurring fees for the year ended june 30 , 2018 increased by $ 69.6 million , or 24 % , to $ 354.4 million from $ 284.8 million for the year ended june 30 , 2017. recurring fees increased primarily as a result of incremental revenues from new and existing clients .
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( “ uab motors ” ) in february 2013 , we are aligned into four geographic regions : the east and west regions in the u.s. , the u.k. region , and the brazil region . also , in conjunction with the acquisition of uab motors , and consistent with how our chief operating decision maker evaluates performance and allocates resources , we reaffirmed that each region represents an operating segment . each u.s. region is managed by a regional vice president who reports directly to our chief executive officer and is responsible for the overall performance of their regions . the financial matters of each u.s. region are managed by a regional chief financial officer who reports directly to our chief financial officer . further , the east and west regions of the u.s. continue to be 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 concluded that the east and west regions of the u.s. should continue to be aggregated into one reportable segment . 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 , 2013 , we owned and operated 147 franchises , representing 34 brands of automobiles , at 116 dealership locations and 28 collision service centers in the u.s. , 19 franchises at 14 dealerships and four collision centers in the u.k. , and 22 franchises at 18 dealerships and five collision centers in brazil . our operations are primarily located in major metropolitan areas in alabama , california , florida , georgia , kansas , louisiana , maryland , massachusetts , mississippi , new hampshire , new jersey , new york , oklahoma , south carolina , and texas in the u.s. , in 13 towns of the u.k. and in key metropolitan markets in the states of sao paulo and parana in brazil . we typically seek to acquire large , profitable , well-established and well-managed dealerships that are leaders in their respective market areas . from january 1 , 2009 through december 31 , 2013 , we have purchased 75 franchises with expected annual revenues , estimated at the time of acquisition , of $ 2.8 billion and been granted eight new franchises by our manufacturers , with expected annual revenues , estimated at the time of acquisition , of $ 110.2 million . in 2013 alone , we acquired 38 franchises with expected annual revenues , estimated at the time of acquisition , of $ 1,317.0 million . we make disposition decisions based principally on the rate of return on our capital investment , the location of the dealership , our ability to leverage our cost structure , the brand , and existing real estate obligations . from january 1 , 2009 through december 31 , 2013 , we disposed of or terminated 34 franchises with annual revenues of approximately $ 660.2 million . specifically , during 2013 , we disposed of seven franchises with annual revenues of approximately $ 318.9 million . in the following discussion and analysis , we report certain performance measures of our newly acquired and disposed dealerships separately from those of our existing dealerships . we account for our dealership acquisitions using the purchase method of accounting . as a result , we do not include in our financial statements the results of operations of these dealerships prior to the date we acquired them , which may impact the comparability of the financial information presented . also , as a result of the effects of our acquisitions , dispositions , and other potential factors in the future , our historical financial information is not necessarily indicative of our results of operations and financial position in the future or the results of operations and financial position that would have resulted had such transactions occurred at the beginning of the periods presented . our operating results reflect the combined performance of each of our interrelated business activities , which include the sale of new vehicles , used vehicles , finance and insurance products , and parts , as well as service and collision repair services . historically , each of these activities has been directly or indirectly impacted by a variety of supply/demand factors , including vehicle inventories , consumer confidence , consumer discretionary spending , availability and affordability of consumer credit , manufacturer incentives , weather patterns , fuel prices , and interest rates . for example , during periods of sustained economic downturn or significant supply/demand imbalances , new vehicle sales may be negatively impacted as consumers tend to shift their purchases to used vehicles . some consumers may even delay their purchasing decisions altogether , electing instead to repair their existing vehicles . in such cases , however , we believe the new vehicle sales impact on our overall business is mitigated by our ability to offer other products and services , such as used vehicles and parts , service and collision repair services , as well as our ability to reduce our costs in response to lower sales . in the u.s. , we generally experience higher volumes of vehicle sales and service in the second and third calendar quarters of each year . this seasonality is generally attributable to consumer buying trends and the timing of manufacturer new vehicle model introductions . in addition , in some regions of the u.s. , vehicle purchases decline during the winter months due to 35 inclement weather . as a result , our u.s. revenues and operating income are typically lower in the first and fourth quarters and higher in the second and third quarters . for the u.k. , the first and third calendar quarters tend to be stronger , driven by plate change months of march and september . story_separator_special_tag non-cash interest expense : our 2011 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > our consolidated sg & a expenses increased in absolute dollars for the twelve months ended december 31 , 2012 , as compared to 2011 , primarily as a result of the correlation to vehicle sales volumes , as well as dealership acquisitions . however , sg & a as a percentage of gross profit declined 60 basis points to 75.9 % , for the year ended december 31 , 2012 from the same period in 2011 , reflecting ongoing cost control and the leverage on our cost structure that higher revenues and gross profits provide . for the twelve months ended december 31 , 2012 , floorplan interest expense increased 14.8 % , as compared to 2011 , primarily due to higher weighted average borrowings as our import brand inventories returned to more normalized levels following the march 2011 natural disasters in japan and recent acquisitions . other interest expense increased 11.1 % for the year ended december 31 , 2012 , largely due to an increase in real estate related borrowings . 39 the combination of all of these factors , including $ 7.3 million of asset impairments , resulted in an operating margin of 3.1 % for the twelve months ended december 31 , 2012 , which reflects a 10 basis-point decrease from 2011. we address these items further , and other variances between the periods presented , in the “ results of operations ” section below . recent accounting pronouncements refer to note 2 of our consolidated financial statements , “ summary of significant accounting polices and estimates , ” for a discussion of those most recent pronouncements that impact us . critical accounting policies and accounting estimates the preparation of our financial statements in conformity with accounting principles generally accepted in the united states ( “ gaap ” ) principles requires management to make certain estimates and assumptions . these estimates and assumptions affect the reported amounts of assets and liabilities , the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period . we analyze our estimates based on our historical experience and various other assumptions that we believe to be reasonable under the circumstances . however , actual results could differ from such estimates . the following is a discussion of our critical accounting estimates and policies . we have identified below what we believe to be the most pervasive accounting policies and estimates that are of particular importance to the portrayal of our financial position , results of operations and cash flows . see note 2 to our consolidated financial statements , “ summary of significant accounting policies and estimates , ” for further discussion of all our significant accounting policies and estimates . revenue recognition . revenues from vehicle sales , parts sales , and vehicle service are recognized upon completion of the sale or service and delivery to the customer . conditions to completing a sale include having an agreement with the customer , including pricing , and the sales price must be reasonably expected to be collected . we include revenues from our collision center operations in parts and services sales . we record the profit we receive for arranging vehicle fleet transactions net in other finance and insurance revenues . since all sales of new vehicles must occur through franchised new vehicle dealerships , the dealerships effectively act as agents for the automobile manufacturers in completing sales of vehicles to fleet customers . as these customers typically order the vehicles , we have no significant general inventory risk . additionally , fleet customers generally receive special purchase incentives from the automobile manufacturers and we receive only a nominal fee for facilitating the transactions . taxes collected from customers and remitted to governmental agencies are not included in total revenues . we arrange financing for customers through various institutions and receive financing fees based on the difference between the loan rates charged to customers and wholesale financing rates set by the financing institution . in addition , we receive fees from the sale of insurance and vehicle service contracts to customers . further , through agreements with certain vehicle service contract administrators , we earn volume incentive rebates and interest income on reserves , as well as participate in the underwriting profits of the products . we may be charged back for unearned financing , insurance contract or vehicle service contract fees in the event of early termination of the contracts by customers . revenues from these fees are recorded at the time of the sale of the vehicles and a reserve for future amounts which might be charged back is established based on our historical chargeback results and the termination provisions of the applicable contracts . while chargeback results vary depending on the type of contract sold , a 10 % change in the historical chargeback results used in determining estimates of future amounts which might be charged back would have changed the reserve at december 31 , 2013 , by $ 2.5 million . inventories . new , used and demonstrator vehicle inventories are carried at the lower of specific cost or market and are removed from inventory using the specific identification method in the consolidated balance sheets . parts and accessories inventories are valued at lower of cost ( determined on a first-in , first-out basis ) or market in the consolidated balance sheets . vehicle inventory cost consists of the amount paid to acquire the inventory , plus the cost of reconditioning , cost of equipment added and transportation cost . additionally , we receive interest assistance from some of our automobile manufacturers . this assistance is accounted for as a vehicle purchase price discount and is reflected as a reduction to the inventory cost on our consolidated balance sheets and as a reduction to cost of sales in our statements of operations as the vehicles are sold .
| results were negatively impacted by $ 9.1 million of non-cash interest expense relative to the amortization of the discount associated with our 2.25 % notes and 3.00 % notes representing the impact of the accounting for convertible debt as required by asc 470. these items , and other variances between the periods presented , are covered in the following discussion . 37 key performance indicators the following table highlights certain of the key performance indicators we use to manage our business : consolidated statistical data replace_table_token_9_th the following discussion briefly highlights certain of the results and trends occurring within our business . throughout the following discussion , references are made to same store results and variances that are discussed in more detail in the “ results of operations ” section that follows . 2013 compared to 2012 over the course of 2013 , our industry experienced an increase in new vehicle unit sales . our consolidated new vehicle retail sales revenues increased 21.8 % for the twelve months ended december 31 , 2013 as compared to 2012 . this growth primarily reflects an increase in new vehicle unit sales of 21.2 % for the year ended december 31 , 2013 , as compared to the same period in 2012 , as a result of dealership acquisition activity , stronger consumer confidence in the u.s. , better industry conditions in the u.k. , improved inventory levels and the execution of initiatives made by our operating team . new vehicle retail gross margin declined during the year ended december 31 , 2013 as gross profit per retail unit sold decreased in most of our brands , primarily reflecting the increasingly competitive nature of the industry .
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we design , build , and deliver business-driven technology solutions using third party software products . our solutions include business analysis , portals and collaboration , business integration , user experience , enterprise content management , customer relationship management , interactive design , enterprise performance management , business process management , business intelligence , ecommerce , mobile platforms , custom applications , and technology platform implementations , among others . our solutions enable our clients to operate a real-time enterprise that dynamically adapts business processes and the systems that support them to meet the changing demands of an increasingly global , internet-driven , and competitive marketplace . 15 services revenues services revenues are derived from professional services that include developing , implementing , integrating , automating and extending business processes , technology infrastructure , and software applications . most of our projects are performed on a time and materials basis , while a smaller portion of our revenues is derived from projects performed on a fixed fee basis . fixed fee engagements represented approximately 10 % of our services revenues for the year ended december 31 , 2013 compared to 11 % for both years ended december 31 , 2012 and 2011. for time and material projects , revenues are recognized and billed by multiplying the number of hours our professionals expend in the performance of the project by the established billing rates . for fixed fee projects , revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours . amounts invoiced and collected in excess of revenues recognized are classified as deferred revenues . on most projects , we are also reimbursed for out-of-pocket expenses such as airfare , lodging , and meals . these reimbursements are included as a component of revenues . the aggregate amount of reimbursed expenses will fluctuate depending on the location of our clients , the total number of our projects that require travel , and whether our arrangements with our clients provide for the reimbursement of travel and other project-related expenses . software and hardware revenues software and hardware revenues are derived from sales of third-party software and hardware . revenues from sales of third-party software and hardware are generally recorded on a gross basis provided we act as a principal in the transaction . on rare occasions , we do not meet the requirements to be considered a principal in the transaction and act as an agent . in these cases , revenues are recorded on a net basis . software and hardware revenues are expected to fluctuate depending on our clients ' demand for these products . if we enter into contracts for the sale of services and software or hardware , management evaluates whether each element should be accounted for separately by considering the following criteria : ( 1 ) whether the deliverables have value to the client on a stand-alone basis ; and ( 2 ) whether delivery or performance of the undelivered item or items is considered probable and substantially in our control ( only if the arrangement includes a general right of return related to the delivered item ) . further , for sales of software and services , management also evaluates whether the services are essential to the functionality of the software and whether management has fair value evidence for each deliverable . if management concludes that the separation criteria are met , then it accounts for each deliverable in the transaction separately , based on the relevant revenue recognition policies . generally , all deliverables of our multiple element arrangements meet these criteria and are accounted for separately , with the arrangement consideration allocated among the deliverables using vendor specific objective evidence of the selling price . as a result , we generally recognize software and hardware sales upon delivery to the customer and services consistent with the policies described herein . further , delivery of software and hardware sales , when sold contemporaneously with services , can generally occur at varying times depending on the specific client project arrangement . delivery of services generally occurs over a period of time consistent with the timeline as outlined in the client contract . there are no significant cancellation or termination-type provisions for our software and hardware sales . contracts for our professional services provide for a general right , to the client or us , to cancel or terminate the contract within a given period of time ( generally 10 to 30 days ' notice is required ) . the client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract . cost of revenues cost of revenues consists primarily of cash and non-cash compensation and benefits , including bonuses and non-cash compensation related to equity awards . cost of revenues also includes the costs associated with subcontractors . third-party software and hardware costs , reimbursable expenses and other unreimbursed project-related expenses are also included in cost of revenues . project-related expenses will fluctuate generally depending on outside factors including the cost and frequency of travel and the location of our clients . cost of revenues does not include depreciation of assets used in the production of revenues which are primarily personal computers , servers , and other information technology related equipment . gross margins our gross margins for services are affected by the utilization rates of our professionals ( defined as the percentage of our professionals ' time billed to clients divided by the total available hours in the respective period ) , the salaries we pay our professionals , and the average billing rate we receive from our clients . if a project ends earlier than scheduled , we retain professionals in advance of receiving project assignments , or if demand for our services declines , our utilization rate will decline and adversely affect our gross margins . story_separator_special_tag million for the year ended december 31 , 2012 . the increase in services gross margin was primarily a result of a higher average bill rate . the average bill rate for our professionals increased to $ 123 per hour for the year ended december 31 , 2013 from $ 119 per hour for the year ended december 31 , 2012 , primarily due to the improved pricing opportunities as the market for our services continues to improve . the average bill rate for the year ended december 31 , 2013 , excluding china and india , was $ 135 per hour compared to $ 129 per hour for the year ended december 31 , 2012 . selling , general and administrative . sg & a expenses increased 20 % to $ 77.6 million for the year ended december 31 , 2013 from $ 64.9 million for the year ended december 31 , 2012 due primarily to fluctuations in expenses as detailed in the following table . sg & a expenses , as a percentage of revenues , increased to 20.8 % for the year ended december 31 , 2013 from 19.8 % for the year ended december 31 , 2012 . replace_table_token_5_th 18 depreciation . depreciation expense increased 45 % to $ 3.3 million for the year ended december 31 , 2013 from $ 2.3 million for the year ended december 31 , 2012 . the increase in depreciation expense was mainly attributable to increased capital expenditures during 2013 and 2012 and acquisitions . depreciation expense as a percentage of revenues was 0.9 % and 0.7 % for the year ended december 31 , 2013 and 2012 , respectively . amortization . amortization expense increased 2 % to $ 8.0 million for the year ended december 31 , 2013 from $ 7.8 million for the year ended december 31 , 2012 . the increase in amortization expense was due to the addition of intangible assets acquired as a result of the company 's acquisition activity during 2013 and 2012. acquisition costs . acquisition-related costs of $ 2.3 million were incurred during 2013 related to the acquisition of tritek , clear task , and corematrix compared to $ 1.9 million during 2012 related to the acquisition of pointbridge , nascent , and northridge . acquisition-related costs were incurred for legal , accounting , and valuation services performed by third parties . adjustment to fair value of contingent consideration . an adjustment of $ 0.3 million was made during the year ended december 31 , 2013 for the accretion of the fair value estimate for the earnings-based contingent consideration related to the clear task and corematrix acquisitions . the adjustment of $ 0.5 million made during the year ended december 31 , 2012 related to the exervio acquisition . provision for income taxes . we provide for federal , state , and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses . our effective tax rate decreased to 32.0 % for the year ended december 31 , 2013 from 38.0 % for the year ended december 31 , 2012 . the decrease in the effective rate was due primarily to the research and development tax credit for 2013 , the research and development tax credit for 2012 , which was approved by congress in january 2013 and recorded in the first quarter of 2013 , and the u.s. domestic production deduction for 2010 , 2011 , 2012 , and 2013. year ended december 31 , 2012 compared to year ended december 31 , 2011 revenues . total revenues increased 25 % to $ 327.1 million for the year ended december 31 , 2012 from $ 262.4 million for the year ended december 31 , 2012. story_separator_special_tag december 31 , 2013 decreased to 74 days compared to 75 and 78 days as of december 31 , 2012 and 2011 , respectively . net cash used in investing activities for the year ended december 31 , 2013 , we used $ 38.4 million for acquisitions and $ 8.0 million for purchases of equipment and to develop certain software for internal use including significant efforts associated with the implementation of a new internal enterprise resource planning system expected to be placed in service in 2014. for the year ended december 31 , 2012 , we used $ 36.6 million for acquisitions and $ 2.1 million for purchases of equipment and to develop certain software for internal use . for the year ended december 31 , 2011 , we used $ 19.4 million for acquisitions , $ 3.0 million primarily on leasehold improvements and to develop certain software , offset by $ 13.6 million in proceeds received from the sale and maturity of our investments . net cash provided by financing activities for the year ended december 31 , 2013 , we received proceeds of $ 181.2 million from our line of credit and we realized a tax benefit of $ 2.6 million related to vesting of stock awards and stock option exercises plus proceeds from the exercise of stock options and sales of stock through the employee stock purchase plan of $ 0.3 million . we made payments of $ 165.0 million on our line of credit , used $ 13.8 million to repurchase shares of our common stock through the stock repurchase program , $ 4.3 million to remit taxes withheld as part of a net share settlement of restricted stock vesting , and $ 0.4 million in fees related to our credit facility . for the year ended december 31 , 2012 , we received proceeds of $ 134.9 million from our line of credit and we realized a tax benefit of $ 1.1 million related to vesting of stock awards and stock option exercises plus proceeds from the exercise of stock options and sales of stock through the employee stock purchase plan of $ 0.2 million .
| financial results explanation for increases over prior year period ( in thousands ) ( in thousands ) for the year ended december 31 , 2012 for the year ended december 31 , 2011 total increase over prior year period increase attributable to acquired companies increase attributable to base business services revenues $ 286,548 $ 233,166 $ 53,382 $ 39,457 $ 13,925 software and hardware revenues 25,188 15,624 9,564 1,690 7,874 reimbursable expenses 15,360 13,649 1,711 1,384 327 total revenues $ 327,096 $ 262,439 $ 64,657 $ 42,531 $ 22,126 services revenues increased 23 % to $ 286.5 million for the year ended december 31 , 2012 from $ 233.2 million for the year ended december 31 , 2011. the increase in services revenues is primarily due to acquisitions during 2011 and 2012. services revenues attributable to our base business increased $ 13.9 million while services revenues attributable to acquired companies increased $ 39.4 million , resulting in a total increase of $ 53.3 million . software and hardware revenues increased 61 % to $ 25.2 million for the year ended december 31 , 2012 from $ 15.6 million for the year ended december 31 , 2011 due to an increase in the volume and magnitude of new software license sales and software license renewals as compared to 2011. reimbursable expenses increased 13 % to $ 15.4 million for the year ended december 31 , 2012 from $ 13.6 million for the year ended december 31 , 2011 primarily as a result of the increase in services revenue . we did not realize any profit on reimbursable expenses . cost of revenues . cost of revenues increased 23 % to $ 223.7 million for the year ended december 31 , 2012 from $ 181.3 million for the year ended december 31 , 2011. the increase in cost of revenues was directly related to the increase in revenues , specifically the increase in headcount to support the company 's ongoing revenue-producing projects .
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declines in the value of individual equity securities that are considered other than temporary result in write-downs of the securities to their fair value , and the write-downs are included in the consolidated statements of operations . declines in debt securities held to maturity and available for sale that are considered other than temporary result in write-downs when it is more likely than not that the company will sell the securities before it recovers its cost . if the company does not intend to sell an impaired debt security but does not expect to recover its cost , the company determines whether a credit loss exists . if a credit loss is deemed to exist , it story_separator_special_tag overview bfc financial corporation ( “ bfc ” or , unless otherwise indicated or the context otherwise requires , “ we ” , “ us ” , “ our ” or the “ company ” ) is a holding company whose principal holdings include a 51 % equity interest in bbx capital corporation ( formerly bankatlantic bancorp , inc. ) and its subsidiaries ( “ bbx ” or “ bbx capital ” ) and a direct 54 % equity interest in woodbridge holdings , llc ( “ woodbridge ” ) . woodbridge owns 100 % of bluegreen corporation and its subsidiaries ( “ bluegreen ” ) . as described below , bbx capital owns the remaining 46 % equity interest in woodbridge . we hold shares of bbx capital 's class a common stock , which is listed fo r trading on the new york stock exchange ( “ nyse ” ) , and class b common stock representing an approximately 72 % voting interest and 51 % equity interest in bbx capital . bbx capital 's principal asset until july 31 , 2012 was its investment in bankatlantic , a federal savings bank headquartered in fort lauderdale , florida . on july 31 , 2012 , bbx capital completed its sale to bb & t corporation ( “ bb & t ” ) of all of the issued and outstanding shares of capital stock of bankatlantic . bbx capital 's current operations and business plans involve investments in income producing real estate , real estate developments and real estate joint ventures , and investments in middle market operating businesses . bbx capital also owns a 46 % equity interest in woodbridge . bluegreen is a sales , marketing and management company focused on the vacation ownership industry . bluegreen markets , sells and manages vacation ownership interests ( “ vois ” ) in resorts , which are generally located in popular , high-volume , “ drive-to ” vacation destinations , and were either developed or acquired by bluegreen or developed and owned by others in which case bluegreen earns fees for providing these services . bluegreen also provides other fee-based services , including property association management services , mortgage servicing , voi title services , reservation services , and construction design and development services . in addition , bluegreen provides financing to individual purchasers of its vois , which generates significant interest income . bfc also holds interests in other investments and subsidiaries as described herein . bfc held a significant investment in benihana inc. ( “ benihana ” ) until august 2012 when benihana was acquired by safflower holdings corp. ( “ safflower ” ) . as of december 31 , 2014 , we had total consolidated assets of approximately $ 1.4 billion and shareholders ' equity attributable to bfc of approximately $ 252.9 million . net income attributable to bfc for the years ended december 31 , 2014 , 2013 and 2012 was approximately $ 13.9 million , $ 29.1 million and $ 165.8 million , respectively . net income attributable to bfc for the year ended december 31 , 2012 included a gain on sale of bankatlantic of approximately $ 293.5 million . bfc 's business strategy has been to invest in and acquire businesses in diverse industries either directly or through controlled subsidiaries . in recent years , bfc has focused on providing strategic support to its existing investments with a view to the improved performance of the organization as a whole . initiatives in furtherance of this strategy include the april 2013 bluegreen merger , as well as bfc 's investment with bbx capital in renin , in each case as described in further detail below . we have also from time to time pursued and expect to continue to consider alternatives for increasing our ownership of bbx capital . as previously discussed , we entered into a merger agreement with bbx capital during may 2013 which provided for bbx capital to be merged with and become a wholly owned subsidiary of bfc , however , the merger agreement was mutually terminated during december 2014 as a result of the inability to obtain the listing of bfc 's class a common stock on a national securities exchange as required by the terms of the merger agreement . additionally , we may invest in operating businesses and real estate joint ventures for the development of residential and commercial real estate projects , including those in which our affiliates may participate . in furtherance of this goal or otherwise as part of our business and investment strategy , we expect to evaluate various financing transactions , including debt or equity financings as well as other alternative sources of new capital . bfc 's investments or acquisitions , and the business and investment strategies of bfc 's subsidiaries , may not prove to be successful or even if successful may not initially generate income , or may generate income on an irregular basis and may involve a long term investment , causing our results of operations to vary significantly on a quarterly basis . bfc or bbx capital may consider disposition of all or a portion of its asset investments or subsidiaries , including transactions involving sweet holdings , renin , or bluegreen , either directly or indirectly through a transaction involving woodbridge . story_separator_special_tag pursuant to the terms of the purchase agreement , bbx capital invested $ 71.75 million in woodbridge contemporaneously with the closing of the merger in exchange for a 46 % equity interest in woodbridge . bfc continues to hold the remaining 54 % of woodbridge 's outstanding equity interests . bbx capital 's investment in woodbridge consisted of $ 60 million in cash , which was utilized to pay a portion of the aggregate merger consideration , and a promissory note in woodbridge 's favor in the principal amount of $ 11.75 million ( the “ note ” ) . the note has a term of five years , accrues interest at a rate of 5 % per annum and provides for payments of interest only on a quarterly basis during the term of the note , with all outstanding amounts being due and payable at the end of the five-year term . during 2013 and 2014 , bbx capital paid to woodbridge a total of approximately $ 441 , 000 and $ 587,000 , respectively , of interest on the note . in connection with bbx capital 's investment in woodbridge , bfc and bbx capital entered into an amended and restated operating agreement of woodbridge , which sets forth bfc 's and bbx capital 's respective rights as members of woodbridge and provides for , among other things , unanimity on certain specified “ major decisions ” and for distributions by woodbridge to be made on a pro rata basis in accordance with bfc 's and bbx capital 's respective percentage equity interests in woodbridge . during 2014 and 2013 , bluegreen paid cash dividends totaling $ 71.5 million and $ 47 million , respectively , to woodbridge , and woodbridge declared and paid cash dividends totaling $ 69.1 million and $ 44.3 million , respectively , which were allocated pro rata to bfc and bbx capital based on their percentage ownership interests in woodbridge . on march 26 , 2013 , bluegreen issued $ 75 million of senior secured notes ( the “ 2013 notes payable ” ) in a private transaction , the proceeds of which , together with approximately $ 14 million of bluegreen 's unrestricted cash , were utilized to fund a portion of the merger consideration paid to bluegreen 's former public shareholders in connection with the closing of the bluegreen merger during april 2013. see note 15 for additional information regarding the 2013 notes payable . two consolidated class action lawsuits relating to the bluegreen merger remain pending . the plaintiffs in these actions have asserted that the consideration received by bluegreen 's minority shareholders in the transaction was inadequate and unfair , and are seeking to recover damages in connection with the transaction . the company believes that these lawsuits are without merit and intends to continue to vigorously defend the actions . 70 summary of consolidated results of operations the table below sets forth the company 's summarized results of operations ( in thousands ) : replace_table_token_9_th the 5 % preferred stock dividend represents the dividend obligations of the company with respect to its mandatorily redeemable 5 % cumulative preferred stock . the company reported consolidated net income attributable to bfc of approximately $ 13.9 million and $ 29.1 million in 2014 and 2013 , respectively . net income attributable to bfc for 2012 includes a $ 293.5 million gain realized in connection with bbx capital 's sale of bankatlantic ( which gain is included in discontinued operations ) . discontinued operations include the results of bankatlantic 's community banking , investment , capital services and tax certificate reporting units , including the gain on sale of bankatlantic of approximately $ 293.5 million in 2012 , as well as the results of bluegreen communities and cypress creek holdings . see note 4 to our consolidated financial statements included in item 8 of this report for additional information about discontinued operations . the 5 % preferred stock dividend represents the dividend obligations of the company with respect to its mandatorily redeemable 5 % cumulative preferred stock . see note 20 for additional information . consolidated financial condition consolidated assets and liabilities total assets at december 31 , 2014 and 2013 were $ 1.4 billion . the primary changes in components of total assets are summarized below : · increase in cash primarily from the collection of note and loan repayments , and proceeds of approximately $ 42.7 million resulting from real estate transactions partially offset by $ 5 6.2 million of payments to bb & t 's preferred interest in far and cash outflows for acquisitions ; · lower loans receivable balances reflecting loan repayments , $ 16.1 million of loans transferred to real estate held-for-investment through foreclosure and $ 5.1 million of loans transferred to real estate held-for-sale upon foreclosure ; · decrease in real estate held for investment primarily from $ 28.0 million of properties transferred to real estate held-for-sale , $ 8.0 million of write-downs due to updated valuations and $ 16.4 million of properties contributed to joint ventures , partially offset by $ 16.1 million of real estate acquired through foreclosure and $ 4.8 million of real estate purchases ; · decrease in loans held for sale resulting primarily from principal repayments and the sale of $ 9.5 million of first-lien consumer and residential loans partially offset by the transfer of $ 2.3 million of consumer loans to loans to held-for-sale ; and · increase of $ 11.9 million in properties and equipment primarily related to bluegreen 's $ 18.0 million capital expenditure for the construction of new sales centers and bbx sweet holdings ' acquisitions , as described above , partially offset by disposals and depreciation . total liabilities at december 31 , 2014 and 2013 were $ 964.6 million and $ 1.0 billion , respectively .
| consolidated results of operations the company reports its consolidated results of operations in four reportable segments , bbx , far , renin and sweet holdings . the bbx reportable segment consists of the activities associated with cam 's and bbx partner 's portfolios of loans receivable , real estate properties , and a bankatlantic legacy portfolio of previously charged-off loans retained by cam in the bb & t transaction . the bbx segment also includes bbx capital 's investment in woodbridge and investments in real estate joint ventures . bbx 's primary business activities relate to : managing and , where appropriate , monetizing its portfolio of loans receivable ; managing and , where appropriate , monetizing or developing its portfolio of real estate properties ; maximizing the cash flows from its portfolio of charged-off loans and judgments ; and pursuing equity and debt investment opportunities in real estate and operating businesses . the results of operations of bbx for the years ended december 31 , 2012 include the operations of bbx capital and its subsidiaries other than bankatlantic and far , bankatlantic 's commercial lending reporting unit and all of bankatlantic 's general corporate overhead . the far reportable segment consists of the activities associated with overseeing the management and monetization of its assets with a view to repayment of bb & t 's preferred interest and maximizing the cash flows of any remaining assets . far 's activities began on august 1 , 2012. the renin reportable segment consists of the activities of renin which manufactures interior closet doors , wall décor , hardware and fabricated glass products and its distribution channels include big box and independent home 102 improvement retailers , builders , other manufacturers and specialty retail outlets primarily in north america . renin is headquartered in brampton , ontario and has two manufacturing , assembly and distribution facilities located in brampton , ontario and tupelo , mississippi and a sales and distribution office in the united kingdom .
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overview we operate a global business with sales that are diversified by geographic region , product range , and customer . we hold leading positions worldwide in many of our markets and attribute this leadership to several factors , including the strength of our brand name and reputation , our comprehensive offering of innovative instruments and solutions , and the breadth and quality of our global sales and service network . net sales in u.s. dollars increased 8 % in 2018 and 9 % in 2017 . excluding the effect of currency exchange rate fluctuations , or in local currencies , net sales increased 6 % in 2018 and 8 % in 2017 . net sales growth in local currencies during 2018 reflected strong execution of our growth initiatives and favorable global market conditions . we expect to continue to benefit from our strong global leadership positions , diversified customer base , innovative product offering , investment in emerging markets , significant installed base , and the impact of our global sales and marketing programs . examples of these programs include identifying and investing in growth and market penetration opportunities , more effectively pricing our products and services , increasing our sales force effectiveness through improved guidance , and continuing to optimize our lead generation and lead nurturing processes . however , economic conditions can also change quickly , particularly in emerging markets , and it is uncertain that favorable market conditions will continue . we also remain cautious as economic uncertainties exist in certain regions of the world , especially the potential impact of international trade/tariff disputes . with respect to our end-user markets , we experienced increased results during 2018 versus the prior year in our laboratory-related markets , such as pharmaceutical and biotech customers , as well as the laboratories of chemical companies and food and beverage companies . demand from these markets was 31 favorable during 2018 . the local currency increase in net sales of our laboratory-related products during 2018 was driven by strong growth in most product categories . our industrial markets experienced favorable market conditions in china with strong growth despite challenging prior period comparisons . emerging market economies have historically been an important source of growth based upon the expansion of their domestic economies , as well as increased exports as companies have moved production to low-cost countries . however , our core industrial-related products are especially sensitive to changes in economic growth . we also expect our industrial markets to continue to benefit from our customers ' focus on brand protection and food safety within our product inspection end-market . our food retailing sales increased during 2018 with strong project activity in the americas . traditionally the spending levels in this sector have experienced more volatility than our other customer sectors due to the timing of customer project activity and new regulations . in 2019 , we expect to continue to pursue the overall business growth strategies which we have followed in recent years : gaining market share . our global sales and marketing initiative , “ spinnaker , ” continues to be an important growth strategy . for example , over the past few years , we have added field sales and service resources to pursue under-penetrated market opportunities and will look to continue to make investments to front-end resources in 2019. we also aim to gain market share by implementing sophisticated sales and marketing programs , leveraging our extensive customer databases , and leveraging our product offering to larger customers through key account management . while this initiative is broad-based , efforts to improve these processes include leveraging big data analytics to identify , prioritize , and pursue growth opportunities , the implementation of more effective pricing and value-based selling strategies and processes , improved sales force guidance , training and effectiveness , cross-selling , increased segment marketing , and leads generation and nurturing activities . our comprehensive service offerings , and our initiatives to globalize and harmonize these offerings , help us further penetrate developed markets . we estimate that we have the largest installed base of weighing instruments in the world , and we continue to leverage big data analytics and invest in sales and marketing activities aimed at increasing the proportion of our installed base that is under service contract , or selling new products that replace old products in our installed base . in addition to traditional repair and maintenance , our service offerings continue to expand into value-added services for a range of market needs , including regulatory compliance . expanding emerging markets . emerging markets , comprising asia ( excluding japan ) , eastern europe , latin america , the middle east , and africa , account for approximately 35 % of our total net sales . we have a two-pronged strategy in emerging markets : first , to capitalize on long-term growth opportunities in these markets , and second , to leverage our low-cost manufacturing operations in china . we have approximately a 30-year track record in china , and our sales in asia have grown more than 14 % on a compound annual growth basis in local currencies since 1999. over the years , we have also broadened our product offering to the asian markets . india has also been a source of emerging market sales growth in past years due to increased life science research activities . overall , market conditions in emerging markets were favorable during 2018 . we experienced a 10 % increase in emerging market local currency sales during 2018 versus the prior year , which included 13 % local currency sales growth in china . within china , we continue to redeploy resources and sales and marketing efforts to the faster-growing segments of pharma , food safety , chemical , and environment . we believe the long-term growth of these segments will be favorably impacted by the chinese government 's emphasis on science , high-value industries , and product quality . we expect our laboratory and product inspection businesses will particularly benefit from these segments . story_separator_special_tag net sales of our industrial products and services , which represented approximately 41 % of our total net sales in 2018 , increased 5 % in u.s. dollars and 3 % in local currencies during 2018 . the local currency increase in net sales of our industrial products includes growth in core-industrial , offset in part by a slight decline in product inspection . net sales of our food retailing products and services , which represented approximately 8 % of our total net sales in 2018 , increased 5 % in u.s. dollars and 3 % in local currencies during 2018 . food retailing experienced strong project activity in the americas , while net sales in europe declined in 2018 related to reduced customer activity . gross profit gross profit as a percentage of net sales was 57.4 % for 2018 , compared to 57.8 % for 2017 and 57.3 % for 2016 . gross profit as a percentage of net sales for products was 60.3 % for 2018 , compared to 61.1 % for 2017 and 60.9 % for 2016 . gross profit as a percentage of net sales for services ( including spare parts ) was 47.0 % for 2018 , compared to 46.1 % for 2017 and 44.6 % for 2016 . the decrease in gross profit as a percentage of net sales for 2018 was primarily due to initial costs associated with a new manufacturing facility and product introductions , tariff costs , and unfavorable business mix , offset in part by favorable price realization . in 2018 , the u.s. government enacted tariffs on certain products imported from china . the tariffs became effective at various points during 2018. we estimate the associated annualized cost increase is approximately $ 25 million ( assuming a 25 % tariff rate ) . we continue to evaluate and implement various actions to mitigate the effect of these tariffs . research and development and selling , general , and administrative expenses research and development expenses as a percentage of net sales were 4.8 % for 2018 , 4.7 % for 2017 , and 4.8 % for 2016 . research and development expenses in u.s. dollars increased 11 % in 2018 and 8 % in 2017 , and in local currencies increased 9 % in 2018 and 8 % in 2017 , relating to increased project activity . 34 selling , general , and administrative expenses as a percentage of net sales were 27.7 % for 2018 , compared to 28.9 % for 2017 and 29.2 % for 2016 . selling , general , and administrative expenses increased 2 % in u.s. dollars and 1 % in local currencies in 2018 and increased 8 % in both u.s. dollars and local currencies in 2017 . the increase during 2018 includes investments in our field sales organization and growth initiatives , offset in part by benefits from our cost savings initiatives and lower variable cash incentives . amortization expense amortization expense was $ 47.5 million in 2018 , compared to $ 42.7 million and $ 36.1 million in 2017 and 2016 , respectively . the increase in amortization expense is primarily related to our investments in information technology , including the company 's blue ocean program , as well as the biotix acquisition . restructuring charges during the past few years , we initiated various cost reduction measures . for the year ended december 31 , 2018 , we have incurred $ 18.4 million of restructuring expenses which primarily comprise employee-related costs . see note 15 and note 18 to our audited consolidated financial statements for a summary of restructuring activity during 2018 . other charges ( income ) , net other charges ( income ) , net consisted of net income of $ 21.8 million , $ 9.9 million and $ 1.3 million in 2018 , 2017 and 2016 , respectively . other charges ( income ) , net includes non-service pension costs ( benefits ) , net ( gains ) losses from foreign currency transactions and hedging activities , interest income , and other items . non-service pension benefits were $ 6.2 million , $ 4.0 million and $ 9.8 million in 2018 , 2017 and 2016 , respectively . other charges ( income ) , net in 2018 also includes a one-time gain of $ 18.7 million associated with the settlement of the biotix acquisition contingent consideration , as well as a one time legal charge of $ 3 million . other charges ( income ) , net includes $ 1.7 million and $ 1.1 million of acquisition costs during 2017 and 2016 , respectively . other charges ( income ) , net for 2017 also includes a one-time gain of $ 3.4 million relating to the sale of a facility in switzerland in connection with our initiative to consolidate certain swiss operations into a new facility , while 2016 includes a one-time non-cash pension settlement charge of $ 8.2 million related to a lump sum offering to former employees of our u.s. pension plan . interest expense and taxes interest expense was $ 34.5 million for 2018 , compared to $ 32.8 million for 2017 and $ 28.0 million for 2016 . our reported tax rate was 21.4 % during 2018 , compared to 34.5 % and 23.8 % in 2017 and 2016 , respectively . the 2018 and 2017 reported tax rates include charges of $ 3.6 million and $ 72 million , respectively , associated with the tax cuts and jobs act described below . 35 on december 22 , 2017 , the tax cuts and jobs act ( `` the act '' ) significantly revised u.s. corporate income tax law .
| effect of currency on results of operations our earnings are affected by changing exchange rates . we are most sensitive to changes in the exchange rates between the swiss franc , euro , and u.s. dollar . we have more swiss franc expenses than we do swiss franc sales because we develop and manufacture products in switzerland that we sell globally and have a number of corporate functions located in switzerland . when the swiss franc 41 strengthens against our other trading currencies , particularly the u.s. dollar and euro , our earnings go down . we also have significantly more sales in the euro than we do expenses . when the euro weakens against the u.s. dollar and swiss franc , our earnings also go down . we estimate a 1 % strengthening of the swiss franc against the euro would reduce our earnings before tax by approximately $ 1.6 million to $ 1.8 million annually . we also conduct business throughout the world , including asia pacific , the united kingdom , eastern europe , latin america , and canada . fluctuations in these currency exchange rates against the u.s. dollar can also affect our operating results . the most significant of these currency exposures is the chinese renminbi . the impact on our earnings before tax of the chinese renminbi weakening 1 % against the u.s. dollar is a reduction of approximately $ 1.5 million to $ 1.7 million annually . in addition to the effects of exchange rate movements on operating profits , our debt levels can fluctuate due to changes in exchange rates , particularly between the u.s. dollar , the swiss franc , and euro .
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subsequent to year end , dune requested and received the extension up to $ 40 million under the revolver commitment effective february 29 , 2008. senior secured notes on may 15 , 2007 , we sold to jefferies & company , inc. ( the story_separator_special_tag the following discussion will assist you in understanding our financial position , liquidity , and results of operations . the information below should be read in conjunction with the consolidated financial statements , and the related notes to consolidated financial statements . our discussion contains both historical and forward-looking information . we assess the risks and uncertainties about our business , long-term strategy , and financial condition before we make any forward-looking statements , but we can not guarantee that our assessment is accurate or that our goals and projections can or will be met . statements concerning results of future exploration , exploitation , development , and acquisition expenditures as well as expense and reserve levels are forward-looking statements . we make assumptions about commodity prices , drilling results , production costs , administrative expenses , and interest costs that we believe are reasonable based on currently available information . critical estimates and accounting policies we prepare our consolidated financial statements in this report using accounting principles that are generally accepted in the united states ( gaap ) . gaap represents a comprehensive set of accounting and disclosure rules and requirements . we must make judgments , estimates , and in certain circumstances , choices between acceptable gaap alternatives as we apply these rules and requirements . the most critical estimate we make is the engineering estimate of proved oil and gas reserves . this estimate affects the application of the successful efforts method of accounting , the calculation of depreciation , depletion , and amortization of oil and gas properties and the estimate of the impairment of our oil and gas properties . it also affects the estimated lives used to determine asset retirement obligations . in addition , the estimates of proved oil and gas reserves are the basis for the related standardized measure of discounted future net cash flows . 33 estimated proved oil and gas reserves the evaluation of our oil and gas reserves is critical to management of our operations and ultimately our economic success . decisions such as whether development of a property should proceed and what technical methods are available for development are based on an evaluation of reserves . these oil and gas reserve quantities are also used as the basis of calculating the unit-of-production rates for depreciation , evaluating impairment and estimating the life of our producing oil and gas properties in our asset retirement obligations . our proved reserves are classified as either proved developed or proved undeveloped . proved developed reserves are those reserves which can be expected to be recovered through existing wells with existing equipment and operating methods . proved undeveloped reserves include reserves expected to be recovered from new wells from undrilled proven reservoirs or from existing wells where a significant major expenditure is required for completion and production . independent reserve engineers prepare the estimates of our oil and gas reserves presented in this report based on guidelines promulgated under gaap and in accordance with the rules and regulations of the securities and exchange commission . the evaluation of our reserves by the independent reserve engineers involves their rigorous examination of our technical evaluation and extrapolations of well information such as flow rates and reservoir pressure declines as well as other technical information and measurements . reservoir engineers interpret these data to determine the nature of the reservoir and ultimately the quantity of proved oil and gas reserves attributable to a specific property . our proved reserves in this report include only quantities that we expect to recover commercially using current prices , costs , existing regulatory practices and technology . while we are reasonably certain that the proved reserves will be produced , the timing and ultimate recovery can be effected by a number of factors including completion of development projects , reservoir performance , regulatory approvals and changes in projections of long-term oil and gas prices . revisions can include upward or downward changes in the previously estimated volumes of proved reserves for existing fields due to evaluation of ( 1 ) already available geologic , reservoir , or production data or ( 2 ) new geologic or reservoir data obtained from wells . revisions can also include changes associated with significant changes in development strategy , oil and gas prices , or production equipment/facility capacity . standardized measure of discounted future net cash flows the standardized measure of discounted future net cash flows relies on these estimates of oil and gas reserves using commodity prices and costs at year-end . in our 2007 year-end reserve report , we used december 31 , 2007 conocophillips west texas intermediate posted price of $ 92.70 per bbl and a henry hub onshore price of $ 7.095 per mmbtu adjusted by property for energy content , quality , transportation fees , and regional price differentials . the weighted average price over the lives of the properties was $ 92.66 per bbl for oil and $ 7.324 per mcf for gas . while we believe that future operating costs can be reasonably estimated , future prices are difficult to estimate since the market prices are influenced by events beyond our control . future global economic and political events will most likely result in significant fluctuations in future oil prices . successful efforts method of accounting oil and gas exploration and production companies choose one of two acceptable accounting methods , successful efforts or full cost . the most significant difference between the two methods relates to the accounting treatment of drilling costs for unsuccessful exploration wells ( dry holes ) and exploration costs . story_separator_special_tag if the derivative is designated as a fair value hedge , the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings . if the derivative is designated as a cash flow hedge , the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income or loss and are recognized in the statement of operations when the hedged item affects earnings . if the derivative is not designated as a hedge , changes in the fair value are recognized in other expense . ineffective portions of changes in the fair value of cash flow hedges are also recognized in loss on derivative liabilities . effective january 1 , 2008 , the company discontinued , prospectively , the designation of its derivatives as cash flow hedges . the net derivative loss related to the discontinued cash flow hedges , as of december 31 , 2007 , will continue to be reported in accumulated other comprehensive income until such time that they are charged to income or loss as the volumes underlying the cash flow hedges are realized . beginning january 1 , 2008 , the gain or loss on derivatives will be recognized currently in earnings . stock-based compensation on january 1 , 2006 , dune adopted sfas no . 123 ( r ) , share-based payment . sfas 123 ( r ) replaced sfas no . 123 and supersedes apb opinion no . 25. sfas 123 ( r ) requires all share-based payments to employees , including grants of employee stock options , to be recognized in the financial statements based on their fair values . the pro forma disclosures previously permitted under sfas 123 are no longer an alternative to financial statement recognition . dune adopted sfas 123 ( r ) using the modified prospective method which requires the application of the accounting standard as of january 1 , 2006. the consolidated financial statements for the year ended december 31 , 2006 reflect the impact of adopting sfas 123 ( r ) . in accordance with the modified prospective method , the consolidated financial statements for prior periods have not been restated to reflect , and do not include , the impact of sfas 123 ( r ) . our notes to consolidated financial statements included in this report have additional discussion of our significant accounting policies . business strategy dune is an independent energy company engaged in the exploration , development , acquisition and exploitation of natural gas and crude oil properties , with interests along the gulf coast and in the fairway of the barnett shale in north texas . on may 15 , 2007 , we closed the stock purchase and sale agreement , to acquire all of the capital stock of goldking from goldking energy holdings , l.p. goldking was an independent energy company focused on the exploration , exploitation and development of natural gas and crude properties located onshore and in state waters along the gulf coast . the acquisition of goldking substantially increased our proved reserves , provided significant drilling upside , and increased our geographic and geological well diversification . additionally , the acquisition of goldking provided us with exploration opportunities within our core geographic area . our properties now cover over 100,000 gross acres across 23 oil and natural gas fields onshore and in state waters along the texas and louisiana gulf coast and in the fairway of the barnett shale in north texas . we intend to focus our development and exploration efforts in our gulf coast properties and utilize low risk extensional drilling in the barnett shale . we believe that our extensive acreage position will allow us to grow 36 organically through low risk drilling in the near term . we have attractive opportunities to expand our reserve base through field extensions , delineating deeper formations within existing fields and high risk/high reward exploratory drilling for 2008 and beyond . we will review and rationalize our properties on a continuous basis in order to optimize our existing asset base . we expect to utilize our technical and operations teams ' knowledge of salt-dome structures and multiple stacked producing zones common in the gulf coast to enhance our growth prospects and reserve potential . we will employ technical advancements , including 3-d seismic data , pre-stack depth migration and directional drilling to identify and exploit new opportunities in our asset base . we also plan to employ the latest drilling , completion and fracturing technology in all of our wells to enhance recoverability and accelerate cash flows associated with these wells . we continually review opportunities to acquire producing properties , leasehold acreage and drilling prospects that are in core operating areas . we are seeking to acquire operational control of properties that we believe have a solid proved reserves base coupled with significant exploitation and exploration potential . we intend to continue to evaluate acquisition opportunities and make acquisitions that we believe will further enhance our operations and reserves in a cost effective manner . in summary , our strategy is to increase our oil and gas reserves and production while keeping our finding and development costs and operating costs ( on a per mcf equivalent ( mcfe ) basis ) competitive with our industry peers . we will implement this strategy through drilling exploratory and development wells from our inventory of available prospects that we have evaluated for geologic and mechanical risk and future reserve or resource potential . our drilling program will contain some high risk/high reserve potential opportunities as well as some lower risk/lower reserve potential opportunities , in order to achieve a balanced program of reserve and production growth . success of this strategy is contingent on various risk factors , as discussed elsewhere in the 10-k. in addition to acquiring goldking on may 15 , 2007 , we have invested $ 149.0 million in oil and gas properties and added 45.5 bcfe through extensions , discoveries and revisions and produced 9 bcfe .
| results of operations comparison of 2007 and 2006 revenue revenue for the year ended 2007 increased $ 76.7 million from the comparable 2006 period to $ 84.3 million . the goldking acquisition made up $ 64.3 million of this increase . for the year ended 2007 , oil sales volumes of 580 mbbls accounted for $ 44.2 million of total revenue while gas sales volumes of 5.5 bcfs resulted in $ 40.1 million . this represented an average sales price for oil and gas of $ 76.14 per bbl and $ 7.25 per mcf , respectively . in 2006 , oil and gas sales volumes were 35 mbbls and 0.9 bcf , respectively and yielded average prices of $ 59.77 per bbl and $ 5.99 per mcf . the increases in volume and revenue were attributable to the goldking acquisition , higher hydrocarbon prices and increased production during the last half of 2007 . 39 the following table discloses the net oil and gas production volumes , sales , and sales prices for each of the two years ended december 31 , 2007 and 2006. replace_table_token_12_th operating expenses lease operating expense and production taxes total operating costs for 2007 increased $ 30.4 million from the comparable 2006 period . the goldking acquisition and the concomitant increase in the number of operating properties made up the vast amount of this increase . however , this increase also includes $ 6 million of workover expense on some of the goldking properties that is not anticipated to continue in future quarters . severance taxes ( production taxes ) accounted for a $ 0.47 per mcfe increase .
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the following is a summary of the unaudited pro forma historical results , as if these entities had been acquired at january 1 , 2010 ( in millions , except per share data ) : replace_table_token_27_th the unaudited pro forma results above have been prepared for comparative story_separator_special_tag introduction the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included in item 8 of this annual report . in addition , please see information regarding non-gaap measures and other on page 23 for a reconciliation of the non-gaap measures for adjusted total revenues , organic commission , fee and supplemental commission revenues and adjusted ebitdac to the comparable gaap measures , as well as other important information regarding these measures . we are engaged in providing insurance brokerage and third-party property/casualty claims settlement and administration services to entities in the u.s. and abroad . we believe that one of our major strengths is our ability to deliver comprehensively structured insurance and risk management services to our clients . our brokers , agents and administrators act as intermediaries between insurers and their customers and we do not assume underwriting risks . we are headquartered in itasca , illinois , have operations in 17 countries and offer client-service capabilities in more than 110 countries globally through a network of correspondent brokers and consultants . we generate approximately 81 % of our revenues domestically , with the remaining 19 % derived internationally , primarily in australia , bermuda , canada , new zealand and the u.k. we have three reporting segments : brokerage , risk management and corporate , which contributed approximately 73 % , 26 % and 1 % , respectively , to 2011 revenues . our major sources of operating revenues are commissions , fees and supplemental and contingent commissions from brokerage operations and fees from risk management operations . investment income is generated from our investment portfolio , which includes invested cash and fiduciary funds , as well as clean energy and other investments . this management 's discussion and analysis of financial condition and results of operations contains certain statements relating to future results which are forward-looking statements as that term is defined in the private securities litigation reform act of 1995. please see information concerning forward-looking statements in part i of this annual report , for certain cautionary information regarding forward-looking statements and a list of factors that could cause our actual results to differ materially from those predicted in the forward-looking statements . story_separator_special_tag we refer to together as the 2010 health care reform legislation ) were signed into law . the 2010 health care reform legislation , among other things , increases the level of regulatory complexity for companies that offer health and welfare benefits to their employees . many clients of our brokerage segment purchase health and welfare products for their employees and , therefore , are impacted by the 2010 health care reform legislation . as a result , the potential exists for our employee benefits consultants to win new clients and generate additional revenue from existing clients by assisting them in navigating the increasingly complex regulations surrounding their benefits plans . in 2011 , our employee benefits consulting operation generated approximately one quarter of the brokerage segment 's revenues . although we believe that the 2010 health care reform legislation could be beneficial to our brokerage segment 's fee revenues , given the legislation 's broad scope and the uncertainties that exist regarding the interpretation and implementation of many of the legislation 's complex provisions , the potential impact of the legislation on us , beneficial or otherwise , is currently uncertain . clean energy investments - in 2009 , we built and placed in service fourteen commercial clean coal production plants ( 2009 era plants ) . at december 31 , 2011 , we held non-controlling , minority interests in five limited liability companies that own twelve of the 2009 era plants . these plants are currently producing refined coal using chem-mod llc 's technologies ( see below ) which reduce harmful emissions and that we believe qualify for irc section 45 tax credits . collectively , these twelve plants ' operations could generate for us approximately $ 4.3 million of net after-tax earnings per quarter through 2019. at december 31 , 2011 , we also held a controlling majority interest in a limited liability company that owns two 2009 era plants . while these plants have produced refined coal using chem-mod 's technologies in the past , they are currently idle . congress extended the deadline for clean coal production plants to be placed in service by two years , from december 31 , 2009 to december 31 , 2011. tax credits on these plants can be earned for ten years from the placed-in-service date if the clean coal production plants are placed in service by december 31 , 2011. in conjunction with this extension and the marketing efforts of chem-mod , there is increased demand for irc section 45 projects and the chem-mod technologies . accordingly , we have invested $ 33.4 million in fifteen commercial clean coal production plants that we placed in service , producing refined coal using chem-mod 's technologies , prior to december 31 , 2011 ( 2011 era plants ) . 20 at december 31 , 2011 , we held controlling majority interests in seven limited liability companies that own the fifteen 2011 era plants . as of january 1 , 2012 , we sold majority portions of our investments in six limited liability companies that own five of the plants for a total of $ 12.9 million . these plants are currently producing refined coal under long-term purchase commitments with utilities . collectively , these five plants could generate for us approximately $ 8.0 million of net after-tax earnings per quarter through 2021. we continue to seek and negotiate long-term purchase commitments for the remaining ten 2011 era plants , all of which are currently idle . story_separator_special_tag the technical merits of a tax position are derived from both statutory and judicial authority ( legislation and statutes , legislative intent , regulations , rulings and case law ) and their applicability to the facts and circumstances of the position . if a tax position does not meet the more likely than not recognition threshold , we do not recognize the benefit of that position in the financial statements . the second step is measurement . a tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements . the tax position is measured as the largest amount of benefit that has a likelihood of greater than 50 % of being realized upon ultimate resolution with a taxing authority . uncertain tax positions are measured based upon the facts and circumstances that exist at each reporting period and involve significant management judgment . subsequent changes in judgment based upon new information may lead to changes in recognition , derecognition and measurement . adjustments may result , for example , upon resolution of an issue with the taxing authorities , or expiration of a statute of limitations barring an assessment for an issue . we recognize interest and penalties , if any , related to unrecognized tax benefits in our provision for income taxes . see note 14 to our consolidated financial statements for a discussion regarding the possibility that our gross unrecognized tax benefits balance may change within the next twelve months . tax law requires certain items to be included in our tax returns at different times than such items are reflected in the financial statements . as a result , the annual tax expense reflected in our consolidated statements of earnings is different than that reported in the tax returns . some of these differences are permanent , such as expenses that are not deductible in the returns , and some differences are temporary and reverse over time , such as depreciation expense and amortization expense deductible for income tax purposes . temporary differences create deferred tax assets and liabilities . deferred tax liabilities generally represent tax expense recognized in the financial statements for which a tax payment has been deferred , or expense which has been deducted in the tax return but has not yet been recognized in the financial statements . deferred tax assets generally represent items that can be used as a tax deduction or credit in tax returns in future years for which a benefit has already been recorded in the financial statements . we establish or adjust valuation allowances for deferred tax assets when we estimate that it is more likely than not that future taxable income will be insufficient to fully use a deduction or credit in a specific jurisdiction . in assessing the need for the recognition of a valuation allowance for deferred tax assets , we consider whether it is more likely than not that some portion , or all , of the deferred tax assets will not be realized and adjust the valuation allowance accordingly . we evaluate all significant available positive and negative evidence as part of our analysis . negative evidence includes the existence of losses in recent years . positive evidence includes the forecast of future taxable income by jurisdiction , tax-planning strategies that would result in the realization of deferred tax assets and the presence of taxable income in prior carryback years . the underlying assumptions we use in forecasting future taxable income require significant judgment and take into account our recent performance . the ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which temporary differences are deductible or creditable . intangible assets/earnout obligations - intangible assets represent the excess of cost over the estimated fair value of net tangible assets of acquired businesses . our primary intangible assets are classified as either goodwill , expiration lists , non-compete agreements or trade names . expiration lists , non-compete agreements and trade names are amortized using the straight-line method over their estimated useful lives ( three to fifteen years for expiration lists , three to five years for non-compete agreements and ten to fifteen years for trade names ) , while goodwill is not subject to amortization . the establishment of goodwill , expiration lists , non-compete agreements and trade names and the determination of estimated useful lives are primarily based on valuations we receive from qualified independent appraisers . the calculations of these amounts are based on estimates and assumptions using historical and pro forma data and recognized valuation methods . different estimates or assumptions could produce different results . we carry intangible assets at cost , less accumulated amortization in our consolidated balance sheet . we review all of our intangible assets for impairment at least annually and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable . we perform these impairment reviews at the reporting unit level with respect to goodwill and at the business unit level for amortizable intangible assets . in reviewing intangible assets , if the fair value were less than the carrying amount of the respective ( or underlying ) asset , an indicator of impairment would exist and further analysis would be required to determine whether or not a loss would need to be charged against current period earnings . based on the results of impairment reviews in 2011 and 2010 , we wrote off $ 4.6 million and $ 2.3 million , respectively , of amortizable intangible assets related to prior year acquisitions of our brokerage segment . no such indicators were noted in 2009. the determinations of impairment indicators and fair value are based on estimates and assumptions related to the amount and timing of future cash flows and future interest rates . different estimates or assumptions could produce different results .
| overview and 2011 financial highlights even though we generated positive organic growth in the year ended december 31 , 2011 in both our brokerage and risk management segments , the uncertain economic environment continued to provide headwinds for our business in 2011. in first quarter 2011 , surveys by the council of insurance agents & brokers ( which we refer to as the ciab ) indicated that commercial property/casualty rates had again declined for the 29th consecutive quarter , although the rate of decrease slowed from that reported in fourth quarter 2010. the second quarter report indicated that rates remained stable with negligible declines . the third quarter report indicated that rates were up , on average , 0.9 % across all sized accounts , with small accounts leading the way with an average 2.1 % increase . the fourth quarter report indicated that rates were up , on average , 2.8 % across all sized accounts , with medium accounts leading the way with an average 3.5 % increase . the ciab survey did not reveal any significant new emerging trends , but did note that rates appear to be moving towards positive territory . although competition is still stiff in the marketplace , the fourth quarter survey indicated that property/casualty insurance carriers appear to be tightening their underwriting standards , particularly on accounts with poor loss experience . the survey also indicated that there is some upward rate pressure on workers ' compensation and property lines of business . however , the demand for insurance continues to be restrained due to the sluggish economy , which could offset the impact of the favorable pricing trend noted in the fourth quarter survey .
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important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include , but are not limited to , those set forth in “ item 1a . risk factors ” in this annual report . all forward-looking statements included in this annual report are based on information available to us as of the time we file this annual report and , except as required by law , we undertake no obligation to update publicly or revise any forward-looking statements . in addition , statements that “ we believe ” and similar statements reflect our beliefs and opinions on the relevant subject . these statements are based upon information available to us as of the date of this annual report , and while we believe such information forms a reasonable basis for such statements , such information may be limited or incomplete , and our statements should not be read to indicate that we have conducted an exhaustive inquiry into , or review of , all potentially available relevant information . these statements are inherently uncertain . overview and recent developments we are a biopharmaceutical company focused on delivering novel , transformational medicines with optimized pharmacology and pharmacokinetics to patients globally . our proprietary , internally-developed pipeline includes multiple potentially first- or best-in-class assets with broad clinical utility . our most advanced investigational clinical programs are : etrasimod , which we are evaluating in late-stage clinical programs in ulcerative colitis and crohn 's disease , as well as progressing programs for atopic dermatitis and other indications ; and olorinab ( formerly apd371 ) for a broad range of visceral pain conditions associated with inflammatory bowel diseases and irritable bowel syndrome , and which we are evaluating in a phase 2 trial for treatment of gastrointestinal pain . we continue to assess other earlier research and development stage drug candidates , including apd418 , a potential first-in-class calcium-independent myofilament derepressor , which we are studying in a preclinical program for the treatment of decompensated heart failure . additionally , we have collaborations and license agreements with various companies , including : united therapeutics corporation , or united therapeutics , in its efforts with respect to ralinepag , everest medicines limited , or everest , in its efforts with respect to etrasimod in greater china and select countries in asia , boehringer ingelheim international gmbh , or boehringer ingelheim , targeting a g protein-coupled receptor that belongs to the group of orphan central nervous system receptors , which is in preclinical development stage , outpost medicine , llc , or outpost medicine , in its efforts with respect to a preclinical compound for the potential utility in treating genitourinary disorders , and eisai co. , ltd. and eisai inc. , or collectively , eisai , in their efforts with respect to belviq/belviq xr , which are marketed products . collaborations and license agreement update . in november 2018 , we entered into a collaboration and license agreement , or the united therapeutics agreement , with united therapeutics . under the united therapeutics agreement , we granted united therapeutics an exclusive , worldwide , royalty-bearing license to develop , manufacture and commercialize ralinepag , and any pharmaceutical product containing ralinepag as an active ingredient . this transaction was completed on january 24 , 2019. at the closing of the transaction , we transferred to united therapeutics certain other assets relating to ralinepag , including , among others , related domain names and trademarks , permits , certain contracts , inventory , regulatory documentation , ind no . 109021 ( relating to ralinepag ) , or the ind , and non-clinical , pre-clinical and clinical trial data . united therapeutics has agreed to assume certain limited liabilities , including , among others , all post-closing obligations under assumed contracts and the ind . united therapeutics will be responsible for all development , manufacture and commercialization of ralinepag globally . upon the closing of this transaction , in january 2019 , we received an upfront payment of $ 800.0 million . we are eligible to receive a payment of $ 150.0 million upon first marketing approval of ralinepag in a major non-u.s. market , and a payment of $ 250.0 million upon u.s. marketing approval of an inhaled formulation of ralinepag . in addition , we are 45 entitled to receive low double-digit , tiered royalties on net sales of ralinepag , subject to certain adjustments for third party license payments . in connection with this transaction we incurred fees of approximately $ 17.0 million , of wh ich $ 2.4 million was incurred in 2018 and is included in general and administrative expenses in the consolidated statement of operations . we expect a significant portion of the taxable gain that would otherwise be triggered by the upfront payment will be o ffset by our existing net operating losses . the united therapeutics agreement contains various representations and warranties of arena and united therapeutics , and various covenants of the parties , including covenants to cooperate in seeking regulatory app rovals , as well as our agreement not to compete , during the period in which royalties are payable ( or during the five-year period following the closing if we are subject to a change of control transaction ) in the development of a prostacyclin to treat pulm onary arterial hypertension . in october 2018 , the national medical products administration of china , or nmpa , formerly known as cfda , accepted the initial clinical trial application for an oral formulation of ralinepag . in november 2018 , the nmpa accepted the initial clinical trial application for etrasimod . we have received from everest a $ 1.0 million milestone payment for each of these achievements . in the fourth quarter of 2018 , eisai reported it provided eurofarma laboratórios s.a. the exclusive development and marketing rights for lorcaserin in brazil and 17 other countries in latin america and the caribbean , including mexico , and announced an appointment of sun pharma laboratories limited as a distributor of lorcaserin in india . story_separator_special_tag the duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during clinical development and a variety of factors , including : the nature and number of trials and studies in a clinical program ; the potential therapeutic indication ; the number of patients who participate in the trials ; 48 the number and location of sites included in the trials ; the rates of patient recruitment , enrollment and withdrawal ; the duration of patient treatment and follow-up ; the costs of manufacturing drug candidates ; and the costs , requirements , timing of , and the ability to secure and maintain regulatory approvals . general and administrative expenses . general and administrative expenses increased by $ 17.4 million to $ 47.7 million for the year ended december 31 , 2018 , from $ 30.3 million for the year ended december 31 , 2017. this increase was primarily due to increases of $ 8.2 million in legal , accounting and other professional fees , $ 5.3 million in non-cash share-based compensation expenses , and an increase of $ 3.7 million in salary and other personnel costs . the increases in compensation costs are primarily due to an increase in the number of general and administrative employees . we expect that our 2019 general and administrative expenses will be higher than in 2018. interest and other income ( expense ) , net . interest and other income , net , was $ 5.9 million for the year ended december 31 , 2018 , compared to interest and other expense , net of $ 3.9 million for the year ended december 31 , 2017. this change was primarily due to an increase of $ 8.3 million in interest income from our available-for-sale investments activity , an increase of $ 1.0 million in rental income from sublease activity in 2018 , and a decrease of $ 0.4 million in interest expense . income tax benefit . income tax benefit was $ 110.3 million for the year ended december 31 , 2018 , primarily related to the partial release of a valuation allowance on our deferred tax assets . discontinued operations . on march 31 , 2018 , arena gmbh sold the manufacturing operations via the siegfried transaction . as a result of the siegfried transaction , we have excluded from our continuing operations for all periods presented in this report revenues and expenses associated with the disposed manufacturing operations , which are reported as discontinued operations . as a result of the siegfried transaction , we have excluded from our continuing operations for all periods presented in this report revenues and expenses associated with our manufacturing operations that were divested , or manufacturing operations , which are reported as discontinued operations . for the year ended december 31 , 2018 , loss from discontinued operations was $ 0.8 million . for the year ended december 31 , 2017 , income from discontinued operations was $ 3.1 million . see note 5 to our consolidated financial statements included in this annual report for additional information regarding the manufacturing operations . year ended december 31 , 2017 , compared to year ended december 31 , 2016 revenues . in december 2016 , we amended and restated the terms of the marketing and supply agreement for lorcaserin with eisai by entering into a new transaction agreement and a new supply agreement ( collectively , the eisai agreement ) with eisai . under the eisai agreement , eisai acquired global commercialization and manufacturing rights to lorcaserin , including in the territories retained by us under the prior agreement , with control over global development and commercialization decisions . eisai is responsible for all lorcaserin development expenses going forward . we also assigned to eisai our rights under the commercial lorcaserin distribution agreements with ildong pharmaceutical co. , ltd. , or ildong , for south korea ; cy biotech company limited , or cyb , for taiwan ; and teva pharmaceuticals ltd. 's israeli subsidiary , abic marketing limited , or teva , for israel . prior to the eisai agreement , we received from eisai , ildong , cyb and teva total upfront payments of $ 122.5 million . revenues from these upfront payments were previously deferred , as we determined that the exclusive rights did not have standalone value without our ongoing development and regulatory activities . accordingly , these payments were recognized ratably as revenue over the periods in which we expected the services to be rendered . the eisai agreement eliminated our obligation to continue performing the development and regulatory activities required in the prior agreements . therefore , on december 28 , 2016 , $ 64.0 million of deferred revenues from these upfront payments was allocated to the rights delivered by us to eisai pursuant to the eisai agreement and recognized as revenue in 2016. we recognized revenues of $ 21.3 million for the year ended december 31 , 2017 , compared to $ 92.2 million for the year ended december 31 , 2016. this decrease was primarily due to $ 66.0 million of revenue recorded in 2016 from upfront payments for lorcaserin collaborations received from eisai in prior years , and $ 5.7 million of revenue recorded in 2016 from upfront payments for other lorcaserin collaborations received from ildong and cyb in prior years with no similar revenue in 2017 and a total of $ 12.3 million of milestones from eisai and ildong that we earned during 2016 primarily from the approval of the once-daily formulation of lorcaserin in the united states ( branded as belviq xr ) , the approval of the twice-daily formulation of lorcaserin in mexico ( branded as venespri ) , and the approval of belviq in brazil . these decreases were partially offset by $ 12.0 million revenue in 2017 related to an upfront payment pursuant to a collaboration agreement with everest entered into in december 2017 and $ 1.7 million of royalty revenue recorded in 2017 under the eisai agreement . 49 research and development expenses .
| results of operations we are providing the following summary of our revenues , research and development expenses and general and administrative expenses to supplement the more detailed discussion below . this summary excludes our revenues , research and development expenses and general and administrative expenses associated with our manufacturing operations , which are reported within income ( loss ) from discontinued operations . the dollar values in the following tables are in millions . revenues replace_table_token_3_th * the change is more than 100 % . research and development expenses replace_table_token_4_th * the change is more than 100 % . general and administrative expenses replace_table_token_5_th year ended december 31 , 2018 , compared to year ended december 31 , 2017 revenues . we recognized revenues of $ 18.0 million for the year ended december 31 , 2018 , compared to $ 21.3 million for the year ended december 31 , 2017. this decrease was primarily due to decrease in upfront revenue from our collaboration agreements , partially offset by a $ 4.9 million increase in royalty revenues from eisai , from $ 1.7 million in 2017 to $ 6.6 million in 2018 . 47 absent any new collaborations , we expect our 2019 revenues will primarily consist of ( i ) the upfront fee payment of $ 800.0 million we receiv ed in january 2019 pursuant to the united therapeutics agreement , ( ii ) royalty payments from eisai based upon eisai 's sales of belviq to its distributors , ( iii ) potential milestone payments from our current collaborators and ( iv ) reimbursements from collab orators for research funding . revenues from royalties based on sales of belviq are difficult to predict , and our overall revenues will likely continue to vary from quarter to quarter and year to year . in the short term , we expect the amount of belviq-related revenue we earn to fluctuate . research and development expenses .
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except as required by law , we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements . overview servicesource international , inc. ( nasdaq : srev ) is the global leader in customer and revenue lifecycle solutions that power enterprise revenue relationships . based on the science of revenue lifecycle management ( rlm ) , servicesource provides some of the world 's leading business to business ( b2b ) companies with expert , technology-enabled services and solutions that are proven to grow and retain revenue from existing customers , directly or through a channel . with a holistic approach to managing the entire revenue lifecycle ( which includes onboarding , client success , quoting , up-sell , cross-sell , warranty services and renewals ) , servicesource solutions help companies drive improved customer adoption , expansion and retention for our b2b clients . our solutions are comprised of a unique and precise mix of managed services , a purpose-built rlm technology platform , and best-practice processes developed over more than 15 years of exclusive focus on revenue retention , revenue growth , and client success . with the experience of nearly $ 8.4 billion in recurring revenue sold in 2015 and global deployments across 40 languages and 150 countries , servicesource solutions can uniquely leverage industry and company data , leading-edge technology and best-practices drawn from our significant and in-depth database of renewal benchmarks . by integrating managed services , cloud software and data , we provide our clients with insights into their end customers ' businesses , end-to-end management and optimization of end customer onboarding , adoption , subscription , asset management , and service contract renewal processes whether managed by us directly or through our client 's channel partners . our managed services business leverages either a pay-for-performance or a flat-rate model whereby our clients pay us a commission based on renewal sales that we generate on their behalf . our cloud software technologies are an integral component to our unique rlm technology platform and may be managed by servicesource or provided directly to the client . such cloud technologies include : servicesource revenue analytics , renew ondemand and the servicesource customer success application , all of which automate and provide data driven insights into these highly valuable but typically manual business processes . this blend of technology capabilities , managed services and best-practice process can drive higher subscription , maintenance and support revenue while improving end customer retention and increasing business predictability . the scalability of our solution enables us to sell in over 40 languages from six centers around the globe . our solution is designed to optimize recurring revenue across different revenue models , distribution models , and segments , including hardware , software , software-as-a-service ( saas ) , industrial systems , information and media , as well as technology-enabled health care and life sciences . key business metrics in assessing the performance of our business , we consider a variety of business metrics in addition to the financial metrics discussed below under , “ basis of presentation. ” these key metrics include opportunity under management and number of engagements , both of which are non-gaap metrics . opportunity under management . for the year ended december 31 , 2015 , our opportunity under management in our managed services business was approximately $ 9.9 billion . opportunity under management is a non-gaap metric that represents our estimate of the value of all end customer service contracts that we have the opportunity to sell on behalf of our 33 clients over a designated period of time . in addition , we processed more than $ 4.0 billion of contract value through our cloud technologies in 2015 for which we received fees . opportunity under management is not a measure of our expected revenue . opportunity under management reflects our estimate over a designated period of time and should not be used as an estimate of our opportunity for any particular quarter within that period . also , the value of end customer contracts actually delivered during a twelve-month period should not be expected to occur in even quarterly increments due to seasonality and other factors impacting our clients and their end customers . we estimated the value of such end customer contracts based on a combination of factors , including the value of end customer contracts made available to us by our clients in past periods , the minimum value of end customer contracts that our clients are required to give us the opportunity to sell pursuant to the terms of our contracts with them , periodic internal business reviews of our expectations as to the value of end customer contracts that will be made available to us by our clients , the value of end customer contracts included in the service performance analysis ( spa ) and collaborative discussions with our clients assessing their expectations as to the value of service contracts that they make available to us for sale . while the minimum value of end customer contracts that our clients are required to give us represented a portion of our estimated opportunity under management , a significant portion of the opportunity under management is estimated based on the other factors described above . as our experience with our business , our clients and their contracts has grown , we have continually refined the process , improved the assumptions and expanded the data related to our calculation of the opportunity under management . when estimating opportunity under management , we must , to a large degree , rely on the assumptions described above , which may prove incorrect . these assumptions are inherently subject to significant business and economic uncertainties and contingencies , many of which are beyond our control . our estimates therefore may prove inaccurate , causing the actual value of end customer contracts delivered to us in a given period to differ from our estimate of opportunity under management . story_separator_special_tag for some clients , we manage all or substantially all of their service contract renewals . for cloud technologies , the spa may be more limited and focused on the benefits of the respective technology and therefore may take less time . implementation cycle . after entering into an engagement with a new client , and to a lesser extent after adding an engagement with an existing client , we incur sales and marketing expenses related to the commissions owed to our sales personnel . these commissions are based on the estimated total contract value , with a material portion of the commission expensed upfront and the remaining portion expensed ratably over a period of twelve to fourteen months . we also make upfront investments in technology and personnel to support the engagement . these expenses are typically incurred one to three months before we begin generating sales and recognizing revenue . accordingly , in a given quarter , an increase in new clients , and , to a lesser extent , an increase in engagements with existing clients , or a significant increase in the contract value associated with such new clients and engagements , will negatively impact our gross margin and operating margins until we begin to achieve anticipated sales levels associated with the new engagements , which is typically two to three quarters after we begin selling contracts on behalf of our clients . although we expect new client engagements to contribute to our operating profitability over time , in the initial periods of a client relationship , the near term impact on our profitability can be negatively impacted by slower-than anticipated growth in revenues for these engagements as well as the impact of the upfront costs we incur , the lower initial level of associated service sales team productivity and lack of mature data and technology integration with the client . as a result , an increase in the mix of new clients as a percentage of total clients may initially have a negative impact on our operating results . similarly , a decline in the ratio of new clients to total clients may positively impact our near-term operating results . contract terms . substantially all of our managed services revenue comes from our pay-for-performance model . under our pay-for-performance model , we earn commissions based on the value of service contracts we sell on behalf of our clients . in some cases , we earn additional performance-based commissions for exceeding pre-determined service renewal targets . our new client contracts typically have an initial term between two and four years . our contracts generally require our clients to deliver a minimum value of qualifying service revenue contracts for us to renew on their behalf during a specified period . to the extent that our clients do not meet their minimum contractual commitments over a specified period , they may be subject to fees for the shortfall . our client contracts are cancelable on relatively short notice , subject in most cases to the 35 payment of an early termination fee by the client . the amount of this fee is based on the length of the remaining term and value of the contract . we invoice our clients on a monthly basis based on commissions we earn during the prior month , and with respect to performance-based commissions , on a quarterly basis based on our overall performance during the prior quarter . revenue is recognized in the period in which our services are performed or , in the case of performance commissions , when the performance condition is achieved . because the invoicing for our services generally coincides with or immediately follows the sale of service contracts on behalf of our clients , we do not generate or report a significant deferred revenue balance . however , the combination of factors such as , but not limited to , minimum contractual commitments , the performance improvement potential identified by our spa process , our success in generating improved renewal rates for our clients , and our clients ' historical renewal rates , for example , help to provide us with revenue visibility , but may all affect our performance favorably or unfavorably . m & a activity . our clients , particularly those in the technology sector , participate in an active environment for mergers and acquisitions . large technology companies have maintained active acquisition programs to increase the breadth and depth of their product and service offerings and small and mid-sized companies have combined to better compete with large technology companies . a number of our clients have merged , purchased other companies or been acquired by other companies . we expect merger and acquisition activity to continue to occur in the future . the impact of these transactions on our business can vary . acquisitions of other companies by our clients can provide us with the opportunity to pursue additional business to the extent the acquired company is not already one of our clients . similarly , when a client is acquired , we may be able to use our relationship with the acquired company to build a relationship with the acquirer . in some cases we have been able to maintain our relationship with an acquired client even where the acquiring company handles its other service contract renewals through internal resources . in other cases , however , acquirers have elected to terminate or not renew our contract with the acquired company . economic conditions and seasonality . an improving economic outlook generally has a positive , but mixed , impact on our business . as with most businesses , improved economic conditions can lead to increased end customer demand and sales . in particular , within the technology sector , we believe that the recent economic downturn led many companies to cut their expenses by choosing to let their existing maintenance , support and subscription agreements lapse . an improving economy may have the opposite effect .
| results of operations the table below sets forth our consolidated results of operations for the periods presented . the period-to-period comparison of financial results presented below is not necessarily indicative of financial results to be achieved in future periods . 39 replace_table_token_7_th the following table sets forth our operating results as a percentage of net revenue : replace_table_token_8_th 40 years ended— december 31 , 2015 and 2014 net revenue replace_table_token_9_th net revenue decreased $ 20.0 million , or 7 % , in 2015 compared to 2014. the overall decrease in revenue in 2015 was due to client cancellations and engagement reductions , including some of our top clients , in excess of new client engagement additions from 2014. the client cancellations and reductions in 2015 were in line with our historical rates . managed services revenue decreased by $ 12.9 million , or 5 % , in 2015 related to the higher than average client cancellations and reductions in 2014. the $ 7.0 million , or 22 % , decrease in revenue from our cbi business in 2015 , compared to 2014 , was primarily attributable to a loss of subscription revenue related to the elimination of certain services provided to one of our largest clients . cost of revenue and gross profit replace_table_token_10_th replace_table_token_11_th the $ 14.9 million , or 9 % , decrease in our cost of revenue for our managed services business in 2015 compared to 2014 reflects a $ 15.9 million decrease in employee compensation expense as a result of lower headcount that corresponded with our efforts to better align employee costs with the decrease in revenue , offset by a $ 3.8 million increase in temporary labor , and a $ 3.4 million decrease in allocated overhead .
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ernst & young llp ernst & young llp chicago , illinois february 22 , 2018 f-4 report of independent registe red public accounting firm to the partners erp operating story_separator_special_tag financial condition and results of operations the following discussion and analysis of the results of operations and financial condition of the company and the operating partnership should be read in connection with the consolidated financial statements and notes thereto . due to the company 's ability to control the operating partnership and its subsidiaries , the operating partnership and each such subsidiary entity has been consolidated with the company for financial reporting purposes , except for two unconsolidated operating properties . capitalized terms used herein and not defined are as defined elsewhere in this annual report on form 10-k for the year ended december 31 , 2017. forward-looking statements forward-looking statements in this item 7 as well as elsewhere in this annual report on form 10-k are intended to be made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. these statements are based on current expectations , estimates , projections and assumptions made by management . while the company 's management believes the assumptions underlying its forward-looking statements are reasonable , such information is inherently subject to uncertainties and may involve certain risks , which could cause actual results , performance or achievements of the company to differ materially from anticipated future results , performance or achievements expressed or implied by such forward-looking statements . many of these uncertainties and risks are difficult to predict and beyond management 's control . forward-looking statements are not guarantees of future performance , results or events . the forward-looking statements contained herein are made as of the date hereof and the company undertakes no obligation to update or supplement these forward-looking statements . factors that might cause such differences include , but are not limited to the following : we intend to actively acquire , develop and renovate multifamily properties for rental operations as market conditions dictate . we may also acquire multifamily properties that are unoccupied or in the early stages of lease-up . we may be unable to lease these apartment properties on schedule , resulting in decreases in expected rental revenues and or lower yields due to lower occupancy and rental rates as well as higher than expected concessions or higher than expected operating expenses . we may not be able to achieve rents that are consistent with expectations for acquired , developed or renovated properties . we may underestimate the costs necessary to bring an acquired property up to standards established for its intended market position , to complete a development property or to complete a renovation . additionally , we expect that other real estate investors with capital will compete with us for attractive investment opportunities or may also develop properties in markets where we focus our development and acquisition efforts . this competition ( or lack thereof ) may increase ( or depress ) prices for multifamily properties . we may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms . we have acquired in the past and intend to continue to pursue the acquisition of properties , including large portfolios of properties , that could increase our size and result in alterations to our capital structure . the total number of apartment units under development , costs of development and estimated completion dates are subject to uncertainties arising from changing economic conditions ( such as the cost of labor and construction materials ) , competition and local government regulation ; debt financing and other capital required by the company may not be available or may only be available on adverse terms ; labor and materials required for maintenance , repair , capital expenditure or development may be more expensive than anticipated ; occupancy levels and market rents may be adversely affected by national and local political , economic and market conditions including , without limitation , new construction and excess inventory of multifamily and owned housing/condominiums , increasing portions of owned housing/condominium stock being converted to rental use , rental housing subsidized by the government , other government programs that favor single family rental housing or owner occupied housing over multifamily rental housing , slow or negative employment growth and household formation , the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers , changes in social preferences , governmental regulations ( including rent control or rent stabilization laws and regulations ) and the potential for geopolitical instability , all of which are beyond the company 's control ; and additional factors as discussed in part i of this annual report on form 10-k , particularly those under “ item 1a . risk factors ” . forward-looking statements and related uncertainties are also included in the notes to consolidated financial statements in this report . 35 overview see item 1. business for discussion regarding the company 's overview . business objectives and operating and investing strategies see item 1. business for discussion regarding the company 's business objectives and operating and investing strategies . story_separator_special_tag stabilized for all of the current and comparable periods presented . ( 1 ) consists of one property containing 285 apartment units ( playa pacifica in hermosa beach , california ) which was removed from the same store portfolio in the first quarter of 2015 due to a major renovation in which significant portions of the property were taken offline for extended time periods and one property containing 71 apartment units ( acton courtyard in berkeley , california ) which was removed from the same store portfolio in the third quarter of 2016 due to an affordable housing dispute which required significant portions of the property to be vacant for an extended releasing period . as of december 31 , 2017 and 2016 , playa pacifica had an occupancy of 94.4 % and 66.2 % , respectively . story_separator_special_tag as a result , we expect to produce same store revenue growth of approximately 1.0 % in this market in 2018. in the new york market , elevated deliveries of new luxury supply both in established residential areas and newer residential areas like long island city are having an impact on our ability to raise rents . while technology sector job growth continues , there has been a reduction in the rate of job growth in the financial services sector , which is an important demand driver in this market . however , due in part to our strong same store occupancy levels ( 96.2 % for the year ended december 31 , 2017 ) , we used fewer concessions during 2017 than we originally expected . same store revenues increased 0.1 % for the year ended december 31 , 2017 as compared to the same period in 2016 , which was above both our original expectations and our most recent guidance provided in october 2017. with new luxury supply elevated in 2018 , we expect there to be a decline in same store revenues of approximately 0.75 % in 2018. boston continues to feel the impact from an elevated level of deliveries of new supply in the downtown and cambridge submarkets , though job growth has continued to improve . as a result , the additional supply has generally been absorbed thus far without significant disruption . same store revenues increased 1.6 % for the year ended december 31 , 2017 as compared to the same period in 2016 , which was in line with our original expectations and most recent guidance provided in october 2017. we believe renewal and occupancy rates will continue to remain strong while new lease rates will continue to be negative . we therefore expect 2018 same store revenue growth of approximately 1.6 % , which is identical to 2017. seattle produced solid rental rate growth driven by the continued growth in technology jobs in the market , but showed signs of slowing rent growth towards the end of 2017. same store revenues increased 5.6 % for the year ended december 31 , 2017 as compared to the same period in 2016 , which exceeded our original expectations and is generally consistent with the most recent guidance provided in october 2017. we are more cautious on our 2018 outlook . with more moderate growth expected in both renewals and new leases primarily due to increased urban supply and moderating job growth , we expect seattle to produce same store revenue growth of approximately 3.25 % in 2018. san francisco performed better than expected in 2017 primarily as a result of strong occupancy and gains on renewals . the market is producing a slower rate of job growth in the technology sector compared to previous years . however , we continue to see strong demand throughout the market , although the rate at which we can increase rents remains somewhat modest due to new supply and a slower rate of job growth . as a result , same store revenues increased 2.0 % for the year ended december 31 , 2017 as compared to the same period in 2016 , which exceeded our original expectations and is generally consistent with the most recent guidance provided in october 2017. while we expect to see slight improvement in new lease rates in 2018 , we expect lower occupancy and renewal rates . as a result , we expect to produce same store revenue growth of approximately 1.75 % in 2018. southern california , which includes los angeles , orange county and san diego , was one of our better performing markets in 2017. widely dispersed new supply , very good economic growth and adequate levels of job growth in the market 40 are driving strong revenue growth . same store revenues increased 3.9 % for the year ended december 31 , 2017 as compared to the same period in 2016 , which slightly exceeded both our original expectations and the most recent guidance we provided in october 2017. we expect to produce same store revenue growth of approximately 3.25 % in los angeles and 4.0 % in both orange county and san diego in 2018. same store expenses increased 2.7 % during the year ended december 31 , 2017 as compared to the same period in 2016. the full year 2017 results were primarily due to the following items : real estate taxes increased 3.2 % for the full year 2017 as compared to the same period in 2016 , which was lower than our original expectations , primarily driven by favorable real estate tax appeal results ; payroll costs increased 4.6 % for the full year 2017 as compared to the same period in 2016 ( which was consistent with our original expectations ) primarily due to an increase in on-site staffing to assure the service levels necessary to remain competitive with new supply and higher on-site wages due to competition from new supply ; and utilities increased 2.0 % for the full year 2017 as compared to the same period in 2016 ( which was consistent with our original expectations ) primarily due to higher prices for natural gas and higher water and sewer costs , partially offset by lower usage and lower prices for electricity . we anticipate same store expenses to increase in a range from 3.5 % to 4.5 % for 2018 as compared to 2017 primarily due to the following items : real estate taxes are estimated to increase between 4.75 % and 5.75 % due primarily to increased values and rates and the 421-a tax abatement benefits continuing to expire in new york ( approximately 1.7 percentage points of the increase ) ; payroll costs are estimated to increase approximately 5.0 % primarily due to higher on-site wages due to competition from new supply ; and utilities are estimated to increase between 3.0 % and 4.0 % primarily due to increases in trash costs as well as anticipated increases in the commodity cost for electricity , natural gas and heating
| results of operations 2017 and 2016 transactions in conjunction with our business objectives and operating strategy , the company continued to invest in apartment properties located in our coastal gateway markets and sell apartment properties located primarily in the less dense portion of suburban markets and or properties that are functionally or locationally challenged during the years ended december 31 , 2017 and december 31 , 2016 as follows : year ended december 31 , 2017 : acquired four consolidated apartment properties , located in the seattle ( two properties ) , boston and los angeles markets , consisting of 947 apartment units for approximately $ 468.0 million at a weighted average acquisition cap rate ( see definition below ) of 4.8 % ; sold five consolidated apartment properties , located in the boston ( three properties ) , new york and san diego markets , consisting of 1,194 apartment units for approximately $ 355.0 million , at a weighted average disposition yield ( see definition below ) of 5.1 % and generating an unlevered irr ( see definition below ) of 12.4 % ; started construction on two projects , located in the boston and seattle markets , consisting of 221 apartment units totaling approximately $ 113.8 million of expected development costs ; and substantially completed construction on four projects , located in the orange county , washington d.c. and seattle ( two properties ) markets , consisting of 1,393 apartment units totaling approximately $ 584.2 million of development costs and stabilized five development projects , located in the san francisco ( three properties ) , los angeles and orange county markets , consisting of 1,931 apartments units totaling approximately $ 983.1 million of development costs .
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property , plant and equipment on story_separator_special_tag the following discussion and analysis should be read in conjunction with part i , item 1 , business , our audited consolidated financial statements and the notes to consolidated financial statements in this annual report . recent developments please refer to the “ financial results and operating information ” and “ liquidity and capital resources ” sections of management 's discussion and analysis of financial condition and results of operations in this annual report for additional information . merger transaction - on june 30 , 2017 , we completed the acquisition of all of the outstanding common units of oneok partners that we did not already own . prior to june 30 , 2017 , we and our subsidiaries owned all of the general partner interest , which included incentive distribution rights , and a portion of the limited partner interest , which together represented a 41.2 percent ownership interest in oneok partners . the earnings of oneok partners that are attributed to its units held by the public during the six months ended june 30 , 2017 , are reported as “ net income attributable to noncontrolling interests ” in our consolidated statement of income . our general partner incentive distribution rights effectively terminated at the closing of the merger transaction . market conditions - volumes increased across our operating regions in our natural gas gathering and processing and natural gas liquids segments in 2018 , compared with 2017 , as a result of improved crude oil prices , producers experiencing improved drilling economics and continued improvements in production due to enhanced completion techniques . while commodity 36 prices decreased in the fourth quarter 2018 and are expected to fluctuate in 2019 , we do not expect a material impact on supply volumes across our business segments . for most of 2018 , we benefited from favorable ngl price differentials as available pipeline and fractionation capacity in and between the conway , kansas , and mont belvieu , texas , market centers tightened due to growing ngl supply from the mid-continent and rocky mountain regions , combined with increased petrochemical and ngl export demand in the gulf coast , resulting in higher earnings from our natural gas liquids segment 's optimization and marketing activities . in the fourth quarter 2018 , these differentials narrowed resulting from seasonality of supply and demand in the mid-continent region , lower commodity prices and additional pipeline and fractionation capacity resulting from operational efficiencies . while we expect ngl price differentials to be volatile in 2019 , we expect that they will be wider than historical norms due to additional demand in the gulf coast , additional ngl supply growth in the mid-continent region and continuing fractionation and pipeline constraints . we expect these wider ngl price differentials to continue until announced ngl pipeline and fractionation infrastructure projects , including our arbuckle ii pipeline , are completed in early 2020. ethane opportunity - ethane volumes delivered to our ngl system have been increasing since 2016 , primarily as a result of ngl demand increasing from exports and petrochemical companies completing ethylene production projects and plant expansions . ethane volumes across our system increased to 380 mbbl/d in 2018 , compared with 315 mbbl/d in 2017. our ngl capital-growth projects are expected to help alleviate system constraints , enabling additional ngls , including ethane , to reach the mont belvieu , texas , market center . we expect the amount of ethane delivered to our system to continue to fluctuate as ngl supply continues to increase , petrochemical companies complete expansion projects and exports increase . growth projects - increased producer activity and supply growth across our assets have increased demand for midstream infrastructure . we are responding to this growing demand by constructing assets to meet the needs of natural gas processors and producers across our operating regions , including the williston , permian , powder river and dj basins and the stack and scoop areas . we also expect additional demand for our services to support increased demand for ngl products from the petrochemical industry and ngl exporters , and increased demand for natural gas from exports and power plants , some of which rely on natural gas when renewable energy is not available . we have spent approximately $ 2 billion of our announced $ 6 billion of additional capital-growth projects , including ngl pipelines , ngl fractionators and natural gas processing plants , that are designed to serve the expected growth and needs of natural gas processors and producers and the petrochemical industry . we expect these growth projects to provide long-term fee-based earnings and incremental cash flows . we have contracted for , and taken delivery of , a substantial amount of the steel pipe required for our pipeline projects from vendors located predominately in the united states . in addition to our large capital-growth projects discussed below , we are expanding our natural gas pipeline infrastructure in the permian basin and oklahoma to provide additional natural gas takeaway capacity in these regions . our announced large capital-growth projects are outlined in the tables below : project scope approximate costs ( a ) completion date natural gas gathering and processing ( in millions ) additional stack processing capacity 200 mmcf/d processing capacity through long-term processing services agreement $ 40 complete 30-mile natural gas gathering pipeline canadian valley expansion and related infrastructure 200 mmcf/d processing plant expansion in the stack area and related gathering infrastructure 160 complete increases capacity to more than 400 mmcf/d 20 mbbl/d additional ngl volume supported by acreage dedications , long-term primarily fee-based contracts and minimum volume commitments demicks lake i plant and related infrastructure 200 mmcf/d processing plant and related infrastructure in the core of the williston basin 400 fourth quarter 2019 supported by acreage dedications with long-term primarily fee-based contracts demicks lake ii plant and related infrastructure 200 mmcf/d processing plant and related infrastructure in the core of the williston basin 410 first quarter 2020 supported by acreage dedications with long-term primarily fee-based contracts story_separator_special_tag revenue recognition - we adopted topic 606 on january 1 , 2018 , using the modified retrospective method . results for reporting periods beginning after january 1 , 2018 , are presented under topic 606 , while prior periods are not adjusted and continue to be reported under the accounting standards in effect for those periods . the primary impact to our financial results is a classification change between line items in our consolidated income statement , with an immaterial impact on net income . based on the new guidance , we determined that certain natural gas gathering and processing segment pop with fee contracts and natural gas liquids segment exchange services contracts that include the purchase of commodities are supplier contracts . therefore , contractual fees in these identified contracts are now recorded as a reduction of the commodity purchase price in cost of sales and fuel rather than as services revenue . to the extent we hold inventory related to these purchases , the related fees previously recorded in services revenue will not be recognized until the inventory is sold . the adoption of topic 606 did not materially impact our reported operating income , net income or adjusted ebitda . 39 financial results and operating information consolidated operations story_separator_special_tag an increase of $ 159.2 million due primarily to natural gas volume growth in the williston basin and the stack and scoop areas , offset partially by natural production declines ; and an increase of $ 22.3 million due primarily to higher realized ngl and condensate prices , net of hedges , offset partially by lower realized natural gas prices , net of hedges ; offset partially by an increase of $ 55.1 million in operating costs due primarily to increased materials and supplies and outside services related to the growth of our operations and higher employee-related costs associated with labor and benefits ; and a decrease of $ 11.7 million due primarily to lower equity in net earnings from investments due to a decrease in supply volumes in the coal-bed methane area of the powder river basin . capital expenditures increased due to our announced capital-growth projects and increased well connections . 2017 vs. 2016 - adjusted ebitda increased $ 71.7 million , primarily as a result of the following : an increase of $ 66.0 million due primarily to natural gas volume growth in the williston basin and the stack and scoop areas , offset partially by natural production declines and the impact of severe winter weather in the first quarter 2017 ; and an increase of $ 44.0 million due primarily to restructured contracts resulting in higher fee revenues from increased average fee rates , offset partially by a lower percentage of proceeds retained from the sale of commodities under our pop with fee contracts ; offset partially by an increase of $ 19.2 million in operating costs due primarily to higher employee-related costs associated with labor and benefits and the growth of our operations ; a decrease of $ 11.9 million due primarily to lower realized natural gas and condensate prices , net of hedges ; and a decrease of $ 8.0 million due to contract settlements in 2016. capital expenditures decreased due to growth projects placed in service in 2016 . 42 replace_table_token_8_th ( a ) - includes volumes for consolidated entities only . ( b ) - includes volumes at company-owned and third-party facilities . natural gas gathered , natural gas processed , ngl sales and residue natural gas sales volumes increased in 2018 , compared with 2017 , due primarily to the following : producers focusing their drilling and completion in the most productive areas with favorable economics where we have significant gathering and processing assets ; and continued producer improvements in production due to enhanced completion techniques ; offset partially by natural production declines . natural gas gathered , natural gas processed , ngl sales and residue natural gas sales increased in 2017 , compared with 2016 , due to the completion of growth projects and new supply in the williston basin and the stack and scoop areas , offset partially by natural production declines on existing wells and the impact of severe winter weather in the first quarter 2017. the quantity and composition of ngls and natural gas are expected to continue to change with anticipated production increases across our supply basins , new processing plants placed in service and increased ethane recovery . commodity price risk - see discussion regarding our commodity price risk under “ commodity price risk ” in item 7a , quantitative and qualitative disclosures about market risk . impairment charges - in 2017 , following a review of nonstrategic assets for potential divestiture , we recorded $ 16.0 million of noncash impairment charges related to certain nonstrategic gathering and processing assets located in north dakota and $ 4.3 million of noncash impairment charges related to a nonstrategic equity investment located in oklahoma . natural gas liquids growth projects - our growth strategy in our natural gas liquids segment is focused around the crude oil and ngl-rich natural gas drilling activity in shale and other nonconventional resource areas from the rocky mountain region through the mid-continent region and the permian basin . crude oil , natural gas and ngl production from this activity ; higher petrochemical industry demand for ngl products ; and increased exports have resulted in our making additional capital investments to expand our infrastructure to bring these commodities from supply basins to market . our natural gas liquids segment invests in ngl-related projects to transport , fractionate , store and deliver to the market ngl supply from shale and other resource development areas across our asset base and alleviate expected infrastructure constraints between the mid-continent and gulf coast market centers and to meet increasing petrochemical industry and ngl export demand in the gulf coast . see “ growth projects ” in the “ recent developments ” section for discussion of our announced capital-growth projects .
| selected financial results - the following table sets forth certain selected consolidated financial results for the periods indicated : replace_table_token_6_th * percentage change is greater than 100 percent or is not meaningful . see reconciliation of net income to adjusted ebitda in the “ adjusted ebitda ” section . changes in commodity prices , sales volumes and the impact of the adoption of topic 606 , as described in note o of the notes to consolidated financial statements in this annual report , affect both revenues and cost of sales and fuel in our consolidated statements of income , and , therefore , the impact is largely offset between these line items . 2018 vs. 2017 - operating income increased primarily as a result of the following : an increase of $ 342.9 million due to natural gas and ngl volume growth , primarily in the williston basin and stack and scoop areas in our natural gas gathering and processing and natural gas liquids segments ; an increase of $ 150.4 million due to higher optimization and marketing earnings primarily from wider location price differentials in our natural gas liquids segment ; an increase of $ 36.4 million from higher transportation services due primarily to increased interruptible volumes and firm transportation capacity contracted in our natural gas pipelines segment ; and an increase of $ 16.0 million resulting from the impact of noncash impairment charges in 2017 related to nonstrategic long-lived assets in our natural gas gathering and processing segment ; offset partially by an increase in operating costs of $ 84.3 million due primarily to higher employee-related costs associated with labor and benefits , higher materials , supplies , outside services , noncash compensation and spending on routine maintenance projects , offset partially by the $ 30.0 million impact of the merger transaction included in 2017 operating costs ; and an increase in depreciation expense of $
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during the year ended december 31 , 2020 , the company acquired approximately 380 net acres of proved and unproved properties located in martin county , texas , in two separate transactions which closed in 2020. combined total cash consideration paid by the company was $ 7.9 million . 2019 acquisition activity during 2019 , the company completed several non-monetary acreage trades of primarily undeveloped properties located in howard , martin , and midland counties , texas , resulting in the exchange of approximately 2,200 net story_separator_special_tag in part ii , item 7 of our 2019 annual report on form 10-k , filed with the sec on february 20 , 2020 , for a detailed discussion of certain comparisons of our financial results and trends for the year ended december 31 , 2019 , compared with the year ended december 31 , 2018. net equivalent production , production revenue , and production expense the following table presents the changes in our net equivalent production , production revenue , and production expense , by area , between the years ended december 31 , 2020 , and 2019 : replace_table_token_17_th note : amounts may not calculate due to rounding . average net daily equivalent production volumes for the year ended december 31 , 2020 , decreased four percent compared with 2019. realized prices before the effects of derivative settlements for oil , gas , and ngls decreased 31 percent , 25 percent , and 19 percent , respectively , for the year ended december 31 , 2020 , compared with 2019. as a result of the decreases in production and pricing , oil , gas , and ngl production revenue decreased 29 percent for the year ended december 31 , 2020 , compared with 2019. total production expense for the year ended december 31 , 2020 , decreased 22 percent , compared with 2019. please refer to a year-to-year overview of selected production and financial information , including trends for additional discussion of the components of production expense . the following table presents the changes in our net equivalent production , production revenue , and production expense , by area , between the years ended december 31 , 2019 , and 2018 : replace_table_token_18_th note : amounts may not calculate due to rounding . ( 1 ) we divested all remaining producing assets in the rocky mountain region in the first half of 2018. as a result , there have been no production volumes from this region after the second quarter of 2018. average net daily equivalent production volumes for the year ended december 31 , 2019 , increased 10 percent compared with 2018 , primarily as a result of increased production from our midland basin assets . as a result of increased midland basin production , oil production as a percentage of our overall product mix increased from 43 percent in 2018 , to 45 percent in 2019. oil , gas , and ngl production revenues decreased three percent for the year ended december 31 , 2019 , compared with 2018 , as a result of lower 46 commodity pricing and the divestiture in the first half of 2018 of our remaining producing assets in the rocky mountain region . total production expense for the year ended december 31 , 2019 , increased three percent compared with 2018 , due to increased loe and ad valorem tax expense , partially offset by decreased production taxes and transportation costs . production expense on a per boe basis decreased six percent for the year ended december 31 , 2019 , compared with 2018 , primarily due to increased production volumes , decreased transportation costs , and decreased production taxes resulting from lower oil , gas , and ngl production revenues . net gain on divestiture activity replace_table_token_19_th no material divestitures occurred during 2020 or 2019. for the year ended december 31 , 2018 , we recorded a total net gain of $ 410.6 million for the divestiture of our powder river basin assets ( the “ prb divestiture ” ) , and a combined total net gain of $ 15.4 million for the completed divestitures of our remaining assets in the williston basin located in divide county , north dakota ( the “ divide county divestiture ” ) and our halff east assets in the midland basin ( the “ halff east divestiture ” ) . please refer to note 3 – acquisitions , divestitures , and assets held for sale in part ii , item 8 of this report for additional discussion . depletion , depreciation , amortization , and asset retirement obligation liability accretion replace_table_token_20_th dd & a expense for the year ended december 31 , 2020 , decreased five percent compared with 2019. the decrease was primarily driven by the reduction in the depletable cost basis of our south texas proved oil and gas properties as a result of proved property impairments recognized during the first quarter of 2020 , partially offset by higher production volumes from our oil producing midland basin assets as these assets have higher depletion rates than our primarily gas and ngl producing south texas assets . dd & a expense for the year ended december 31 , 2019 , increased 24 percent compared with 2018 , primarily driven by a 25 percent increase in production volumes from our midland basin assets during the same period . please refer to a year-to-year overview of selected production and financial information , including trends above for discussion of dd & a expense on a per boe basis . exploration replace_table_token_21_th exploration expense decreased 20 percent for the year ended december 31 , 2020 , compared with 2019. the decrease for the year ended december 31 , 2020 , was primarily driven by the reorganization of certain functions in the fourth quarter of 2019 that eliminated duplicative regional operational functions and reduced overhead costs . exploration expense is impacted by actual geological and geophysical studies we perform and the potential for exploratory dry hole expense . story_separator_special_tag as of december 31 , 2020 , we had $ 380.8 million of permitted second lien debt capacity available until the next scheduled redetermination date of april 1 , 2021 , provided that all principal amounts of such debt are used to redeem unsecured senior debt of the company for less than or equal to 80 % of par value . as of december 31 , 2020 , the remaining available borrowing capacity under our credit agreement provided $ 965.0 million in liquidity . our borrowing base can be adjusted as a result of changes in commodity prices , acquisitions or divestitures of proved properties , or financing activities , all as provided for in the credit agreement . no individual bank participating in our credit agreement represents more than 10 percent of the lender commitments under the credit agreement . please refer to note 5 – long-term debt in part ii , item 8 of this report for additional discussion as well as the presentation of the outstanding balance , total amount of letters of credit , and available borrowing capacity under our credit agreement as of february 4 , 2021 , december 31 , 2020 , and december 31 , 2019. we must comply with certain financial and non-financial covenants under the terms of the credit agreement , including covenants limiting dividend payments and requiring that we maintain certain financial ratios , as set forth in the credit agreement . we were in compliance with all financial and non-financial covenants as of december 31 , 2020 , and through the filing of this report . please refer to note 5 – long-term debt in part ii , item 8 of this report for additional discussion . our daily weighted-average revolving credit facility debt balance was approximately $ 145.6 million and $ 115.2 million for the years ended december 31 , 2020 , and 2019 , respectively . cash flows provided by our operating activities , proceeds received from divestitures of properties , capital markets activities , including open market debt repurchases , repayment of scheduled debt maturities , and our capital expenditures , including acquisitions , all impact the amount we borrow under our revolving credit facility . under our credit agreement , borrowings in the form of eurodollar loans accrue interest based on libor . the use of libor as a global reference rate is expected to be discontinued after 2021. our credit agreement specifies that if libor is no longer a widely used benchmark rate , or if it is no longer used for determining interest rates for loans in the united states , a replacement interest rate that fairly reflects the cost to the lenders of funding loans shall be established by the administrative agent , as defined in the credit agreement , in consultation with us . we currently do not expect the transition from libor to have a material impact on interest expense 50 or borrowing activities under the credit agreement , or to otherwise have a material adverse impact on our business . please refer to note 1 – summary of significant accounting policies in part ii , item 8 of this report for discussion of fasb asu 2020-04 which provides guidance related to reference rate reform . weighted-average interest and weighted-average borrowing rates our weighted-average interest rate includes paid and accrued interest , fees on the unused portion of the aggregate commitment amount under the credit agreement , letter of credit fees , the non-cash amortization of deferred financing costs , and the non-cash amortization of the discounts related to the 2025 senior secured notes and 2021 senior secured convertible notes , each as defined in note 5 – long-term debt in part ii , item 8 of this report . our weighted-average borrowing rate includes paid and accrued interest only . the following table presents our weighted-average interest rates and our weighted-average borrowing rates for the years ended december 31 , 2020 , 2019 , and 2018 : replace_table_token_28_th our weighted-average interest rates and weighted-average borrowing rates are impacted by the timing of long-term debt issuances and redemptions and the average outstanding balance on our revolving credit facility . additionally , our weighted-average interest rates are impacted by the fees paid on the unused portion of our aggregate lender commitments . for the year ended december 31 , 2020 , our weighted-average interest rate and our weighted-average borrowing rate increased , compared with 2019 , primarily as a result of the higher interest rate on our 2025 senior secured notes issued during the second quarter of 2020. the rates disclosed in the above table do not reflect amounts associated with the early redemption of certain of our old notes , such as the acceleration of unamortized deferred financing costs , as these amounts are netted against the associated gain or loss on extinguishment of debt . please refer to note 5 – long-term debt in part ii , item 8 of this report for additional discussion including the definition of old notes . uses of cash we use cash for the development , exploration , and acquisition of oil and gas properties and for the payment of operating and general and administrative costs , income taxes , dividends , and debt obligations , including interest . expenditures for the development , exploration , and acquisition of oil and gas properties are the primary use of our capital resources . during 2020 , we spent approximately $ 555.7 million on capital expenditures and on acquiring proved and unproved oil and gas properties . this amount differs from the costs incurred amount of $ 585.3 million for the year ended december 31 , 2020 , as costs incurred is an accrual-based amount that also includes asset retirement obligations , geological and geophysical expenses , and exploration overhead amounts . please refer to costs incurred in supplemental oil and gas information ( unaudited ) in part ii , item 8 of this report for additional discussion .
| general and administrative replace_table_token_23_th g & a expense decreased 25 percent for the year ended december 31 , 2020 , compared with 2019. please refer to a year-to-year overview of selected production and financial information , including trends above for discussion of g & a expense . net derivative ( gain ) loss replace_table_token_24_th we recognized a net derivative gain of $ 161.6 million for the year ended december 31 , 2020. the gain was primarily driven by gains on the settlement of derivative contracts of $ 351.3 million offset by $ 189.7 million in downward mark-to-market adjustments due to the strengthening of commodity prices towards the end of 2020. we recognized a net derivative loss of $ 97.5 million for the year ended december 31 , 2019. the loss was primarily driven by $ 136.7 million in downward mark-to-market adjustments offset by gains on the settlement of derivative contracts of $ 39.2 million . we recognized a net derivative gain of $ 161.8 million for the year ended december 31 , 2018. the gain was primarily driven by upward mark-to market adjustments of $ 297.6 million offset by losses on the settlement of derivative contracts of $ 135.8 million . please refer to note 10 – derivative financial instruments in part ii , item 8 of this report for additional discussion . 48 interest expense replace_table_token_25_th interest expense increased three percent for the year ended december 31 , 2020 , compared with 2019 , primarily due to an increase in interest expense associated with borrowings under our revolving credit facility and a decrease in interest expense capitalized to wells .
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to the extent the transaction is no longer deemed probable of occurring , hedge accounting treatment is discontinued and amounts deferred would story_separator_special_tag the following discussion should be read in conjunction with the audited consolidated financial statements of the company included in part ii , item 8 of this form 10-k. this management 's discussion and analysis of financial condition and results of operations contains forward-looking statements concerning the company 's expectations and beliefs . see “ statement regarding forward-looking statements ” and part i , item 1a “ risk factors ” for a discussion of other uncertainties , risks and assumptions associated with these statements . unless otherwise specifically indicated , all dollar or share amounts herein are expressed in millions of dollars or shares , except for per share amounts . executive summary hasbro , inc. ( `` hasbro '' or the `` company '' ) is a global play and entertainment company committed to creating the world 's best play and entertainment experiences . from toys , games and consumer products to television , movies , digital gaming , live action , music , and virtual reality experiences , hasbro connects to global audiences by bringing to life great innovations , stories and brands across established and inventive platforms . hasbro 's iconic brands include magic : the gathering , my little pony , nerf , transformers , play-doh , monopoly , baby alive , power rangers and littlest pet shop , as well as premier partner brands . through our acquisition of entertainment one ltd. ( `` eone '' ) , acquired brands peppa pig and pj masks will be 34 included in emerging brands going forward . through the company 's entertainment labels , allspark pictures and allspark animation , and now through the global entertainment studio operated by eone , the company is building its brands globally through great storytelling and content on all screens . hasbro is committed to making the world a better place for children and their families through corporate social responsibility and philanthropy . hasbro 's strategic plan is centered around its brand blueprint . under the brand blueprint strategy , hasbro re-imagines , re-invents and re-ignites its owned and controlled brands and imagines , invents and ignites new brands , through product innovation , immersive entertainment offerings , including television and motion pictures , digital gaming and a broad range of consumer products . as the global consumer landscape , shopping behaviors and the retail environment continue to evolve , the company continues to transform and reimagine its business strategy . this transformation includes reexamining the ways hasbro organizes across its brand blueprint and re-shaping the company to become a better equipped and adaptive , digitally-driven organization , including the development of an omni-channel retail presence and adding new capabilities through the on-boarding of new skill sets and talent . more recently , to enhance its long-term competitive position the company has identified and pursued key growth opportunities through strategic acquisitions , to excel in today 's converged retail environment as a leading global play and entertainment company across all platforms . hasbro generates revenue and earns cash by developing , marketing and selling products based on global brands in a broad variety of consumer goods categories and distribution of television programming based on the company 's properties , as well as through the out-licensing of rights for third parties to use its properties in connection with products , including digital media and games and other consumer products . hasbro also leverages its competencies to develop and market products based on well-known licensed brands including , but not limited to , beyblade , disney princess and disney frozen , disney 's descendants , marvel , sesame street , star wars , and dreamworks ' trolls . marvel , star wars , disney princess , disney frozen and disney 's descendants are owned by the walt disney company . for the periods presented in this form 10-k , the company 's business is separated into three principal business segments : u.s. and canada , international , and entertainment , licensing and digital . the u.s. and canada segment markets and sells both toy and game products primarily in the united states and canada . the international segment consists of the company 's european , asia pacific and latin and south american toy and game marketing and sales operations . the company 's entertainment , licensing and digital segment includes the company 's consumer products licensing , digital licensing and gaming , and movie and television entertainment operations . in addition to these three primary segments , the company 's product sourcing operations are managed through its global operations segment . with the completion of the acquisition of eone in fiscal 2020 , the results of eone will be reported as a separate operating segment . the impact of changes in foreign currency exchange rates used to translate the consolidated statements of operations is quantified by translating the current period revenues at the prior period exchange rates and comparing this amount to the prior period reported revenues . the company believes that the presentation of the impact of changes in exchange rates , which are beyond the company 's control , is helpful to an investor 's understanding of the performance of the underlying business . the company has also included in this report , the impact on 2019 net earnings and earnings per share , of the termination and settlement of its u.s. defined benefit pension plan and the impact of certain transaction costs , financing transaction fees and net hedge gains in association with the company 's agreement to acquire eone . story_separator_special_tag net revenues in 2019 include an unfavorable foreign currency translation of $ 78.5 million , which is the result of weakening currencies compared to the u.s. dollar , primarily in our international segment in 2019 compared to 2018 . see discussion of brand portfolio below . consolidated net revenues for the year ended december 30 , 2018 declined 12 % to $ 4,579.6 million from $ 5,209.8 million for the year ended december 31 , 2017 and included an unfavorable foreign currency translation of $ 43.0 million , which was the result of weakening currencies primarily in our international segment in 2018 compared to 2017 . see discussion of brand portfolio below . the following chart presents net revenues expressed in millions of dollars , by brand portfolio for each year in the three years ended december 29 , 2019 . replace_table_token_4_th 2019 versus 2018 partner brands and emerging brands net revenues grew in 2019 compared to 2018 , while net revenues from franchise brands and the hasbro gaming portfolio declined . franchise brands the franchise brands portfolio declined 1 % in 2019 compared to 2018 . higher net revenues from magic : the gathering , monopoly and play-doh products were more than offset by net revenue declines from nerf , my little pony , baby alive and to a lesser extent , transformers products . partner brands the partner brands portfolio increased 24 % in 2019 compared to 2018 . within the partner brands portfolio , there are a number of entertainment-based brands which , from year to year , may be supported by major theatrical releases . as such , category net revenues by brand fluctuate from year-to-year depending on movie popularity , release dates and related product line offerings and success . in 2019 , 38 products related to three partner brands were supported by major theatrical releases – marvel products were supported by the second quarter 2019 theatrical release , avengers : end game and the third quarter 2019 theatrical release , spider-man : far from home , disney 's frozen products were supported by fourth quarter 2019 theatrical release , frozen 2 and star wars products were supported by star wars : the rise of skywalker , released during the fourth quarter of 2019. historically these entertainment-based brands experience higher revenues during years in which major motion pictures are released . during 2019 , the increase in net revenues was driven by disney frozen and marvel products , and to a lesser extent disney 's decendants and star wars products . these increases were partially offset by net revenue declines from disney princess and dreamworks ' trolls products during 2019. hasbro gaming the hasbro gaming portfolio declined 10 % in 2019 compared to 2018 . lower net revenues from pie face , speak out and certain other hasbro gaming products were partially offset by net revenue increases from dungeons & dragons products . net revenues for hasbro 's total gaming category , including the hasbro gaming portfolio as reported above , and all other gaming revenue , most notably magic : the gathering and monopoly , which are included in the franchise brands portfolio , totaled $ 1,528.3 million in 2019 , an increase of 6 % , versus $ 1,443.2 million in 2018 . emerging brands the emerging brands portfolio grew 5 % in 2019 compared to 2018 . net revenues were positively impacted by the introduction of the company 's power rangers products , as well as net revenue increases from playskool products , which were partially offset by net revenue declines from littlest pet shop and lost kitties products . 2018 versus 2017 franchise brands , partner brands and hasbro gaming net revenues declined in 2018 compared to 2017 , while net revenues from the emerging brands portfolio grew slightly . franchise brands the franchise brands portfolio declined 9 % in 2018 compared to 2017. higher net revenues from monopoly and magic : the gathering products were more than offset by net revenue declines from nerf products , which were impacted by the loss of sales related to the bankruptcy and subsequent liquidation of toys “ r ” us . also contributing to franchise brands net revenue declines in 2018 were my little pony products , supported in 2017 by the theatrical release of my little pony : the movie , transformers products , also supported in 2017 by the major theatrical release of transformers : the last knight , and to a lesser extent , baby alive products . partner brands the partner brands portfolio declined 22 % in 2018 compared to 2017. lower net revenues from star wars , disney princess and dreamworks ' trolls products , as well as net revenue declines from disney frozen and disney 's decendants products were partially offset by net revenue increases from beyblade and marvel products . within the partner brands portfolio , there are a number of entertainment-based brands which , from year to year , may be supported by major theatrical releases . as such , category net revenues by brand fluctuate from year-to-year depending on movie popularity , release dates and related product line offerings and success . in 2018 , star wars products were supported by the second quarter 2018 major theatrical release solo : a star wars story . historically these entertainment-based brands experience revenue growth during film years with sharp declines in subsequent years . hasbro gaming the hasbro gaming portfolio declined 12 % in 2018 compared to 2017. lower net revenues from pie face and speak out and certain other hasbro gaming products were partially offset by net revenue increases from dungeons and dragons , do n't step in it , connect 4 and jenga products .
| highlights net revenues of $ 4,720.2 million increased 3 % from $ 4,579.6 million in 2018 . the increase in net revenues includes an unfavorable foreign currency translation of $ 78.5 million . u.s. and canada segment net revenues increased 3 % ; international segment net revenues decreased 1 % , including an unfavorable foreign currency translation impact of $ 76.5 million ; entertainment , licensing and digital segment net revenues increased 22 % . partner brands net revenues increased 24 % ; emerging brands net revenues increased 5 % ; franchise brands net revenues declined 1 % ; hasbro gaming net revenues declined 10 % . operating profit was $ 652.1 million , or 13.8 % of net revenues in 2019 compared to operating profit of $ 331.1 million , or 7.2 % of net revenues in 2018 . 2019 operating profit was negatively impacted by $ 17.8 million of pre-tax acquisition related costs associated with the eone transaction . 2018 operating profit was negatively impacted by $ 60.4 million of costs related to the toys '' r '' us bankruptcy , $ 89.3 million associated with the company 's 2018 restructuring program and impairment charges of $ 117.6 million related to backflip studios and other intangible assets . net earnings increased in 2019 to $ 520.5 million , or $ 4.05 per diluted share , compared to $ 220.4 million , or $ 1.74 per diluted share in 2018 . 2019 net earnings were impacted by pension settlement charges , net of tax , of $ 86.0 million , or $ 0.67 per diluted share , partially offset by a net benefit , net of tax , of $ 81.8 million , or $ 0.64 per diluted share , from foreign currency gains related to hedging a portion of the eone british pound sterling purchase price and other eone acquisition related costs . 2018 net earnings were negatively impacted by costs related to the toys '' r '' us bankruptcy , net of tax , of $ 52.8 million or $ 0.42
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we established an infrastructure to drive our geographic diversity including a newly equipped , application process development laboratory in apac , a strengthened sales organization of application engineers , expanded talent on our engineering team , the latest , most sophisticated design software tools , as well as an expanded , highly trained installation and service organization . we believe that the new products we have introduced , the new markets we have penetrated , and the regions in which we now sell our products , are a strong foundation for our future sales growth and enhanced profitability . story_separator_special_tag increased to 7.3 % compared with 0.71 % in the prior fiscal year . as a percentage of net sales , operating expenses were down 400 basis points to 40.4 % in fiscal 2020 compared with 44.5 % in fiscal 2019. interest expense : interest expense decreased to $ 33,000 for fiscal 2020 as compared with $ 40,000 for the prior fiscal year . interest expense is directly related to the mortgage on our industrial park . interest and dividend income : interest and dividend income decreased $ 35,000 to $ 102,000 for fiscal 2020 as compared with $ 137,000 for the prior fiscal year . the decrease in interest and dividend income is due to the reallocation of our investments into us treasury securities and certificates of deposit . our present investment policy is to invest excess cash in highly liquid , low risk us treasury securities , certificates of deposit and mutual funds . at february 29 , 2020 , the majority of our holdings are rated at or above investment grade . net unrealized loss on marketable securities : the company adopted asu 2016-01 , “ financial instruments – overall : recognition and measurement of financial assets and financial liabilities ” in the first quarter of fiscal 2019. asu 2016-01 requires the company to measure its equity investments at fair value and changes in fair value are to be recognized in net income . further information is available in note 2 : significant accounting policies in our financial statements . in fiscal 2019 , net income and earnings per share each reflect the actual deduction of $ 100,000 , for the unrealized loss on our marketable securities . in fiscal 2020 , there was no unrealized gain or loss recorded for the company 's marketable securities . unrealized gains or losses , if any , are considered to be immaterial . other income : included in other income is the net revenue related to the rental of the company 's real estate . for fiscal 2020 , the company 's rental revenue was $ 85,000 , expenses were $ 56,000 and the net profit was $ 29,000. for fiscal 2019 , the company 's rental revenue was $ 84,000 , expenses were $ 61,000 and the net profit was $ 23,000. income tax expense : we recorded income tax expense of $ 106,000 for fiscal 2020 compared with $ 20,000 for the prior fiscal year . the details of the current year 's tax expense are explained in note 11 in our financial statements . 13 net income : net income increased by $ 945,000 to $ 1,107,000 for fiscal 2020 compared with $ 162,000 for the prior fiscal year . the increase reflects an increase in gross profit of $ 2,064,000 offset by an increase in operating expenses of $ 1,032,000 and an increase in income tax expense of $ 86,000. for fiscal 2020 and 2019 , we do not believe that our sales revenue or net income has been affected by the impact of inflation or changing prices . impact of covid 19 in december 2019 , the novel coronavirus ( “ covid-19 ” ) outbreak occurred in china and has since spread to other parts of the world . on march 11 , 2020 , the world health organization declared covid-19 to be a global pandemic and recommended containment and mitigation measures . on march 13 , 2020 , the united states declared a national emergency concerning the outbreak . along with these declarations , extraordinary and wide-ranging actions have been taken by international , federal , state , and local public health and governmental authorities to contain and combat the outbreak and spread of covid-19 in regions across the united states and the world . these actions include quarantines , social distancing and “ stay-at-home ” orders , travel restrictions , mandatory business closures and other mandates that have substantially restricted individuals ' daily activities and curtailed or ceased many businesses ' normal operations . in response to the pandemic and these actions , we began implementing changes in our business in march 2020 to protect our employees and customers : · we implemented social distancing and other health and safety protocols . · we have flexed the workforce in our manufacturing operations based on business needs , including the addition of a second shift and the implementation of remote , alternative and flexible work arrangements . · we have enhanced cleaning and sanitary procedures . · we temporarily eliminated domestic and international travel . · we restricted access to our facilities to only employees and essential non-employees with strict protocols . while all of these measures have been necessary and appropriate , they may result in additional costs and may adversely impact our business and financial performance . as our response to the pandemic evolves , we may incur additional costs and will potentially experience adverse impacts to our business , each of which may be significant . story_separator_special_tag the revolving line of credit is payable on demand and must be retired for a 30-day period , once annually . as of february 29 , 2020 , there were no outstanding borrowings under the line of credit . as of february 29 , 2020 , $ 701,000 of the company 's credit line was being utilized to collateralize letters of credit issued to customers that have remitted cash deposits to the company on existing orders . the unused portion of the credit line was $ 799,000 as of february 29 , 2020. the letters of credit expire in 2020. we had outstanding borrowings under a note payable of $ 708,000 at february 29 , 2020. the note is payable over four years and accrues interest at 4.15 % per year . the note payable is secured by a mortgage on our land and buildings . subsequent to the completion of fiscal 2020 , on april 17 , 2020 , we entered into a loan transaction pursuant to which we received proceeds of $ 1,001,640 ( the “ ppp loan ” ) on may 8 , 2019 under the paycheck protection program ( “ ppp ” ) . the ppp , established as part of the coronavirus aid , relief and economic security act ( “ cares act ” ) , provides for loans to qualifying companies and is administered by the u.s. small business administration ( the “ sba ” ) . the ppl loan is evidenced by a promissory note , dated as of april 17 , 2020 ( the “ note ” ) , between the company and a bank . the note has a two-year term , bears interest at the rate of 1.0 % per annum , and may be prepaid at any time without payment of any premium . no payments of principal or interest are due during the six-month period beginning on the date of the note ( the “ deferral period ” ) . beginning on the seventh month following the date of the note , we are required to make 18 monthly payments of principal and interest in the amount of $ 56,088.24. under the terms of the cares act , ppp loan recipients can apply for and be granted forgiveness for all or a portion of loan granted under the ppp , with such forgiveness to be determined , subject to limitations , based on the use of the loan proceeds for payment of payroll costs and any payments of mortgage interest , rent , and utilities . however , at least 75 percent of the ppp loan proceeds must be used for eligible payroll costs . the terms of any forgiveness may also be subject to further requirements in any regulations and guidelines the sba may adopt . 16 off - balance sheet arrangements we do not have any off - balance sheet arrangements as of february 29 , 2020. critical accounting policies the discussion and analysis of the company 's financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amount of assets and liabilities , revenues and expenses , and related disclosure on contingent assets and liabilities at the date of the financial statements . actual results may differ from these estimates under different assumptions and conditions . critical accounting policies are defined as those that are reflective of significant judgments and uncertainties , and may potentially result in materially different results under different assumptions and conditions . as of february 29 , 2020 , management believes that there are no critical accounting policies applicable to the company that are reflective of significant judgments and or uncertainties . stock-based compensation the computation of the expense associated with stock-based compensation requires the use of a valuation model . asc 718 is a complex accounting standard , the application of which requires significant judgment and the use of estimates , particularly surrounding black-scholes assumptions such as stock price volatility , expected option lives , and expected option forfeiture rates , to value equity-based compensation . we currently use a black-scholes option pricing model to calculate the fair value of stock options . we primarily use historical data to determine the assumptions to be used in the black-scholes model and have no reason to believe that future data is likely to differ materially from historical data . however , changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards . asc 718 requires the recognition of the fair value of stock compensation in net income . although every effort is made to ensure the accuracy of our estimates and assumptions , significant unanticipated changes in those estimates , interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period . impact of new accounting pronouncements in january 2016 , the fasb issued asu 2016-01 , “ financial instruments – overall : recognition and measurement of financial assets and financial liabilities. ” asu 2016-01 requires equity investments ( except those accounted for under the equity method of accounting , or those that result in consolidation of the investee ) to be measured at fair value with changes in fair value recognized in net income , requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes , requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset , and eliminates the requirement for public business
| results of operations sales and gross profit : replace_table_token_0_th through the introduction of several new high value machine offerings , we have increased our fixed costs relative to our variable costs which has allowed us to create greater operating leverage and income potential . this transition of our cost structure in combination with our continued investment in application engineering capabilities , drove sales up 32 % to $ 15,355,000 , compared with the prior fiscal year . gross profit increased by 240 basis points , reaching 47.6 % for fiscal 2020 , compared to 45.2 % for fy2019 . the improvement in gross profit was primarily impacted by a shift of sales to less price sensitive advanced technology markets , requiring a higher level of coating process related expertise provided from our applications engineers and laboratories . our capability to provide this full system solution approach , brings increased value to the customer and allows this value to be reflected with increased margins . in fiscal 2020 , our sales include approximately $ 3,492,000 for orders that were delivered to two customers . 10 product sales : replace_table_token_1_th sales growth was driven by demand for more complex , highly engineered and higher value machinery , combined with application specific knowledge . multi-axis coating systems grew by 40 % , primarily due to a sale of our new 6-axis robotic platform . integrated coating systems grew 148 % due to several sales of a new custom designed multi-nozzle system sold to the electronics industry . market sales : replace_table_token_2_th use of our application process development laboratory by customers continued to reach record levels in fy2020 , which we believe demonstrates the success of our strategy to provide excellent application engineering expertise as well as paid coating services to prospects and customers to validate the capabilities of our coating technologies for their uses . these service-based customers are guided by our applications engineering team , to develop successful coating processes for their unique needs .
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each prospective drilling location is evaluated by its estimated rate of return . this strategy is intended to enhance the generation of cash flow and earnings from each unit of production on a cost-effective basis , allowing eog to deliver long-term production growth while maintaining a strong balance sheet . eog implements its strategy primarily by emphasizing the drilling of internally generated prospects in order to find and develop low-cost reserves . maintaining the lowest possible operating cost structure that is consistent with efficient , safe and environmentally responsible operations is also an important goal in the implementation of eog 's strategy . eog realized net income of $ 2,735 million during 2019 as compared to net income of $ 3,419 million for 2018. at december 31 , 2019 , eog 's total estimated net proved reserves were 3,329 million barrels of oil equivalent ( mmboe ) , an increase of 401 mmboe from december 31 , 2018. during 2019 , net proved crude oil and condensate and natural gas liquids ( ngls ) reserves increased by 287 million barrels ( mmbbl ) , and net proved natural gas reserves increased by 683 billion cubic feet or 114 mmboe , in each case from december 31 , 2018. operations several important developments have occurred since january 1 , 2019. united states . eog 's efforts to identify plays with large reserve potential have proven to be successful . eog continues to drill numerous wells in large acreage plays , which in the aggregate have contributed substantially to , and are expected to continue to contribute substantially to , eog 's crude oil and liquids-rich natural gas production . eog has placed an emphasis on applying its horizontal drilling and completion expertise to unconventional crude oil and liquids-rich reservoirs . during 2019 , eog continued to focus on increasing drilling , completion and operating efficiencies gained in prior years . in addition , eog continued to evaluate certain potential crude oil and liquids-rich natural gas exploration and development prospects and to look for opportunities to add drilling inventory through leasehold acquisitions , farm-ins , exchanges or tactical acquisitions . on a volumetric basis , as calculated using a ratio of 1.0 barrel of crude oil and condensate or ngls to 6.0 thousand cubic feet of natural gas , crude oil and condensate and ngls production accounted for approximately 77 % of united states production during both 2019 and 2018. during 2019 , drilling and completion activities occurred primarily in the eagle ford play , delaware basin play and rocky mountain area . eog 's major producing areas in the united states are in new mexico , north dakota , texas and wyoming . trinidad . in trinidad , eog continues to deliver natural gas under existing supply contracts . several fields in the south east coast consortium ( secc ) block , modified u ( a ) block , block 4 ( a ) , modified u ( b ) block , the banyan field and the sercan area have been developed and are producing natural gas which is sold to the national gas company of trinidad and tobago limited and its subsidiary ( ngc ) , and crude oil and condensate which is sold to heritage petroleum company limited . in 2019 , eog drilled and completed two net wells in trinidad and was in the process of drilling another exploratory well at december 31 , 2019. one of these wells was a successful development well , while the other well was determined to be an unsuccessful exploratory well . in addition , eog drilled one stratigraphic exploratory well in trinidad , which discovered commercially economic reserves . other international . in the sichuan basin , sichuan province , china , eog drilled two natural gas wells in 2019 to complete the drilling program started in 2018. in 2019 , eog also completed two natural gas wells that were drilled during the 2018 drilling program . all natural gas produced from the baijaochang field is sold under a long-term contract to petrochina . eog continues to evaluate other select crude oil and natural gas opportunities outside the united states , primarily by pursuing exploitation opportunities in countries where indigenous crude oil and natural gas reserves have been identified . 31 capital structure one of management 's key strategies is to maintain a strong balance sheet with a consistently below average debt-to-total capitalization ratio as compared to those in eog 's peer group . eog 's debt-to-total capitalization ratio was 19 % at december 31 , 2019 and 24 % at december 31 , 2018. as used in this calculation , total capitalization represents the sum of total current and long-term debt and total stockholders ' equity . on june 3 , 2019 , eog repaid upon maturity the $ 900 million aggregate principal amount of its 5.625 % senior notes due 2019. on june 27 , 2019 , eog entered into a new $ 2.0 billion senior unsecured revolving credit agreement ( new facility ) with domestic and foreign lenders ( banks ) . the new facility replaced eog 's $ 2.0 billion senior unsecured revolving credit agreement , dated as of july 21 , 2015 , which had a scheduled maturity date of july 21 , 2020. the new facility has a scheduled maturity date of june 27 , 2024 , and includes an option for eog to extend , on up to two occasions , the term for successive one-year periods subject to certain terms and conditions . the new facility ( i ) commits the banks to provide advances up to an aggregate principal amount of $ 2.0 billion at any one time outstanding , with an option for eog to request increases in the aggregate commitments to an amount not to exceed $ 3.0 billion , subject to certain terms and conditions , and ( ii ) includes a swingline subfacility and a letter of credit subfacility . story_separator_special_tag see `` operating revenues and other '' above for a discussion of production volumes . lease and well expenses include expenses for eog-operated properties , as well as expenses billed to eog from other operators where eog is not the operator of a property . lease and well expenses can be divided into the following categories : costs to operate and maintain crude oil and natural gas wells , the cost of workovers and lease and well administrative expenses . operating and maintenance costs include , among other things , pumping services , salt water disposal , equipment repair and maintenance , compression expense , lease upkeep and fuel and power . workovers are operations to restore or maintain production from existing wells . each of these categories of costs individually fluctuates from time to time as eog attempts to maintain and increase production while maintaining efficient , safe and environmentally responsible operations . eog continues to increase its operating activities by drilling new wells in existing and new areas . operating and maintenance costs within these existing and new areas , as well as the costs of services charged to eog by vendors , fluctuate over time . 36 lease and well expenses of $ 1,367 million in 2019 increased $ 84 million from $ 1,283 million in 2018 primarily due to higher operating and maintenance costs ( $ 76 million ) and higher lease and well administrative expenses ( $ 29 million ) in the united states , partially offset by lower operating and maintenance costs in the united kingdom ( $ 15 million ) due to the sale of operations in the fourth quarter of 2018 and in canada ( $ 11 million ) . lease and well expenses increased in the united states primarily due to increased operating activities resulting in increased production . transportation costs represent costs associated with the delivery of hydrocarbon products from the lease to a downstream point of sale . transportation costs include transportation fees , the cost of compression ( the cost of compressing natural gas to meet pipeline pressure requirements ) , the cost of dehydration ( the cost associated with removing water from natural gas to meet pipeline requirements ) , gathering fees and fuel costs . transportation costs of $ 758 million in 2019 increased $ 11 million from $ 747 million in 2018 primarily due to increased transportation costs in the permian basin ( $ 91 million ) and south texas ( $ 11 million ) , partially offset by decreased transportation costs in the eagle ford ( $ 77 million ) and the fort worth basin barnett shale ( $ 13 million ) . dd & a of the cost of proved oil and gas properties is calculated using the unit-of-production method . eog 's dd & a rate and expense are the composite of numerous individual dd & a group calculations . there are several factors that can impact eog 's composite dd & a rate and expense , such as field production profiles , drilling or acquisition of new wells , disposition of existing wells and reserve revisions ( upward or downward ) primarily related to well performance , economic factors and impairments . changes to these factors may cause eog 's composite dd & a rate and expense to fluctuate from period to period . dd & a of the cost of other property , plant and equipment is generally calculated using the straight-line depreciation method over the useful lives of the assets . dd & a expenses in 2019 increased $ 315 million to $ 3,750 million from $ 3,435 million in 2018. dd & a expenses associated with oil and gas properties in 2019 were $ 337 million higher than in 2018 primarily due to an increase in production in the united states ( $ 489 million ) , partially offset by lower unit rates in the united states ( $ 119 million ) and the sale of the united kingdom operations in the fourth quarter of 2018 ( $ 33 million ) . unit rates in the united states decreased primarily due to upward reserve revisions and reserves added at lower costs as a result of increased efficiencies . g & a expenses of $ 489 million in 2019 increased $ 62 million from $ 427 million in 2018 primarily due to increased employee-related expenses ( $ 48 million ) and increased information systems costs ( $ 8 million ) resulting from expanded operations . net interest expense of $ 185 million in 2019 was $ 60 million lower than 2018 primarily due to repayment of the $ 900 million aggregate principal amount of 5.625 % senior notes due 2019 in june 2019 ( $ 30 million ) and the $ 350 million aggregate principal amount of 6.875 % senior notes due 2018 in october 2018 ( $ 18 million ) and an increase in capitalized interest ( $ 14 million ) . gathering and processing costs represent operating and maintenance expenses and administrative expenses associated with operating eog 's gathering and processing assets as well as natural gas processing fees and certain ngls fractionation fees paid to third parties . eog pays third parties to process the majority of its natural gas production to extract ngls . see note 1 to the consolidated financial statements for discussion related to eog 's adoption of asu 2014-09. gathering and processing costs increased $ 42 million to $ 479 million in 2019 compared to $ 437 million in 2018 primarily due to increased operating costs and fees in the permian basin ( $ 52 million ) , the rocky mountain area ( $ 13 million ) and south texas ( $ 5 million ) ; partially offset by decreased operating costs in the united kingdom ( $ 33 million ) due to the sale of operations in the fourth quarter of 2018. exploration costs of $ 140 million in 2019 decreased $ 9 million from $ 149 million in 2018 primarily due to decreased geological and geophysical expenditures in trinidad ( $ 17 million ) , partially offset
| results of operations the following review of operations for each of the three years in the period ended december 31 , 2019 , should be read in conjunction with the consolidated financial statements of eog and notes thereto beginning on page f-1 . operating revenues and other during 2019 , operating revenues increased $ 105 million , or 1 % , to $ 17,380 million from $ 17,275 million in 2018. total wellhead revenues , which are revenues generated from sales of eog 's production of crude oil and condensate , ngls and natural gas , decreased $ 365 million , or 3 % , to $ 11,581 million in 2019 from $ 11,946 million in 2018. revenues from the sales of crude oil and condensate and ngls in 2019 were approximately 90 % of total wellhead revenues compared to 89 % in 2018. during 2019 , eog recognized net gains on the mark-to-market of financial commodity derivative contracts of $ 180 million compared to net losses of $ 166 million in 2018. gathering , processing and marketing revenues increased $ 130 million during 2019 , to $ 5,360 million from $ 5,230 million in 2018. net gains on asset dispositions of $ 124 million in 2019 were primarily as a result of sales of producing properties , acreage and other assets , as well as non-cash property exchanges , in new mexico compared to net gains on asset dispositions of $ 175 million in 2018 . 33 wellhead volume and price statistics for the years ended december 31 , 2019 , 2018 and 2017 were as follows : replace_table_token_14_th ( 1 ) thousand barrels per day or million cubic feet per day , as applicable . ( 2 ) other international includes eog 's united kingdom , china and canada operations . the united kingdom operations were sold in the fourth quarter of 2018 . ( 3 ) dollars per barrel or per thousand cubic feet , as applicable .
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in july 2010 , the company entered into an amendment that extended the term of the lease through january 31 , 2018. in consideration for this extension , the landlord provided the company with a leasehold improvement allowance totaling $ 191 and a reduction in base rent per square foot . the leasehold allowance was recorded as an addition to deferred rent . see note 2 ( other financial statement information ) . the company will recognize the leasehold improvement allowance on a straight-line basis as a benefit to rent expense over the life of the lease , along with the existing deferred rent story_separator_special_tag forward-looking statements the following discussion contains various forward-looking statements within the meaning of section 21e of the exchange act . although we believe that , in making any such statement , our expectations are based on reasonable assumptions , any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected . when used in the following discussion , the words anticipates , believes , expects , intends , plans , estimates and similar expressions , as they relate to us or our management , are intended to identify such forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated . factors that could cause actual results to differ materially from those anticipated , certain of which are beyond our control , are set forth in item 1a under the caption risk factors. our actual results , performance or achievements could differ materially from those expressed in , or implied by , forward-looking statements . accordingly , we can not be certain that any of the events anticipated by forward-looking statements will occur or , if any of them do occur , what impact they will have on us . we caution you to keep in mind the cautions and risks described in this document and to refrain from attributing undue certainty to any forward-looking statements , which speak only as of the date of the document in which they appear . we do not undertake to update any forward-looking statement . overview we provide marketing technology solutions , which include digital signage , interactive kiosks , mobile messaging , social networking and web development solutions , to customers who use our products and services in certain retail and service markets . through our proprietary ronincast ® x software , we provide enterprise , web-based and hosted content delivery systems that manage , schedule and deliver digital content over wireless and wired networks . we also provide custom interactive software solutions , content engineering and creative services to our customers . while our marketing technology solutions have application in a wide variety of industries , we focus on three primary markets : ( 1 ) automotive , ( 2 ) food service ( including qsr , fast casual and managed food services markets ) , and ( 3 ) retail . the industries in which we sell goods and services are not new but their application of marketing technology solutions is relatively new ( within the last five years ) and these industries have not widely accepted or adopted these types of technologies as part of their marketing strategies . as a result , we remain an early stage company without an established history of profitability , or substantial or steady revenue . we believe this characterization applies to our competitors as well , which are working to promote broader adoption of marketing technology solutions and to develop profitable , substantial and steady sources of revenue . we believe that the adoption of marketing technology solutions will increase substantially in years to come both in industries on which we currently focus and in other industries . we also believe that adoption of our marketing technology solutions , which includes digital signage , depends not only upon the software and services that we provide but upon the cost of hardware used to process and display content in digital signage systems . digital media players and flat panel displays constitute a large portion of the expenditure customers make relative to the entire cost of digital signage systems . costs of these digital media players and flat panel displays have historically decreased and we believe will continue to do so , though we do not manufacture either product and do not substantially affect the overall markets for these products . if prices continue to decline for this hardware , we believe that adoption of digital signage and other marketing technology solutions are likely to increase , though we can not predict a precise rate at which adoption will occur . management focuses on a wide variety of financial measurements to assess our financial health and prospects but principally upon ( 1 ) sales , to measure the adoption of our marketing technology solutions by our 30 customers , ( 2 ) cost of sales and gross profit , particularly expressed as gross profit percentage , to determine if sales have been made at levels of profit necessary to cover operating expenses on a long-term basis ( based upon assumptions regarding adoption ) , ( 3 ) sales of hardware relative to software and services , understanding that hardware typically provides a lower gross profit margin than do software license fees and services , ( 4 ) operating expenses so that management can appropriately match those expenses with sales , and ( 5 ) current assets , especially cash and cash equivalents used to fund operating losses thus far incurred . our wholly-owned subsidiary , wireless ronin technologies ( canada ) , inc. ( rnin canada ) , an ontario , canada provincial corporation located in windsor , ontario , maintains a vertical specific focus in the automotive industry and houses our content engineering operation . story_separator_special_tag system hardware sales we recognize revenue on system hardware sales generally upon shipment of the product or customer acceptance depending upon contractual arrangements with the customer . shipping charges billed to customers are included in sales and the related shipping costs are included in cost of sales . 32 professional service revenue included in services and other revenues is revenue derived from implementation , maintenance and support contracts , content development , software development and training . the majority of consulting and implementation services and accompanying agreements qualify for separate accounting . implementation and content development services are bid either on a fixed-fee basis or on a time-and-materials basis . for time-and-materials contracts , we recognize revenue as services are performed . for fixed-fee contracts , we recognize revenue upon completion of specific contractual milestones or by using the percentage-of-completion method . software design and development services revenue from contracts for technology integration consulting services where we design/redesign , build and implement new or enhanced systems applications and related processes for clients are recognized on the percentage-of-completion method in accordance with fasb asc 605-985-25-88 through 107. percentage-of-completion accounting involves calculating the percentage of services provided during the reporting period compared to the total estimated services to be provided over the duration of the contract . estimated revenues for applying the percentage-of-completion method include estimated incentives for which achievement of defined goals is deemed probable . this method is followed where reasonably dependable estimates of revenues and costs can be made . we measure our progress for completion based on either the hours worked as a percentage of the total number of hours of the project or by delivery and customer acceptance of specific milestones as outlined per the terms of the agreement with the customer . estimates of total contract revenue and costs are continuously monitored during the term of the contract , and recorded revenue and costs are subject to revision as the contract progresses . such revisions may result in increases or decreases to revenue and income and are reflected in the financial statements in the periods in which they are first identified . if estimates indicate that a contract loss will occur , a loss provision is recorded in the period in which the loss first becomes probable and reasonably estimable . contract losses are determined to be the amount by which the estimated direct and indirect costs of the contract exceed the estimated total revenue that will be generated by the contract and are included in cost of sales and classified in accrued expenses in the balance sheet . our presentation of revenue recognized on a contract completion basis has been consistently applied for all periods presented . we classify the revenue and associated cost on the services and other line within the sales and cost of sales sections of the consolidated statement of operations . in all cases where we apply the contract method of accounting , our only deliverable is professional services , thus , we believe presenting the revenue on a single line is appropriate . costs and estimated earnings recognized in excess of billings on uncompleted contracts are recorded as unbilled services and are included in accounts receivable on the balance sheet . billings in excess of costs and estimated earnings on uncompleted contracts are recorded as deferred revenue until revenue recognition criteria are met . implementation services implementation services revenue is recognized when installation is completed . maintenance and hosting support contracts maintenance and hosting support consists of software updates and support . software updates provide customers with rights to unspecified software product upgrades and maintenance releases and patches released during the term of the support period . support includes access to technical support personnel for software and hardware issues . we also offer a hosting service through our network operations center , or noc , allowing the ability to monitor and support our customers ' networks 7 days a week , 24 hours a day . 33 maintenance and hosting support revenue is recognized ratably over the term of the maintenance contract , which is typically one to three years . maintenance and support is renewable by the customer . rates for maintenance and support , including subsequent renewal rates , are typically established based upon a specified percentage of net license fees as set forth in the arrangement . our hosting support agreement fees are based on the level of service we provide to our customers , which can range from monitoring the health of our customer 's network to supporting a sophisticated web portal . basic and diluted loss per common share basic and diluted loss per common share for all periods presented is computed using the weighted average number of common shares outstanding . basic weighted average shares outstanding include only outstanding common shares . diluted net loss per common share is computed by dividing net loss by the weighted average common and potential dilutive common shares outstanding computed in accordance with the treasury stock method . shares reserved for outstanding stock warrants and options totaling 2.4 million , 3.8 million and 3.2 million for 2011 , 2010 and 2009 , respectively , were excluded from the computation of loss per share as their effect was antidilutive due to our net loss in each of those years . deferred income taxes deferred income taxes are recognized in the financial statements for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates . temporary differences arise from net operating losses , reserves for uncollectible accounts receivables and inventory , differences in depreciation methods , and accrued expenses . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized .
| results of operations our results of operations for the years ended december 31 , 2011 , 2010 and 2009 were as follows : replace_table_token_3_th our results of operations as a percentage of sales for the years ended december 31 , 2011 , 2010 and 2009 were as follows : replace_table_token_4_th 35 2011 compared to 2010 sales our sales increased 8 % to $ 9.3 million in 2011 from $ 8.6 million in 2010. the year-over-year increase in revenue was primarily attributable to revenue related to the deployments of chrysler 's ishowroom-branded tower application into chrysler and fiat dealerships . revenue generated from chrysler and the associated fiat dealerships totaled $ 5.1 million in 2011 , which was up 28 % from $ 4.0 million recognized for the prior year . in addition to assisting chrysler with its ongoing development needs related to the ishowroom initiative during 2011 , $ 3.1 million of our 2011 revenue from chrysler and the associated fiat dealerships came from orders for over 1,100 interactive kiosks as part of its branded tower salon to be installed at approximately 400 dealers . since the start of this program in september 2010 , we have received orders for a total of 578 chrysler and fiat dealerships . we currently believe that chrysler will continue to rollout the ishowroom-branded tower application enhancements with further dealership adoption . however , since we do not have a contract with chrysler requiring it to source all the various components of the solution through us and the purchase of the ishowroom branded towers will remain within the discretion of individual dealerships , we are unable to predict or forecast the timing or value of any future orders . the remaining increase in sales when comparing 2011 to 2010 was due to an increase in orders from aramark .
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the liability associated with the nonqualified deferred compensation and supplemental savings plan consists of participant deferrals and earnings thereon , and is reflected as a current liability within accrued compensation in an amount equal to the fair value of the underlying short-term investments held in the plan . changes in asset values result in offsetting changes in the liability as the employees realize the rewards and bear the risks of their investment selections . ( i ) property , equipment and software , net property and equipment are stated at cost and depreciation is calculated on the straight-line method over the estimated useful lives of the assets . costs for software that will be used for internal purposes and incurred during the application development stage are capitalized and amortized to expense over the estimated useful life of the underlying software . training and maintenance costs are expensed as incurred . the major classifications of property , equipment and software , including their respective expected useful lives , consisted of the following : buildings 25 to 32 years machinery and equipment 3 to 15 years leasehold improvements shorter of length of lease or life of the asset software 3 to 7 years property , equipment and software are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or it is no longer probable that software development will be completed . if circumstances require a long-lived asset or asset group be reviewed for possible impairment , the company first compares f-9 volt information sciences , inc. and subsidiaries notes to consolidated financial statements as of october 30 , 2016 undiscounted cash flows expected to be generated by each asset story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto . note regarding the use of non-gaap financial measures we have provided certain non-gaap financial information , which includes adjustments for special items , as additional information for our consolidated income ( loss ) from continuing operations and segment operating income ( loss ) . these measures are not in accordance with , or an alternative for , measures prepared in accordance with generally accepted accounting principles ( “ gaap ” ) and may be different from non-gaap measures reported by other companies . we believe that the presentation of non-gaap measures eliminating special items provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations because they permit evaluation of the results of our continuing operations without the effect of special items that management believes make it more difficult to understand and evaluate our results of operations . special items generally include impairments , restructuring and severance charges as well as certain income or expenses not indicative of our current or future period performance . in addition , as a result of our company 's strategic reorganization , which included changes to executive management and the board of directors as well as the ongoing execution of new strategic initiatives , certain charges were identified as “ special items ” which were not historically common operational expenditures for us . such charges included professional search fees , certain board compensation and other professional service fees . while we believe that the inclusion of these charges as special items is useful in the evaluation of our results compared to prior periods , we do not anticipate that these items will be included in our non-gaap measures in the future . segments during fiscal 2016 , we evaluated our reportable segment structure based on our new management organization and the changes implemented in connection with our new business strategies , including the initiatives to exit non-strategic and non-core operations . as a result of this assessment , we now report our activities in three reportable segments and an “ other ” category : north american staffing ; international staffing ; technology outsourcing services and solutions ; and corporate and other . we report our segment information in accordance with the provisions of fasb asc topic 280. the financial information presented below for fiscal 2015 and fiscal 2014 has been restated as required to reflect our new segment structure as if the structure were in place during those years . there has been no change in our total consolidated financial condition or results of operations previously reported as a result of the change in our segment structure . see note 20 , “ segment disclosures ” for further information . story_separator_special_tag pursue continued business with a certain customer . cost of services and gross margin cost of services in fiscal 2016 decreased $ 136.1 million , or 10.7 % , to $ 1,132.3 million from $ 1,268.4 million in fiscal 2015. this decrease was primarily the result of fewer staff on assignment , consistent with the related decrease in revenues in all segments . gross margin as a percent of revenue in fiscal 2016 decreased slightly to 15.2 % from 15.3 % in fiscal 2015 primarily due to a decline in our technology outsourcing services and solutions segment offset by improved margins in the north american staffing segment . selling , administrative and other operating costs selling , administrative and other operating costs in fiscal 2016 decreased $ 27.1 million , or 11.7 % , to $ 203.9 million from $ 231.0 million in fiscal 2015 , primarily due to a reduction in headcount and facility consolidations resulting from a company-wide cost reduction plan implemented at the beginning of fiscal 2016. in addition , $ 6.6 million of the decline was attributable to non-core businesses sold during fiscal 2015. corporate , general and administrative costs in fiscal 2015 included non-cash stock-based compensation provided to our new members of the board of directors and costs incurred responding to activist shareholders and related board of directors search fees . as a percent of revenue , these costs were 15.3 % and 15.4 % in fiscal 2016 and 2015 , respectively . story_separator_special_tag other income ( expense ) , net other expense in fiscal 2015 decreased $ 0.5 million , or 19.2 % , to $ 2.4 million from $ 2.9 million in fiscal 2014 , primarily related to decreased net interest expense and non-cash foreign exchange gains and losses on intercompany balances . income tax provision income tax provision in fiscal 2015 amounted to $ 4.6 million compared to $ 5.2 million in fiscal 2014 , primarily related to locations outside of the united states . discontinued operations on december 1 , 2014 , we completed the sale of our computer systems segment . the results of the computer systems segment are presented as discontinued operations and excluded from continuing operations and from segment results for all periods presented . 27 liquidity and capital resources our primary sources of liquidity are cash flows from operations and proceeds from our financing program . borrowing capacity under this program is directly impacted by the level of accounts receivable which fluctuates during the year due to seasonality and other factors . our business is subject to seasonality with our fiscal first quarter billings typically the lowest due to the holiday season and generally increasing in the fiscal third and fourth quarters when our customers increase the use of contingent labor . generally , the first and fourth quarters of our fiscal year are the strongest for operating cash flows . in february 2016 , maintech entered into a $ 10.0 million short-term credit facility with bank of america , n.a . ( “ bofa ” ) , which supplements our existing financing program and provides additional liquidity for working capital and general corporate purposes . our operating cash flows consist primarily of collections of customer receivables offset by payments for payroll and related items for our contingent staff and in-house employees ; federal , foreign , state and local taxes ; and trade payables . we generally provide customers with 30 - 45 day credit terms , with few extenuating exceptions to 60 days , while our payroll and certain taxes are paid weekly . we manage our cash flow and related liquidity on a global basis . we fund payroll , taxes and other working capital requirements using cash supplemented as needed from short-term borrowings . our weekly payroll payments inclusive of employment-related taxes and payments to vendors are approximately $ 20.0 million . we generally target minimum global liquidity to be 1.5 to 2.0 times our average weekly requirements . we also maintain minimum effective cash balances in foreign operations and use a multi-currency netting and overdraft facility for our european entities to further minimize overseas cash requirements . we believe our cash flow from operations and planned liquidity will be sufficient to meet our cash needs for the next twelve months . capital allocation in addition to our planned improvements in technology , we have prioritized our capital allocation strategy to strengthen our balance sheet and increase our competitiveness in the marketplace . the timing of these initiatives is highly dependent upon attaining the profitability objectives outlined in our plan and the cash flow resulting from the completion of our liquidity initiatives . we also see this as an opportunity to demonstrate our ongoing commitment to volt shareholders as we continue to execute on our plan and return to sustainable profitability . our capital allocation strategy includes the following elements : maintaining appropriate levels of working capital . our business requires a certain level of cash resources to efficiently execute operations . consistent with similar companies in our industry and operational capabilities , we estimate this amount to be 1.5 to 2.0 times our weekly cash distributions on a global basis and must accommodate seasonality and cyclical trends ; reinvesting in our business . we continue to execute on our company-wide initiative of disciplined reinvestment in our business including new information technology systems which will support our front-end recruitment and placement capabilities as well as increase efficiencies in our back-office financial suite . we are also investing in our sales and recruiting process and resources , which is critical to drive profitable revenue growth ; deleveraging our balance sheet . by lowering our debt level , we will strengthen our balance sheet , reduce interest costs and reduce risk going forward ; returning capital to shareholders . part of our strategy is to return capital to our shareholders when circumstances permit in connection with share buybacks through our existing share buyback program ; and acquiring value-added businesses . potentially in the longer-term , and when circumstances permit , identifying and acquiring companies which would be accretive to our operating income and that could leverage volt 's scale , infrastructure and capabilities . strategic acquisitions could potentially strengthen volt in certain industry verticals or in specific geographic locations . 28 initiatives to improve operating income , cash flows and liquidity we continue to make progress on several initiatives undertaken to enhance our liquidity position and shareholder value . we continue to actively manage our portfolio of business units and have exited both non-core businesses that were incurring losses and core businesses that were marginally profitable . we completed a number of significant divestitures in the latter part of fiscal 2015 and the first quarter of fiscal 2016 , including the sale of our printing and staffing businesses in uruguay , and the sale of substantially all the assets of our telecommunications , infrastructure and security services business . the above transactions netted nominal proceeds , however , we expect these transactions to continue to be accretive to future operating cash flows as we are no longer funding the respective operating losses . we sold and simultaneously entered into a lease on our orange , california property in march 2016 for a purchase price of $ 35.9 million . after the repayment of the mortgage on the property along with transaction-related expenses and fees , we received net cash proceeds of $ 27.1 million from the sale of the property .
| overview we are a global provider of staffing services ( traditional time and materials-based as well as project-based ) , and information technology infrastructure services . our staffing services consist of workforce solutions that include providing contingent workers , personnel recruitment services , and managed staffing services programs supporting primarily light industrial , professional administration , technical , information technology and engineering positions . technology outsourcing services assists with individual customer assignments as well as customer care call centers and gaming industry quality assurance testing services . our managed service programs consist of managing the procurement and on-boarding of contingent workers from multiple providers . our information technology infrastructure services provide server , storage , network and desktop it hardware maintenance , data center and network monitoring and operations . as of october 30 , 2016 , we employed approximately 25,800 people , including 23,400 contingent workers . contingent workers are on our payroll for the length of their assignment . we operate from 100 locations worldwide with approximately 86 % of our revenues generated in the united states . our principal international markets include canada , europe and several asia pacific locations . the industry is highly fragmented and very competitive in all of the markets we serve . 22 recent developments in january 2017 , we amended our financing program with pnc bank , national association ( “ pnc ” ) to extend the termination date from january 31 , 2017 to january 31 , 2018. the amendment also decreases the requirement under the minimum global liquidity covenant to $ 20.0 million , which increases to $ 25.0 million at the earlier of the sale of maintech or receipt of our irs refund , and then to $ 35.0 million after any time at which we pay a dividend or repurchase shares of our stock . the amendment includes a performance covenant requiring a minimum earnings before interest and taxes ( “ ebit ” ) which is measured quarterly .
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with a focus on both land-based and digital gaming operators and players , the company develops entertaining games and gaming machines , gaming systems and services that facilitate memorable player experiences , and is a preeminent and comprehensive provider of financial products and services that offer convenient and secure cash and cashless-based financial transactions , self-service loyalty tools and applications , and intelligence software and other intuitive solutions that improve casino operational efficiencies and fulfill regulatory compliance requirements . everi reports its financial performance , and organizes and manages its operations , across the following two business segments : ( i ) games ; and ( ii ) fintech . everi games provides gaming operators with gaming technology products and services , including : ( i ) gaming machines , primarily comprising class ii and class iii slot machines placed under participation or fixed-fee lease arrangements or sold to casino customers ; ( ii ) providing and maintaining the central determinant systems for the video lottery terminals ( “ vlts ” ) installed in the state of new york and similar technology in certain tribal jurisdictions ; ( iii ) business-to-business ( “ b2b ” ) and business-to-consumer ( “ b2c ” ) digital online gaming activities . everi fintech provides gaming operators with financial technology products and services , including : ( i ) services and equipment that facilitate casino patron 's self-service access to cash and cashless funding at gaming facilities via automated teller machine ( “ atm ” ) debit withdrawals , credit card cash access transactions and pos debit card purchase cash access transactions ; ( ii ) check warranty services ; ( iii ) self-service loyalty enrollment and marketing equipment , including promotion management software and tools ; ( iv ) software and services that improve credit decision making , automate cashier operations , and enhance patron marketing activities for gaming establishments ; ( v ) equipment that provides cash access and other cash handling efficiency-related services ; and ( vi ) compliance , audit , and data solutions . impact of covid-19 pandemic overall the covid-19 pandemic has negatively impacted the global economy , disrupted global supply chains , temporarily lowered equity market valuations , created significant volatility in the financial markets , increased unemployment levels , caused temporary , and in certain cases , closures of many businesses . the gaming industry was not immune to these factors as our casino customers closed their gaming establishments , and as a result , our operations experienced significant disruptions . at the immediate onset of the covid-19 pandemic , we were affected by various measures , including , but not limited to : the institution of social distancing and sheltering-in-place requirements in many states and communities , which significantly impacted demand for our products and services , and resulted in office closures , the furlough of a majority of our employees , the implementation of temporary base salary reductions for our employees and the implementation of a work-from-home policy . in connection with the uncertainty facing our customers as a result of covid-19 , we evaluated our business strategies in the second quarter of 2020 and implemented measures to reduce our ongoing operating costs . as a result of this evaluation , we permanently reduced our employee base , with most of the departures resulting from our furloughed employees , to accommodate the current and future operating needs of our customers and our business . as the industry continues to evolve and recover from the impacts of the global pandemic , we will continue to evaluate our capabilities to support current and future business needs and adapt accordingly . 36 during the second quarter of 2020 , businesses began to adapt to social-distancing measures and various phases of reopening pursuant to government-mandated guidelines . as our gaming customers reopened , a number of their properties initially experienced an elevated level of activity as compared to what was originally anticipated . the revenues generated by this initial pent-up demand flattened to slightly below pre-covid levels as more casinos reopened through the second quarter of 2020. revenues improved further throughout the third and fourth quarter of 2020 , though they remained below pre-covid levels . with a majority of our gaming customers reopening properties by the end of september 2020 , and our activity rates and results continuing to improve through the third and fourth quarter , we have , among other measures : ( i ) returned nearly all of our furloughed employees to work on primarily a work-from-home basis ; ( ii ) reinstated base compensation to pre-covid levels for the employee base ; ( iii ) reversed nearly all compensation reductions for both our executives and directors ; and ( iv ) fully paid down the outstanding balance on our revolving line of credit . it is unclear when and if customer volumes will return consistently to pre-covid levels , if a resurgence of covid-19 could result in the further or re-closure of casinos by federal , state , tribal or municipal governments , regulatory agencies , or by the casino operators themselves in an effort to contain the covid-19 global pandemic or mitigate its impact and the impact of vaccines on these matters ; however , we continue to monitor the impacts of covid-19 and make adjustments to our business accordingly . the impact of the covid-19 pandemic exacerbates the risks disclosed in this annual report . results of operations and liquidity to date , our operations have experienced revenue reductions and significant disruptions as a direct consequence of the circumstances surrounding the covid-19 pandemic . story_separator_special_tag with respect to our financial condition , at the onset of the covid-19 pandemic , there were varying levels of impact to certain components of net working capital balances , including , but not limited to certain of our : ( i ) trade accounts receivable that increased in age as numerous customers delayed payments on certain outstanding balances ; ( ii ) settlement receivables and settlement liabilities that decreased as these amounts fully settled for those customers who temporarily closed their casinos and that have not returned to pre-covid total volume levels ; ( iii ) finished goods inventory that increased as certain planned placements of our egms into the installed based or sold directly to our customers were either delayed or canceled by those customers ; and ( iv ) accounts payable and accrued liabilities that increased as we made the decision to defer payments to preserve our available cash on hand . beginning in the second quarter of 2020 , and continuing through the third and fourth quarters of 2020 , we experienced an improvement in various components of net working capital associated with casino properties reopening that contributed to the increase in our cash and cash equivalents during those periods , as they are highly dependent upon the timing of cash access transactions ; therefore , cash and cash equivalents can change substantially based upon the timing of our receipt of payments for settlement receivables and payments we make to customers for our settlement liabilities . to the extent our gaming customers continue to recover , we expect our results of operations and financial condition to continue to improve in 2021. to date , we have not experienced significant impacts on our supply chain as a result of the pandemic ; however , given the dynamic nature of the global situation , this could change . 38 liquidity as of december 31 , 2020 , our cash and cash equivalents were approximately $ 251.7 million , a decrease of $ 38.2 million from $ 289.9 million at december 31 , 2019 ; and our net cash position , a non-gaap measure ( as discussed and defined in item 7 , “ management 's discussion and analysis of financial condition and results of operations — liquidity and capital resources ” section below ) , was approximately $ 139.1 million , an increase of $ 13 million from $ 126.1 million at december 31 , 2019. we implemented measures at the onset of the pandemic to prepare us to withstand what could have been a prolonged period of industry inactivity , though industry , conditions improved after casino properties reopened in the second , third and fourth quarters of 2020. our revenues , cash flows , and liquidity improved more during the third and fourth quarter of 2020 compared with the second quarter of 2020 on a sequential basis . given the significant number of casino properties that have reopened through september 2020 , our customers implemented protocols intended to protect their patrons and guests from potential covid-19 exposure and re-establish customer confidence in the gaming and hospitality industry . these measures , which may include enhanced sanitization , public gathering limitations of casino capacity , patron social distancing requirements , limitations on casino operations , face mask and temperature check requirements , as well as the closure of certain common attractions such as restaurants , bars and other food and beverage outlets , table games , spas , and pools , have limited the number of patrons that are able or who desire to attend these venues and have impacted the pace at which demand for our products and services rebounds . we expect that demand for our products and services will continue to be tempered to the extent gaming activity decreases or fails to increase at expected rates and to the extent our customers determine to restrict their capital spending as a result of uncertainty in the industry or otherwise . as a result , we expect revenues to remain below pre-covid levels in the near term and we will continue to monitor and manage liquidity levels and we may , from time to time , evaluate available capital resource alternatives on acceptable terms to provide additional financial flexibility . government relief in late march 2020 , the u.s. government enacted the coronavirus aid relief and economic security act ( the “ cares act ” ) in response to the covid-19 pandemic . we have taken advantage of the following components contained within the cares act : employee retention payroll tax credit : we are applying a credit against payroll taxes for 50 % of eligible employee wages paid or incurred from march 13 , 2020 to december 31 , 2020. this employee retention payroll tax credit would be provided for as much as $ 10,000 of qualifying wages for each eligible employee , including health benefits ; employer social security tax payment deferral : we are deferring payment of the employer portion of the social security taxes due on remaining payments and from enactment of the cares act through december 31 , 2020 , with 50 % due by december 31 , 2021 and 50 % due by december 31 , 2022 ; and alternative minimum tax ( “ amt ” ) credit refund : we applied for and received a refund of our amt tax credits as the cares act afforded us the ability to accelerate the recovery of such credits . additional items impacting comparability of results of operations our financial statements included in this report reflect the following transactions and events , exclusive of the impact of covid-19 : during the first quarter of 2020 , we completed a partial redemption payment of approximately $ 84.5 million of aggregate principal with respect to the 7.50 % senior unsecured notes due 2025 previously issued in december 2017 ( the “ 2017 unsecured notes ” ) and an open market repurchase of approximately $ 5.1 million of aggregate principal with respect to the 2017 unsecured notes .
| results of operations year ended december 31 , 2020 compared to the year ended december 31 , 2019 the following table presents our results of operations as reported for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 ( amounts in thousands ) * : replace_table_token_1_th * rounding may cause variances . ( 1 ) exclusive of depreciation and amortization . 41 replace_table_token_2_th * rounding may cause variances . total revenues total revenues decreased by approximately $ 149.6 million , or 28 % , to approximately $ 383.7 million for the year ended december 31 , 2020 , as compared to the prior year period . this was primarily due to the impact of covid-19 and the closure of many casino properties for a portion of the period . games revenues decreased by approximately $ 82.8 million , or 29 % , to approximately $ 200.3 million for the year ended december 31 , 2020 , as compared to the prior year period . we had : ( i ) a decline in the sale of gaming machines included in our gaming equipment and systems revenues ; and ( ii ) a d ecrease in the average daily win per unit as a result of units being deactivated for a prolonged period of time on a higher installed base of leased games largely reflecting greater demand for our premium units included in our gaming operations revenues . fintech revenues decreased by approximately $ 66.7 million , or 27 % , to approximately $ 183.4 million for the year ended december 31 , 2020 , as compared to the prior year period . we had : ( i ) a decline in the dollar and transaction volumes included in our cash access services revenues ; and ( ii ) a decrease in the sale of full service kiosks , partially offset by an increase in our loyalty kiosks included in our equipment revenues .
| 6,778 |
the 2008 plan is administered by the board of directors who determine the type of award , exercise price of options , the number of options to be issued , and the vesting period . as specified in the 2008 plan , the exercise price per story_separator_special_tag overview we are a leading provider of technology-enabled transportation and supply chain management solutions . we utilize a proprietary technology platform to compile and analyze data from our multi-modal network of transportation providers to satisfy the transportation and logistics needs of our clients . this model enables us to quickly adapt to and offer efficient and cost-effective solutions for our clients ' shipping needs . we focus primarily on arranging transportation by tl and ltl carriers . we also offer intermodal ( which involves moving a shipment by rail and truck ) , small parcel , domestic air , expedited and international transportation services . our core logistics services include rate negotiation , shipment execution and tracking , carrier management , routing compliance and performance management reporting . we procure transportation and provide logistics services for clients across a wide range of industries , such as manufacturing , construction , consumer products and retail . our clients fall into two categories , enterprise and transactional . we typically enter into multi-year contracts with our enterprise clients , which are often on an exclusive basis for a specific transportation mode or point of origin . as part of our value proposition , we also provide core logistics services to these clients . we provide transportation and logistics services to our transactional clients on a shipment-by-shipment basis , typically with individual , or spot market , pricing . 20 results of operations the following table represents certain statement of income data : replace_table_token_5_th 21 revenue we generate revenue through the sale of transportation and logistics services to our clients . revenue is recognized when the client 's product is delivered by a third-party carrier . our revenue was $ 1,173.4 million , $ 884.2 million and $ 757.7 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively , reflecting growth rates of 33 % and 17 % in 2014 and 2013 , respectively , compared to the corresponding prior year . our revenue is generated from two different types of clients : enterprise and transactional . our enterprise accounts typically generate higher dollar amounts and volume than our transactional relationships . we categorize a client as an enterprise client if we have a contract with the client for the provision of services on a recurring basis . our contracts with enterprise clients typically have a multi-year term and are often exclusive for a certain transportation mode or point of origin . in several cases , we provide substantially all of a client 's transportation and logistics requirements . we categorize all other clients as transactional clients . we provide services to our transactional clients on a shipment-by-shipment basis . as of december 31 , 2014 , we had 260 enterprise clients , an increase of 31 clients as compared to december 31 , 2013 . for the years ended december 31 , 2014 , 2013 and 2012 , enterprise clients accounted for 26 % , 30 % and 30 % of our revenue , respectively , and transactional clients accounted for 74 % , 70 % and 70 % of our revenue , respectively . we expect to continue to expand both our enterprise and transactional client base in the future , although the rate of growth for each type of client will vary depending on opportunities in the marketplace . revenue recognized per shipment will vary depending on the transportation mode , fuel prices , shipment weight , density and mileage of the product shipped . the primary modes of shipment that we transact in are tl , ltl , intermodal and small parcel . other transportation modes include domestic air , expedited services and international . typically , our revenue per shipment is lower for an ltl shipment than for a tl or intermodal shipment . material shifts in the percentage of our revenue by transportation mode could have a significant impact on our revenue growth . in 2014 , tl accounted for 53 % of our revenue , ltl accounted for 37 % of our revenue , intermodal accounted for 6 % of our revenue , small parcel accounted for 3 % of our revenue and other transportation accounted for 1 % of our revenue . the transportation industry has historically been subject to seasonal sales fluctuations as shipments generally are lower during and after the winter holiday season because many companies ship goods and stock inventories prior to the winter holiday season . while we experience some seasonality , differences in our revenue between periods have been driven primarily by growth in our client base . transportation costs and net revenue we act primarily as a service provider to add value and expertise in the procurement and execution of transportation and logistics services for our clients . our pricing structure is primarily variable , although we have entered into a limited number of fixed fee arrangements that represent an insignificant portion of our revenue . net revenue equals revenue minus transportation costs . our transportation costs consist primarily of the direct cost of transportation paid to the carrier . net revenue is the primary indicator of our ability to add value to our clients and is considered by management to be an important measurement of our success in the marketplace . our transportation costs are typically lower for an ltl shipment than for a tl shipment . our net revenue margin is typically higher for an ltl shipment than for a tl shipment . material shifts in the percentage of our revenue by transportation mode , including small parcel , could have a significant impact on our net revenue . the discussion of our results of operations below focuses on changes in our net revenue and expenses as a percentage of net revenue . story_separator_special_tag 23 accounts receivable and allowance for doubtful accounts accounts receivable are uncollateralized customer obligations due under normal trade terms . invoices require payment within 30 to 90 days from the invoice date . accounts receivable are stated at the amount billed to the customer . customer account balances with invoices past due 90 days are considered delinquent . we generally do not charge interest on past due amounts . the carrying amount of accounts receivable is reduced by an allowance for doubtful accounts that reflects management 's best estimate of amounts that will not be collected . the allowance is based on historical loss experience and any specific risks identified in client collection matters . accounts receivable are charged off against the allowance for doubtful accounts when it is determined that the receivable is uncollectible . goodwill and other intangibles goodwill represents the excess of consideration transferred over the value assigned to the net tangible and identifiable intangible assets of businesses acquired . in accordance with asc topic 350 intangibles - goodwill and other : testing goodwill for impairment , goodwill is not amortized , but instead is tested for impairment annually , or more frequently if circumstances indicate a possible impairment may exist . in september 2011 , the fasb approved asu no . 2011-08 , “ intangibles-goodwill and other : testing goodwill for impairment . '' for goodwill impairment test purposes , the company is considered one reporting unit . the fair value for the implied goodwill is determined based on the difference between the fair value of the reporting unit and the net fair values of the identifiable assets and liabilities excluding goodwill . if the implied fair value of the goodwill is less than the carrying value , the difference is recognized as an impairment charge . absent any special circumstances that could require an interim test , we have elected to test for goodwill impairment during the fourth quarter of each year . asc topic 350 also requires that intangible assets with finite lives be amortized over their respective estimated useful lives and reviewed for impairment whenever impairment indicators exist in accordance with asc topic 360 property , plant and equipment . our intangible assets consist of customer relationships , noncompete agreements and trade names , which are being amortized on an accelerated basis over their estimated weighted-average useful lives of 10.1 years , 4.2 years and 4.4 years , respectively . stock-based compensation we account for stock-based compensation in accordance with asc topic 718 compensation - stock compensation which requires all share-based payments to employees , including grants of stock options , to be recognized in the income statement based upon their fair values . share-based employee compensation costs are recognized as a component of selling , general and administrative expense in the consolidated statements of income . for more information related to our stock-based compensation programs , see `` note 14—stock-based compensation plans '' for a description of our accounting for stock-based compensation plans . income taxes we account for income taxes in accordance with asc topic 740 income taxes , under which deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying values of assets and liabilities and their respective tax bases . a valuation allowance is established to reduce the carrying value of deferred tax assets if it is considered more likely than not that such assets will not be realized . any change in the valuation allowance would be charged to income in the period such determination was made . we recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon settlement . comparison of years ended december 31 , 2014 and 2013 revenue our revenue increased by $ 289.2 million , or 32.7 % , to $ 1,173.4 million in 2014 from $ 884.2 million in 2013 . the increase was attributable to the increase in the number of our clients , and the total number of shipments executed on behalf of , and services provided to , these clients . included in this increase was $ 119.9 million of additional revenue generated in 2014 from the acquisitions of online freight services , inc. ( `` ofs '' ) , comcar logistics , llc ( `` comcar '' ) and one stop logistics , inc. ( `` one stop '' ) . 24 our revenue from enterprise clients increased by $ 34.5 million , or 12.9 % , to $ 302.1 million in 2014 from $ 267.6 million in 2013 , resulting from increases in the number of enterprise clients , shipments executed on behalf of these clients and transportation rates . in 2014 , 26 % of our revenue was generated from enterprise clients , a decrease from 30 % of revenue from enterprise clients in 2013 . this percentage decreased because of the significant growth in transactional revenue discussed below . as of december 31 , 2014 , we had 260 enterprise clients under contract , an increase of 31 compared to 229 enterprise clients under contract as of december 31 , 2013 . our revenue from transactional clients increased by $ 254.7 million , or 41.3 % , to $ 871.3 million in 2014 from $ 616.6 million in 2013 . our percentage of revenue from transactional clients was 74 % in 2014 , an increase from 70 % in 2013 . the increase in transactional revenue was driven by increases in both the number and productivity of sales employees as well as by the acquisitions of ofs , comcar and one stop . our revenue per transactional client increased by approximately 18.9 % from 2013 to 2014 .
| quarterly results of operations the following table represents our unaudited statement of operations data for our most recent eight fiscal quarters . you should read the following table in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. the results of operations of any quarter are not necessarily indicative of the results that may be expected for any future period . replace_table_token_6_th liquidity and capital resources as of december 31 , 2014 , we had $ 32.5 million in cash and cash equivalents , $ 58.4 million in working capital and $ 35.5 million available under our credit facility , which expires on may 2 , 2017. cash provided by operating activities for the year ended december 31 , 2014 , $ 32.4 million of cash was provided by operating activities . this was an increase compared to $ 24.8 million and $ 22.8 million of cash provided by operating activities for the years ended december 31 , 2013 and 2012 , respectively . in 2014 , we generated $ 38.0 million in cash from net income , adjusted for non-cash operating items , an increase from $ 28.8 million in 2013 and $ 25.4 million in 2012 . the cash generated from net income was offset by changes to working capital , primarily related to increases in accounts receivable , accounts payable and accrued expenses resulting from the growth of our business . cash used in investing activities cash used in investing activities was $ 48.9 million , $ 11.2 million and $ 25.3 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . in 2014 , we used $ 33.8 million in cash , net of cash acquired , to acquire ofs , comcar and 28 one stop .
| 6,779 |
ross is the largest off-price apparel and home fashion chain in the united states with 1,409 locations in 37 states , the district of columbia , and guam , as of february 3 , 2018 . ross offers first-quality , in-season , name brand and designer apparel , accessories , footwear , and home fashions for the entire family at savings of 20 % to 60 % off department and specialty store regular prices every day . we also operate 213 dd 's discounts stores in 16 states as of february 3 , 2018 that feature a more moderately-priced assortment of first-quality , in-season , name brand apparel , accessories , footwear , and home fashions for the entire family at savings of 20 % to 70 % off moderate department and discount store regular prices every day . our primary objective is to pursue and refine our existing off-price strategies to maintain and improve both profitability and financial returns over the long term . in establishing appropriate growth targets for our business , we closely monitor market share trends for the off-price industry and believe our share gains over the past few years were driven mainly by continued focus on value by consumers . our sales and earnings gains in 2017 continued to benefit from efficient execution of our off-price model throughout all areas of our business . our merchandise and operational strategies are designed to take advantage of the expanding market share of the off-price industry as well as the ongoing customer demand for name brand fashions for the family and home at compelling discounts every day . we refer to our fiscal years ended february 3 , 2018 , january 28 , 2017 , and january 30 , 2016 as fiscal 2017 , fiscal 2016 , and fiscal 2015 , respectively . fiscal 2017 was a 53-week year . fiscal 2016 and 2015 were each 52-week years . story_separator_special_tag of $ 24.9 million . we recorded an additional tax benefit of $ 55.2 million due to the remeasurement of our deferred tax assets and liabilities . both of these tax benefits were recorded in the fourth quarter of fiscal 2017. also on december 22 , 2017 , the sec staff issued staff accounting bulletin 118 , income tax accounting implications of the tax cuts and jobs act ( “ sab 118 ” ) , which provides guidance on accounting for the impact of the tax act . as permitted by sab 118 , both of the tax benefits recorded by us in fiscal 2017 , represent provisional amounts based on our current best estimates . any adjustments made to those provisional amounts will be included in income from operations and recorded as an adjustment to tax expense through the fiscal year ending february 2 , 2019. the recorded , provisional amounts reflect assumptions made based upon our current interpretation of the tax act , and may change as we receive additional clarification and guidance in the form of technical corrections to the tax act or regulations issued by the u.s. treasury . net earnings . net earnings as a percentage of sales for fiscal 2017 were higher than in fiscal 2016 primarily due to lower taxes due to tax reform , lower cost of goods sold , and lower sg & a expenses . net earnings as a percentage of sales for fiscal 2016 were higher compared to fiscal 2015 primarily due to lower cost of goods sold , partially offset by higher sg & a expenses . 24 earnings per share . diluted earnings per share in fiscal 2017 was $ 3.55 compared to $ 2.83 in the prior year , which includes a per share benefit of approximately $ 0.21 from the recently enacted tax reform legislation and $ 0.10 from the 53rd week . the 25 % increase in diluted earnings per share is attributable to an increase of approximately 22 % in net earnings ( which included a 7 % impact from tax reform and a 4 % impact from the 53rd week ) and a 3 % reduction in weighted average diluted shares outstanding , largely due to the repurchase of common stock under our stock repurchase program . diluted earnings per share in fiscal 2016 was $ 2.83 compared to $ 2.51 in fiscal 2015 . the 13 % increase in diluted earnings per share is attributable to an increase of approximately 10 % in net earnings and a 3 % reduction in weighted average diluted shares outstanding , largely due to the repurchase of common stock under our stock repurchase program . financial condition liquidity and capital resources our primary sources of funds for our business activities are cash flows from operations and short-term trade credit . our primary ongoing cash requirements are for merchandise inventory purchases , payroll , rent , taxes , and capital expenditures in connection with new and existing stores , and investments in distribution centers , information systems , and buying and corporate offices . we also use cash to repurchase stock under our stock repurchase program and to pay dividends , and for the repayment of debt as it becomes due . replace_table_token_8_th operating activities net cash provided by operating activities was $ 1,681.3 million , $ 1,558.9 million , and $ 1,326.2 million in fiscal 2017 , 2016 , and 2015 , respectively , and was primarily driven by net earnings excluding non-cash expenses for depreciation and amortization and for deferred taxes . our primary source of operating cash flow is the sale of our merchandise inventory . we regularly review the age and condition of our merchandise and are able to maintain current merchandise inventory in our stores through replenishment processes and liquidation of slower-moving merchandise through clearance markdowns . the increase in cash flow from operating activities in 2017 compared to fiscal 2016 was primarily driven by higher earnings , partially offset by the timing of merchandise receipts and related payments versus last year and by the timing of income tax payments . story_separator_special_tag we regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade credit , bank lines , and other credit sources to meet our capital and liquidity requirements , including lease payment obligations , in 2018 . our existing $ 600 million unsecured revolving credit facility expires in april 2021 and contains a $ 300 million sublimit for issuance of standby letters of credit ( subject to increase in proportion to any increase in the size of the credit facility ) . the facility also contains an option allowing us to increase the size of our revolving credit facility by up to an additional $ 200 million , with the agreement of the lenders . interest on any borrowings under this facility is based on libor plus an applicable margin ( currently 100 basis points ) and is payable quarterly and upon maturity . as of february 3 , 2018 , we had no borrowings or standby letters of credit outstanding on this facility and our $ 600 million credit facility remains in place and available . the revolving credit facility is subject to a financial leverage ratio covenant . as of february 3 , 2018 , we were in compliance with this covenant . we estimate that existing cash balances , cash flows from operations , bank credit lines , and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments , repayment of debt , common stock repurchases , and quarterly dividend payments for at least the next twelve months . contractual obligations the table below presents our significant contractual obligations as of february 3 , 2018 : replace_table_token_10_th 1 we have a $ 120.7 million liability for unrecognized tax benefits that is included in other long-term liabilities on our consolidated balance sheets . this liability is excluded from the schedule above as the timing of payments can not be reasonably estimated . ²our new york buying office building is subject to a 99-year ground lease . senior notes . as of february 3 , 2018 , we had outstanding unsecured 3.375 % senior notes due september 2024 with an aggregate principal amount of $ 250 million . interest on the 2024 notes is payable semi-annually . as of february 3 , 2018 , we also had outstanding two series of unsecured senior notes in the aggregate principal amount of $ 150 million , held by various institutional investors . the series a notes totaling $ 85 million are due in december 2018 and bear interest at a rate of 6.38 % . the series b notes totaling $ 65 million are due in december 2021 and bear interest at a rate of 6.53 % . borrowings under these senior notes are subject to certain financial covenants , including interest coverage and other financial ratios . as of february 3 , 2018 , we were in compliance with those covenants . the 2024 notes , series a , and series b senior notes are all subject to prepayment penalties for early payment of principal . 27 off-balance sheet arrangements operating leases . we currently lease all but two of our store locations . we also lease three warehouse facilities and two buying offices . in addition , we have a ground lease related to our new york buying office . except for certain leasehold improvements and equipment , these leased locations do not represent long-term capital investments . two of the warehouses are in carlisle , pennsylvania with leases expiring in 2018 and 2019 . the third warehouse is in fort mill , south carolina , with a lease expiring in 2024 . all of the warehouse leases contain renewal provisions . we currently lease approximately 87,000 and 5,000 square feet of office space for our los angeles and boston buying offices , respectively . the lease terms for these facilities expire in 2022 and 2020 , respectively , and contain renewal provisions . purchase obligations . as of february 3 , 2018 we had purchase obligations of approximately $ 2.7 billion . these purchase obligations primarily consist of merchandise inventory purchase orders , commitments related to construction projects , store fixtures and supplies , and information technology service , transportation , and maintenance contracts . standby letters of credit and collateral trust . we use standby letters of credit outside of our revolving credit facility in addition to a funded trust to collateralize our insurance obligations . as of february 3 , 2018 and january 28 , 2017 , we had $ 8.7 million and $ 11.6 million , respectively , in standby letters of credit outstanding and $ 57.1 million and $ 56.6 million , respectively , in a collateral trust . the standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash , cash equivalents , and investments . trade letters of credit . we had $ 20.7 million and $ 26.5 million in trade letters of credit outstanding at february 3 , 2018 and january 28 , 2017 , respectively . effects of inflation or deflation . we do not consider the effects of inflation or deflation to be material to our financial position and results of operations . other critical accounting policies the preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts . these estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that management believes to be reasonable . we believe the following critical accounting policies describe the more significant judgments and estimates used in the preparation of our consolidated financial statements and 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 ( “ gaap ” ) , with no need for management 's judgment in their application .
| results of operations the following table summarizes the financial results for fiscal 2017 , 2016 , and 2015 : replace_table_token_4_th 22 stores . total stores open at the end of fiscal 2017 , 2016 , and 2015 were 1,622 , 1,533 , and 1,446 , respectively . the number of stores at the end of fiscal 2017 , 2016 , and 2015 increased by 6 % , 6 % , and 6 % from the respective prior years . our expansion strategy is to open additional stores based on market penetration , local demographic characteristics , competition , expected store profitability , and the ability to leverage overhead expenses . we continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations . we also evaluate our current store locations and determine store closures based on similar criteria . replace_table_token_5_th sales . sales for fiscal 2017 increased $ 1.3 billion , or 9.9 % , compared to the prior year due to the opening of 89 net new stores during 2017 , a 4 % increase in comparable store sales ( defined as stores that have been open for more than 14 complete months ) , and the impact of the 53rd week . sales for fiscal 2016 increased $ 0.9 billion , or 7.8 % , compared to the prior year due to the opening of 87 net new stores during 2016 and a 4 % increase in sales from comparable stores . our sales mix is shown below for fiscal 2017 , 2016 , and 2015 : replace_table_token_6_th we intend to address the competitive climate for off-price apparel and home goods by pursuing and refining our existing strategies and by continuing to strengthen our organization , diversify our merchandise mix , and more fully develop our systems to improve regional and local merchandise offerings .
| 6,780 |
we plan to maintain our focus on revenue growth with a continued appreciation for the development of quality client relationships . within our private client business , our efforts will be focused on recruiting experienced financial advisors with established client relationships . within our capital markets business , our focus continues to be on providing quality client management and product diversification . in executing our growth strategy , we will continue to seek out opportunities that allow us to take advantage of the consolidation among middle-market firms , whereby allowing us to increase market share in our private client and institutional group businesses . stifel financial corp. , through its wholly owned subsidiaries , principally stifel , stifel bank , snel , csa , kbw , oriel , miller buckfire , de la rosa , 1919 investment counsel , 1919 , and zcm , is principally engaged in retail brokerage ; securities trading ; investment banking ; investment advisory ; retail , consumer , and commercial banking ; and related financial services . we have offices throughout the united states and in several european cities . our principal customers are individual investors , corporations , municipalities , and institutions . we plan to maintain our focus on revenue growth with a continued focus on developing quality relationships with our clients . within our private client business , our efforts will be focused on recruiting experienced financial advisors with established client relationships . within our institutional group business , our focus continues to be on providing quality client management and product diversification . in executing our growth strategy , we take advantage of the consolidation among middle-market firms , which we believe provides us opportunities in our global wealth management and institutional group businesses . our ability to attract and retain highly skilled and productive employees is critical to the success of our business . accordingly , compensation and benefits comprise the largest component of our expenses , and our performance is dependent upon our ability to attract , develop , and retain highly skilled employees who are motivated and committed to providing the highest quality of service and guidance to our clients . on april 3 , 2014 , we completed the acquisition of de la rosa , a california-based public finance investment banking boutique . the addition of the de la rosa team is expected to further strengthen our company 's position in a number of key underwriting markets in california . on july 31 , 2014 we completed the acquisition of oriel , a london-based stockbroking and investment banking firm . the combination of our company and oriel brought together more than 250 professionals , which created a significant middle-market investment banking group in london , with broad research coverage across most sectors of the economy , equity and debt sales and trading , and investment banking services . 36 on november 7 , 2014 , we completed the acquisition of 1919 investment counsel and 1919 , an asset management and trust company that provides customized investment advisory and trust services , on a discretionary basis , to individuals , families , and institutions throughout the country . on december 31 , 2014 , we acquired merchant , a public finance investment banking firm headquartered in montgomery , alabama , which serves the southeastern market . the strategic combination of stifel and merchant is expected to further strengthen our company 's position in several key underwriting markets in the southeast . on january 15 , 2015 ( the redemption date ) , we redeemed 100 % of our company 's outstanding 6.70 % senior notes due 2022. the redemption price was equal to the sum of the principal amount of the notes outstanding and accrued and unpaid interest on the notes up to , but not including , the redemption date . on february 23 , 2015 , we entered into a definitive agreement to acquire sterne agee group , inc. ( sterne agee ) , a financial services firm that offers comprehensive wealth management and investment services to a diverse client base , including corporations , municipalities , and individual investors . the transaction values sterne agee at approximately $ 150.0 million . the closing consideration will consist of a combination of our company 's common stock and cash . depending on shareholder elections , the minimum amount of our company 's common stock issued at closing is 1.42 million shares and the maximum amount issued is 1.62 million shares . accordingly , the cash consideration will range from approximately $ 77.0 million to $ 66.0 million . the merger is subject to approval by sterne agee shareholders and is subject to regulatory approvals and customary conditions . the merger is expected to close during the second quarter of 2015. on february 23 , 2015 , we entered into a definitive agreement to acquire sterne agee group , inc. ( sterne agee ) , a financial services firm that offers comprehensive wealth management and investment services to a diverse client base including corporations , municipalities and individual investors . the consideration received by sterne agee shareholders will consist of a combination of our company 's common stock , valued at $ 51.55 per share , and cash , and is subject to adjustments for tangible book value and an indemnity earn-out relating to various indemnification obligations of the equityholders . giving effect to those adjustments and the earn-out , the value of the merger consideration to be received by the sterne agee equityholders is expected to be approximately $ 150.0 million . sterne agee equityholders will make stock/cash elections that will determine the final mix of consideration . depending on those elections , we will issue at the closing of the merger between a minimum of 1.42 million shares and a maximum of 1.62 million shares . story_separator_special_tag see asset management and service fees in the global wealth management segment discussion for information on the changes in asset management and service fees revenues . other income for the year ended december 31 , 2013 , other income decreased 6.5 % to $ 64.7 million from $ 69.1 million in 2012. other income includes investment gains/ ( losses ) on our private equity investments , recognized gain on the acquisition of acacia federal , and loan originations fees from stifel bank . 41 net interest income the following tables present average balance data and operating interest revenue and expense data , as well as related interest yields for the periods indicated ( in thousands , except rates ) : replace_table_token_6_th * see distribution of assets , liabilities , and shareholders ' equity ; interest rates and interest rate differential table included in results of operations global wealth management for additional information on stifel bank 's average balances and interest income and expense . year ended december 31 , 2014 compared with year ended december 31 , 2013 net interest income net interest income is the difference between interest earned on interest-earning assets and interest paid on funding sources . net interest income is affected by changes in the volume and mix of these assets and liabilities , as well as by fluctuations in interest rates and portfolio management strategies . for the year ended december 31 , 2014 , net interest income increased 50.5 % to $ 144.7 million from $ 96.2 million in 2013. for the year ended december 31 , 2014 , interest revenue increased 30.5 % to $ 186.0 million from $ 142.5 million in 2013 , principally as a result of a $ 41.7 million increase in interest revenue generated from the growth in interest-earning assets of stifel bank . the average interest-earning assets of stifel bank increased to $ 4.9 billion during the year ended december 31 , 2014 , compared to $ 4.2 billion during 2013 at average interest rates of 2.91 % and 2.42 % , respectively . for the year ended december 31 , 2014 , interest expense decreased 11.0 % to $ 41.3 million from $ 46.4 million in 2013. the decrease is primarily attributable to a decline in interest expense paid on the interest-bearing liabilities of stifel bank and the payoff of our non-recourse debt during the fourth quarter of 2013 , partially offset by the interest expense associated with our july 2014 issuance of $ 300.0 million of 4.250 % senior notes . year ended december 31 , 2013 compared with year ended december 31 , 2012 net interest income for the year ended december 31 , 2013 , net interest income increased 27.7 % to $ 96.2 million from $ 75.3 million in 2012. for the year ended december 31 , 2013 , interest revenue increased 31.1 % to $ 142.5 million from $ 108.7 million in 2012 , principally as a result of a $ 26.6 million increase in revenue generated from the growth in interest-earning assets of stifel bank . the average interest-earning assets of stifel bank increased to $ 4.2 billion during the year ended december 31 , 2013 , compared to $ 2.9 billion in 2012 at average interest rates of 2.42 % and 2.60 % , respectively . 42 for the year ended december 31 , 2013 , interest expense increased 39.0 % to $ 46.4 million from $ 33.4 million in 2012. the increase is primarily attributable to the interest expense associated with our december 2012 issuance of $ 150.0 million of 5.375 % senior notes . non-interest expenses the following table presents consolidated non-interest expenses for the periods indicated ( in thousands , except percentages ) : replace_table_token_7_th year ended december 31 , 2014 compared with year ended december 31 , 2013 except as noted in the following discussion of variances , the underlying reasons for the increase in non-interest expenses can be attributed principally to our continued expansion , both organically and through our acquisitions , and increased administrative overhead to support the growth in our segments . compensation and benefits compensation and benefits expenses , which are the largest component of our expenses , include salaries , bonuses , transition pay , benefits , amortization of stock-based compensation , employment taxes , and other employee-related costs . a significant portion of compensation expense is comprised of production-based variable compensation , including discretionary bonuses , which fluctuates in proportion to the level of business activity , increasing with higher revenues and operating profits . other compensation costs , including base salaries , stock-based compensation amortization , and benefits , are more fixed in nature . for the year ended december 31 , 2014 , compensation and benefits expense increased 7.1 % to $ 1.40 billion from $ 1.31 billion in 2013. the increase is principally due to the following : 1 ) increased variable compensation as a result of increased revenue production and profitability ; 2 ) an increase in fixed compensation for the additional administrative support staff ; and 3 ) increased headcount . compensation and benefits expense for the year ended december 31 , 2014 , includes a non-cash charge of $ 17.9 million ( pre-tax ) related to the expensing of certain restricted stock awards granted to employees of oriel and 1919 investment counsel at the respective closing dates of those acquisitions . there were no continuing service requirements associated with these restricted stock awards , and accordingly , they were expensed on the date of grant .
| results of operations the following table presents consolidated financial information for the periods indicated ( in thousands , except percentages ) : replace_table_token_4_th * percentage not meaningful . 39 net revenues the following table presents consolidated net revenues for the periods indicated ( in thousands , except percentages ) : replace_table_token_5_th year ended december 31 , 2014 compared with year ended december 31 , 2013 except as noted in the following discussion of variances , the underlying reasons for the increase in revenue can be attributed principally to the increased number of private client group offices and financial advisors in our global wealth management segment and the increased number of revenue producers in our institutional group segment , and the acquisitions of de la rosa on april 3 , 2014 , oriel on july 31 , 2014 , and 1919 investment counsel on november 7 , 2014. the results of operations for de la rosa , oriel , and 1919 investment counsel are included in our results prospectively from the date of their respective acquisitions . commissions commission revenues are primarily generated from agency transactions in otc and listed equity securities , insurance products , and options . in addition , commission revenues also include distribution fees for promoting and distributing mutual funds . for the year ended december 31 , 2014 , commission revenues increased 5.3 % to $ 674.4 million from $ 640.3 million in 2013. the increase is primarily attributable to an increase in mutual fund and equity transactions . principal transactions for the year ended december 31 , 2014 , principal transactions revenues increased 0.2 % to $ 409.8 million from $ 409.0 million in 2013. the increase from 2013 is primarily attributable to higher institutional brokerage revenues as a result of higher volumes .
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intangible assets , net were as follows ( in thousands ) : replace_table_token_19_th replace_table_token_20_th 74 based on the carrying value of intangible assets , net as of december 31 , 2016 , the annual amortization expense for intangible assets , net is expected to be as follows ( in thousands ) : replace_table_token_21_th 4. acquisition on february 13 , 2014 ( acquisition date ) , we acquired dvs primarily to broaden our addressable single-cell biology market opportunity and complement our existing product offerings . dvs develops , manufactures , markets , and sells high-parameter single-cell protein analysis systems and related reagents and data analysis tools . dvs 's principal market is the life sciences research market consisting of drug development companies , government research centers , and universities worldwide . the contractual price for the acquisition was $ 207.5 million , subject to certain adjustments as specified story_separator_special_tag the following discussion and analysis should be read together with our consolidated financial statements and the notes to those statements included elsewhere in this form 10-k. this discussion contains forward-looking statements based on our current expectations , assumptions , estimates and projections about fluidigm and our industry . these forward-looking statements involve risks and uncertainties . our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors , as more fully described in “ risk factors ” in item 1a of this form 10-k , in this item 7 , and elsewhere in this form 10-k. except as may be required by law , we undertake no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other events occur in the future . overview we create , manufacture , and market innovative technologies and tools for life sciences research . we sell instruments and consumables , including integrated fluidic circuits , or ifcs , assays and reagents , to academic institutions , clinical research laboratories , and biopharmaceutical , biotechnology , and agricultural biotechnology , or ag-bio , companies and contract research organizations or cros . our technologies and tools are directed at the analysis of dna , rna and proteins in a variety of different sample types , from individual cells to bulk tissue . we distribute our systems through our direct sales force and support organizations located in north america , europe , and asia-pacific , and through distributors or sales agents in several european , latin american , middle eastern , and asia-pacific countries . our manufacturing operations are primarily located in singapore , canada and the united states . our facility in singapore manufactures our genomics instruments , several of which are assembled at facilities of our contract manufacturers in singapore , with testing and calibration of the assembled products performed at our singapore facility . all of our ifcs for commercial sale and some ifcs for our research and development purposes are also fabricated at our singapore facility . our canada facility manufactures our mass cytometry instruments . our facility in the united states manufactures assays and reagents . our total revenue was $ 104.4 million in 2016 , $ 114.7 million in 2015 , and $ 116.5 million in 2014 . we have incurred significant net losses since our inception in 1999 and , as of december 31 , 2016 , our accumulated deficit was $ 439.5 million . due to our negative revenue growth in 2016 and 2015 , we implemented certain operational efficiency and cost-savings initiatives beginning in the first quarter of 2017 intended to align our resources with our product strategy , reduce our operating expenses , and manage our cash flows . these cost efficiency initiatives include targeted workforce reductions , optimizing our facilities , and reducing excess space . in addition , we may need to decrease or defer capital expenditures and development activities to further optimize our operations . such measures may impair our ability to invest in developing , marketing and selling new and existing products . the efficiency and cost-savings initiatives are expected to reduce operating expenses and enable us to efficiently align our resources in areas providing the greatest benefit . if our efficiency and cost reduction efforts are unsuccessful , our cash position could be negatively impacted and we may , among other things , be required to seek other sources of financing . critical accounting policies , significant judgments and estimates our consolidated financial statements and the related notes included elsewhere in this form 10-k are prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs , and expenses and related disclosures . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . changes in accounting estimates may occur from period to period . accordingly , actual results could differ significantly from the estimates made by our management . we evaluate our estimates and assumptions on an ongoing basis . to the extent that there are material differences between these estimates and actual results , our future financial statement presentation , financial condition , results of operations , and cash flows will be affected . we believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies . accordingly , these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations . our accounting policies are more fully described in note 2 of the notes to our audited consolidated financial statements . 44 revenue recognition we generate revenue from sales of our products and services , license agreements , and government grants . our product revenue consists of sales of instruments and consumables , including ifcs , assays and reagents . story_separator_special_tag our common stock has a limited trading history because our common stock was not publicly traded until our initial public offering , or ipo , in february 2011. accordingly , the expected volatility of our common stock is developed by combining data from our historical volatilities and historical volatilities of unrelated public companies within the life sciences industry . when selecting our industry peer companies , we consider our stage of development , size , and financial leverage . these historical volatilities are weighted and combined to produce a single volatility factor . the risk-free interest rate is based on the u.s. treasury yield in effect at the time of grant for zero coupon u.s. treasury notes with maturities approximately equal to each grant 's expected life . we estimate the expected lives of employee options using the “ simplified ” method as the midpoint of the expected time-to-vest and the contractual term . the calculated fair value of our stock options could change significantly if we determine that another method is more reasonable , or if another method for calculating these input assumptions is prescribed by authoritative guidance . higher volatility and longer expected lives result in an increase in stock-based compensation expense determined at the date of grant . stock-based compensation expense affects our cost of product revenue , research and development expense , and selling , general and administrative expense . we estimate our forfeiture rate based on an analysis of our actual forfeitures and we will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience , analysis of employee turnover behavior , and other factors . quarterly changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense , as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed . if a revised forfeiture rate is higher than the previously estimated forfeiture rate , an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements . if a revised forfeiture rate is lower than the previously estimated forfeiture rate , an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financial statements . we will continue to use judgment in evaluating the expected term , volatility , and forfeiture rate related to our stock-based compensation . historically , certain of our stock awards were granted to officers with vesting acceleration features based upon the achievement of certain performance milestones . the timing of the attainment of these milestones affected the timing of expense recognition since we recognize compensation expense only for the portion of stock options that are expected to vest . we recorded stock-based compensation expense of $ 13.9 million , $ 16.8 million , and $ 20.9 million during 2016 , 2015 , and 2014 , respectively . as of december 31 , 2016 , we have $ 15.8 million of total unrecognized compensation cost related to stock-based compensation arrangements that is expected to be recognized over an average period of 2.3 years . income taxes we use the asset and liability method to account for income taxes . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . significant management judgment is required in determining our provision for income taxes , our deferred tax assets and liabilities , and any valuation allowance recorded against our deferred tax assets . our provision for income taxes generally consists of tax expense/benefit related to current period earnings/losses . as part of the process of preparing our consolidated financial statements , we continuously monitor the circumstances impacting the expected realization of our deferred tax assets for each jurisdiction . we consider all available evidence , including historical operating results in each jurisdiction , expectations and risks associated with estimates of future taxable income , and ongoing prudent and feasible tax planning strategies in assessing the need for a 46 valuation allowance . to the extent a deferred tax asset can not be recognized , a valuation allowance is established to reduce our deferred tax assets to the amount that is more likely than not to be realized . these deferred tax assets primarily consist of net operating loss carryforwards , research and development tax credits , and stock-based compensation . we intend to maintain such valuation allowance until sufficient evidence exists to support its reduction . our deferred tax liabilities primarily consist of book and tax basis differences in fixed assets and acquired identifiable intangible assets . we make estimates and judgments about our future taxable income that are based on assumptions that are consistent with our plans and estimates . should the actual amounts differ from our estimates , the amount of our valuation allowance could be materially impacted . changes in these estimates may result in significant increases or decreases to our tax provision in a period in which such estimates are changed , which in turn would affect net income or loss . we recognize the financial statement effects of a tax position when it is more likely than not , based on the technical merits , that the position will be sustained upon examination . any interest and penalties related to uncertain tax positions will be reflected in the income tax provision . we have not provided for u.s. federal and state income taxes on any of our non-u.s. subsidiaries ' undistributed earnings as of december 31 , 2016 because such earnings are intended to be indefinitely reinvested .
| results of operations the following table presents our historical consolidated statements of operations data for the years ended december 31 , 2016 , 2015 , and 2014 , and as a percentage of total revenue for the respective years ( in thousands ) : replace_table_token_4_th revenue we generate revenue primarily from sales of our products and services , license agreements , and government grants . our product revenue consists of sales of instruments and consumables , including ifcs , assays and reagents . our service revenue consists of post-warranty service contracts , preventive maintenance plans , instrument parts , installation and training . we have entered into license agreements and have received government grants to conduct research and development activities . 48 the following table presents our revenue by source for each period presented ( in thousands ) : replace_table_token_5_th the following table presents our total revenue by geographic area and as a percentage of total revenue by geographic area of our customers for each period presented ( in thousands ) : replace_table_token_6_th our license and grant revenue is primarily generated in the united states . we sell our instruments to leading academic research institutions , clinical research laboratories , and biopharmaceutical , biotechnology and ag-bio companies . revenue from our five largest customers in each of the periods presented comprised 15 % , 13 % , and 15 % of total revenue in 2016 , 2015 , and 2014 , respectively . total revenue total revenue decrease d by $ 10.3 million , or 9 % , to $ 104.4 million for 2016 , compared to $ 114.7 million for 2015 primarily due to a decrease of $ 13.1 million in product revenue , partially offset by a $ 2.9 million increase in service revenue . total revenue decreased in all geographic areas , except asia-pacific for 2016 compared to 2015. the revenue decrease was predominantly in europe due to lower instrument sales .
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we bear all other direct or indirect costs and expenses of our operations and transactions , including : * the cost of calculating our nav , including the cost of any third-party valuation services ; * the cost of effecting sales and repurchases of shares of our common stock and other securities ; * fees payable to third parties relating to , or associated with , making investments , including fees and expenses associated with performing due diligence and reviews of prospective investments or complementary businesses ; * expenses incurred by the investment adviser in performing due diligence and reviews of investments ; * transfer agent and custodial fees ; * fees and expenses associated with marketing efforts ; * federal and state registration fees and any exchange listing fees ; * federal , state , local and foreign taxes ; * independent directors ' fees and expenses ; * brokerage commissions ; * fidelity bond , directors and officers , errors and omissions liability insurance and other insurance premiums ; * direct costs such as printing , mailing , long distance telephone and staff ; * fees and expenses associated with independent audits and outside legal costs ; * costs associated with our reporting and compliance obligations under the 1940 act , the 1958 act and applicable federal and state securities laws ; and * all other expenses incurred by either the administrator or us in connection with administering our business , including payments under our administration agreement that will be based upon our allocable portion of overhead , and other expenses incurred by the administrator in performing its obligations under our administration agreement , including rent and our allocable portion of the costs of compensation and related expenses of our chief compliance officer , chief financial officer and their respective staffs . generally , during periods of asset growth , we expect our general and administrative expenses to be relatively stable or to decline as a percentage of total assets and increase during periods of asset declines . incentive fees , interest expense and costs relating to future offerings of securities would be additive to the expenses described above . 43 portfolio and investment activity as of september 30 , 2020 , our portfolio totaled $ 1,081.8 million and consisted of $ 439.0 million of first lien secured debt , $ 220.8 million of second lien secured debt , $ 113.6 million of subordinated debt ( including $ 63.0 million in pslf ) and $ 308.3 million of preferred and common equity ( including $ 36.3 million in pslf ) . our debt portfolio consisted of 93 % variable-rate investments and 7 % fixed-rate investments . as of september 30 , 2020 , we had two portfolio companies on non-accrual , representing 4.9 % and 3.4 % of our overall portfolio on a cost and fair value basis , respectively . overall , the portfolio had net unrealized depreciation of $ 83.8 million as of september 30 , 2020. our overall portfolio consisted of 80 companies with an average investment size of $ 13.5 million , had a weighted average yield on interest bearing debt investments of 8.9 % and was invested 41 % in first lien secured debt , 20 % in second lien secured debt , 10 % in subordinated debt ( including 6 % in pslf ) and 29 % in preferred and common equity ( including 3 % in pslf ) . as of september 30 , 2020 , all of the investments held by pslf were first lien secured debt . as of september 30 , 2019 , our portfolio totaled $ 1,219.4 million and consisted of $ 695.3 million of first lien secured debt , $ 269.3 million of second lien secured debt , $ 61.2 million of subordinated debt and $ 193.7 million of preferred and common equity . our debt portfolio consisted of 87 % variable-rate investments and 13 % fixed-rate investments . as of september 30 , 2019 , we had no portfolio companies on non-accrual . overall , the portfolio had net unrealized depreciation of $ 37.6 million as of september 30 , 2019. our overall portfolio consisted of 67 companies with an average investment size of $ 18.2 million , had a weighted average yield on interest bearing debt investments of 9.8 % and was invested 57 % in first lien secured debt , 22 % in second lien secured debt , 5 % in subordinated debt and 16 % in preferred and common equity . for the year ended september 30 , 2020 , we invested $ 319.3 million of investments in 25 new and 58 existing portfolio companies with a weighted average yield on debt investments of 8.4 % . sales and repayments of investments for the same period totaled $ 162.7 million . for the year ended september 30 , 2019 , we invested $ 533.6 million of investments in 24 new and 49 existing portfolio companies with a weighted average yield on debt investments of 9.4 % . sales and repayments of investments for the same period totaled $ 426.5 million . pennantpark senior loan fund , llc as of september 30 , 2020 , pslf 's portfolio totaled $ 353.4 million , consisted of 37 companies with an average investment size of $ 9.6 million and had a weighted average yield on debt investments of 7.3 % . for the period ended july 31 , 2020 through september 30 , 2020 , pslf invested $ 5.7 million in one new portfolio company with a weighted average yield on debt investments of 7.5 % . pslf 's sales and repayments of investments for the same period totaled $ 11.1 million . critical accounting policies the preparation of our consolidated financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amount of our assets and liabilities at the date of the consolidated financial statements and the reported story_separator_special_tag we bear all other direct or indirect costs and expenses of our operations and transactions , including : * the cost of calculating our nav , including the cost of any third-party valuation services ; * the cost of effecting sales and repurchases of shares of our common stock and other securities ; * fees payable to third parties relating to , or associated with , making investments , including fees and expenses associated with performing due diligence and reviews of prospective investments or complementary businesses ; * expenses incurred by the investment adviser in performing due diligence and reviews of investments ; * transfer agent and custodial fees ; * fees and expenses associated with marketing efforts ; * federal and state registration fees and any exchange listing fees ; * federal , state , local and foreign taxes ; * independent directors ' fees and expenses ; * brokerage commissions ; * fidelity bond , directors and officers , errors and omissions liability insurance and other insurance premiums ; * direct costs such as printing , mailing , long distance telephone and staff ; * fees and expenses associated with independent audits and outside legal costs ; * costs associated with our reporting and compliance obligations under the 1940 act , the 1958 act and applicable federal and state securities laws ; and * all other expenses incurred by either the administrator or us in connection with administering our business , including payments under our administration agreement that will be based upon our allocable portion of overhead , and other expenses incurred by the administrator in performing its obligations under our administration agreement , including rent and our allocable portion of the costs of compensation and related expenses of our chief compliance officer , chief financial officer and their respective staffs . generally , during periods of asset growth , we expect our general and administrative expenses to be relatively stable or to decline as a percentage of total assets and increase during periods of asset declines . incentive fees , interest expense and costs relating to future offerings of securities would be additive to the expenses described above . 43 portfolio and investment activity as of september 30 , 2020 , our portfolio totaled $ 1,081.8 million and consisted of $ 439.0 million of first lien secured debt , $ 220.8 million of second lien secured debt , $ 113.6 million of subordinated debt ( including $ 63.0 million in pslf ) and $ 308.3 million of preferred and common equity ( including $ 36.3 million in pslf ) . our debt portfolio consisted of 93 % variable-rate investments and 7 % fixed-rate investments . as of september 30 , 2020 , we had two portfolio companies on non-accrual , representing 4.9 % and 3.4 % of our overall portfolio on a cost and fair value basis , respectively . overall , the portfolio had net unrealized depreciation of $ 83.8 million as of september 30 , 2020. our overall portfolio consisted of 80 companies with an average investment size of $ 13.5 million , had a weighted average yield on interest bearing debt investments of 8.9 % and was invested 41 % in first lien secured debt , 20 % in second lien secured debt , 10 % in subordinated debt ( including 6 % in pslf ) and 29 % in preferred and common equity ( including 3 % in pslf ) . as of september 30 , 2020 , all of the investments held by pslf were first lien secured debt . as of september 30 , 2019 , our portfolio totaled $ 1,219.4 million and consisted of $ 695.3 million of first lien secured debt , $ 269.3 million of second lien secured debt , $ 61.2 million of subordinated debt and $ 193.7 million of preferred and common equity . our debt portfolio consisted of 87 % variable-rate investments and 13 % fixed-rate investments . as of september 30 , 2019 , we had no portfolio companies on non-accrual . overall , the portfolio had net unrealized depreciation of $ 37.6 million as of september 30 , 2019. our overall portfolio consisted of 67 companies with an average investment size of $ 18.2 million , had a weighted average yield on interest bearing debt investments of 9.8 % and was invested 57 % in first lien secured debt , 22 % in second lien secured debt , 5 % in subordinated debt and 16 % in preferred and common equity . for the year ended september 30 , 2020 , we invested $ 319.3 million of investments in 25 new and 58 existing portfolio companies with a weighted average yield on debt investments of 8.4 % . sales and repayments of investments for the same period totaled $ 162.7 million . for the year ended september 30 , 2019 , we invested $ 533.6 million of investments in 24 new and 49 existing portfolio companies with a weighted average yield on debt investments of 9.4 % . sales and repayments of investments for the same period totaled $ 426.5 million . pennantpark senior loan fund , llc as of september 30 , 2020 , pslf 's portfolio totaled $ 353.4 million , consisted of 37 companies with an average investment size of $ 9.6 million and had a weighted average yield on debt investments of 7.3 % . for the period ended july 31 , 2020 through september 30 , 2020 , pslf invested $ 5.7 million in one new portfolio company with a weighted average yield on debt investments of 7.5 % . pslf 's sales and repayments of investments for the same period totaled $ 11.1 million . critical accounting policies the preparation of our consolidated financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amount of our assets and liabilities at the date of the consolidated financial statements and the reported
| results of operations set forth below are the results of operations for the years ended september 30 , 2020 and 2019. for information regarding results of operations for the year ended september 30 , 2018 , see the company 's form 10-k for the fiscal year ended september 30 , 2019 , as filed with the sec on november 21 , 2019. investment income investment income for the year ended september 30 , 2020 was $ 100.2 million and was attributable to $ 63.4 million from first lien secured debt , $ 25.9 million from second lien secured debt and $ 8.7 million from subordinated debt and $ 2.2 from preferred and common equity . the decrease in investment income over the prior year was primarily due to a decrease in libor as well as an increase in our equity portfolio . investment income for the year ended september 30 , 2019 was $ 112.1 million and was attributable to $ 62.6 million from first lien secured debt , $ 41.4 million from second lien secured debt and $ 8.1 million from subordinated debt . expenses net expenses for the year ended september 30 , 2020 totaled $ 61.5 million . base management fee for the same period totaled $ 18.6 million , incentive fee totaled $ 2.7 million ( after a waiver of $ 1.9 million ) , debt related interest and other financing expenses totaled $ 34.4 million ( including one-time costs of $ 2.2 million associated with the pslf transaction ) and general and administrative expenses totaled $ 4.7 million . the decrease in expenses over the prior year was primarily due to a decrease in debt related expenses as well as the incentive fee waiver . net expenses for the year ended september 30 , 2019 totaled $ 67.5 million .
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therefore , the financial results of icahn enterprises and icahn enterprises holdings are substantially the same , with differences relating primarily to debt , as discussed further in note 10 , `` debt , '' to the consolidated financial statements , and to the allocation of the general partner interest , which is reflected as an aggregate 1.99 % general partner interest in the financial statements of icahn enterprises . in addition to the above , mr. icahn and his affiliates owned 117,033,818 , or approximately 89.0 % , of icahn enterprises ' outstanding depositary units as of december 31 , 2015 . we are a diversified holding company owning subsidiaries currently engaged in the following continuing operating businesses : investment , automotive , energy , metals , railcar , gaming , mining , food packaging , real estate and home fashion . we also report the results of our holding company , which includes the results of certain subsidiaries of icahn enterprises and icahn enterprises holdings ( unless otherwise noted ) , and investment activity and expenses associated with the holding company . on february 28 , 2016 , icahn enterprises issued a proposal to the board of directors of federal-mogul to purchase the shares of federal-mogul common stock not owned by us in a merger transaction pursuant to which federal-mogul shareholders would receive $ 7.00 per share in cash for their federal-mogul shares . 100 results of operations consolidated financial results overview our operating businesses are managed on a decentralized basis . due to the structure of our business , we discuss the results of operations below by individual reportable segments . refer to note 3 , “ operating units , ” to the consolidated financial statements for a description of each of our reporting segments and note 13 , `` segment and geographic reporting , '' for a reconciliation of each of our reporting segment 's results of operations to our consolidated results . the following table summarizes total revenues , net ( loss ) income and net ( loss ) income attributable to icahn enterprises for each of our reporting segments and our holding company for the years ended december 31 , 2015 , 2014 and 2013. replace_table_token_7_th ( 1 ) we consolidated ferrous resources effective june 1 , 2015. icahn enterprises holdings due to the structure of our business , the consolidated results of operations for icahn enterprises and icahn enterprises holdings are substantially the same . differences primarily relate to non-cash portions of interest expense , and are only reflected in the results of operations for our holding company . the following table summarizes total revenues , net ( loss ) income and net ( loss ) income attributable to icahn enterprises holdings for our holding company and the consolidated totals with respect to icahn enterprises holdings for the years ended december 31 , 2015 , 2014 and 2013. replace_table_token_8_th 101 investment our investment segment is comprised of various private investment funds , including icahn partners l.p. ( `` icahn partners '' ) , icahn partners master fund lp , icahn partners master fund ii lp and icahn partners master fund iii lp ( collectively , the `` master funds '' , and together with icahn partners , the `` investment funds '' ) , through which we invest our proprietary capital . effective january 1 , 2014 , icahn partners master fund ii lp and icahn partners master fund iii lp were merged with and into icahn partners . we and certain of mr. icahn 's wholly owned affiliates are the sole investors in the investment funds . icahn onshore lp and icahn offshore lp ( together , the `` general partners '' ) act as the general partner of icahn partners and the master funds , respectively . the general partners provide investment advisory and certain administrative and back office services to the investment funds but do not provide such services to any other entities , individuals or accounts . interests in the investment funds are not offered to outside investors . mr. icahn , along with his affiliates ( excluding icahn enterprises and icahn enterprises holdings ) , makes investments in the investment funds . as of december 31 , 2015 and 2014 , the total fair market value of investments in the investment funds made by mr. icahn and his affiliates was approximately $ 4.1 billion and $ 4.8 billion , respectively . our interests in the investment funds as of december 31 , 2015 and 2014 , we had investments with a fair market value of approximately $ 3.4 billion and $ 4.3 billion , respectively , in the investment funds . our share of the investment funds ' net ( losses ) profits through our interests in the investment funds was $ ( 760 ) million , $ ( 305 ) million , and $ 812 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . returns the following table sets forth performance information for the investment funds for the comparative periods presented . these returns represent a weighted-average composite of the average returns , net of expenses for the investment funds . replace_table_token_9_th performance attribution the following table sets forth the performance attribution for the investment funds for the comparative periods presented . replace_table_token_10_th the investment funds ' aggregate return was -18.0 % for 2015 , due to losses in their long equity exposure , primarily in a few of their largest core holdings including energy . these losses were partially offset by gains in long equity positions in a few of their largest core holdings as well as gains in their short positions , including broad market hedges . the investment funds ' aggregate return was -7.4 % for 2014 , due to losses in their short equity exposure , primarily through broad market hedges , as well as other losses in long equity positions including energy . these losses were partially offset by gains in long equity positions in a few of their largest core holdings . story_separator_special_tag low fuel prices also encourage more vehicle sales , which increases demand for parts from oems . foreign currencies given the global nature of our operations , we are subject to fluctuations in foreign exchanges rates . during 2015 , foreign currency fluctuations had a considerable effect on our reported earnings in u.s. dollars compared to 2014. year ended december 31 , 2015 compared to the year ended december 31 , 2014 consolidated net sales increased for the year ended december 31 , 2015 compared to the prior year by $ 472 million ( 6 % ) ( net of certain intercompany activity ) , of which $ 396 million is attributable to the acquisition of ieh auto during 2015 and $ 76 million is attributable to federal-mogul . federal-mogul 's net sales were negatively impacted by the strengthening of the u.s. dollar against several global currencies which resulted in an unfavorable foreign currency impact of $ 642 million . excluding the impact of foreign currency , federal-mogul 's sales volumes increased by $ 718 million . this sales growth is comprised of an increase in the powertrain business ' external sales of $ 427 million , reflecting the inclusion of the acquisition of certain engine components business of trw automotive holdings corp. 's ( `` trw '' ) as well as an increase in volume for the quarter . external sales in the motorparts business increased by $ 291 million ( net of intercompany eliminations ) , driven primarily by the acquisitions of affinia group inc. ( `` affinia '' ) and honeywell international inc. 's ( `` honeywell '' ) brake component business . the powertrain business generated approximately 63 % of its sales outside of the united states and the resulting currency movements decreased sales by $ 407 million . on a constant dollar basis , powertrain external sales increased 12 % compared to the same period in 2014. the increase in powertrain 's sales reflects the inclusion of the acquisition of certain assets of the trw engine components business , as well as increases in volume which , together , increased sales by $ 427 million . this figure includes the impact of customer price decreases of $ 28 million . including the impact of sales from acquisitions , the powertrain business ' sales in north america , emea and row grew by 3.3 % , 6.3 % and 1 % , respectively . excluding the unfavorable currency impact of $ 235 million , motorparts ' external sales increased by $ 291 million ( net of intercompany eliminations ) . this increase was primarily due to additional sales related to the honeywell braking and affinia chassis component acquisitions . including the impact of sales from acquisitions , the motorparts business ' sales in north america , emea and row grew by 1.4 % , 4.8 % and 1.6 % , respectively . the ieh auto acquisition contributed $ 396 million in net sales for the period june 1 , 2015 through december 31 , 2015. ieh auto is a service organization engaged in the distribution of automotive aftermarket parts . through its locations , ieh auto sells predominantly to commercial aftermarket customers in the `` do-it-for-me '' market as well as `` do-it-yourself '' customers . cost of goods sold for the year ended december 31 , 2015 increased by $ 317 million ( 5 % ) as compared to the prior year ( net of certain intercompany activity ) . the increase attributable to federal-mogul was primarily due to an increase in sales volumes in both the powertrain and motorparts businesses , reflecting an inclusion of the acquisitions of the trw engine component business , the affinia chasis business as well as the honeywell brake component business . in addition , cost of goods sold increased due to the ieh auto acquisition . gross margin for the year ended december 31 , 2015 increased by $ 155 million ( 15 % ) compared to the prior year ( net of certain intercompany activity ) . gross margin was 16 % and 14 % of net sales for the years ended december 31 , 2015 and 2014 , respectively . the improvement in gross margin percentage over the respective periods was primarily attributable to the acquisition of ieh auto during 2015 whose product sales margins are higher than those of federal-mogul 's . 104 year ended december 31 , 2014 compared to the year ended december 31 , 2013 consolidated net sales increased for the year ended december 31 , 2014 by $ 412 million ( 6 % ) as compared to the corresponding prior year period . excluding dispositions of $ 119 million and unfavorable foreign currency impacts of $ 51 million , sales organically increased by $ 582 million or 9 % on a constant dollar basis . this increase is driven by sales growth in the powertrain business of $ 301 million ( 8 % ) and an increase in sales in the motorparts business of $ 281 million ( 10 % ) , driven by the affinia chassis and the honeywell brake component business acquisitions . the powertrain business ' sales increase of $ 301 million is driven by an increase in sales volumes of $ 330 million , offset by customer price reductions of $ 29 million . this increase is attributable to higher sales volumes and market share gains across all regions of the world . including the impact of sales from acquisitions , the powertrain business ' sales in north america , emea and row grew by 3.0 % , 3.0 % and 1.9 % , respectively . net sales in the motorparts business increased by $ 281 million primarily due to the affinia chassis and the honeywell brake component acquisitions . including the impact of sales from acquisitions , the motorparts business ' sales in north america , emea and row grew by 3.0 % , 5.0 % and 1.1 % , respectively .
| other consolidated results of operations other income , net year ended december 31 , 2015 compared to the year ended december 31 , 2014 our consolidated other income , net for the year ended december 31 , 2015 and 2014 was $ 75 million and $ 182 million , respectively . equity earnings from non-consolidated affiliates , primarily from our automotive segment , were $ 62 million and $ 50 million for the years ended december 31 , 2015 and 2014 , respectively . in addition , our energy segment recorded ( loss ) gains on certain derivative contracts of $ ( 29 ) million and $ 186 million for the years ended december 31 , 2015 and 2014 , respectively . included in our consolidated other income , net was a loss on extinguishment of debt of $ 162 million for the year ended december 31 , 2014. see note 7 , `` financial instruments , '' and note 16 , `` other income , net , '' to the consolidated financial statements for further discussion . year ended december 31 , 2014 compared to the year ended december 31 , 2013 our consolidated other income ( loss ) , net for the year ended december 31 , 2014 and 2013 was $ 182 million and $ 21 million , respectively . equity earnings from non-consolidated affiliates , primarily from our automotive segment , were $ 50 million and $ 26 million the years ended december 31 , 2014 and 2013 , respectively . in addition , our energy segment recorded gains on certain derivative contracts of $ 186 million and $ 57 million for the years ended december 31 , 2014 and 2013 , respectively .
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these increases were offset by : an increase in accounts payable of $ 60.0 million , related to the increased inventory purchases and the timing of payments ; an increase in customer deposits of $ 41.4 million for certain transit and freight contracts ; an increase in accrued income taxes of $ 31.5 million due to payment timing ; and an increase in all other operating assets and liabilities , net , provided cash of $ 50.1 million due to the accrual for a court ruling and the payment timing of certain accrued liabilities . 31 investing activities . in 2012 , 2011 and 2010 , cash used in investing activities was $ 184.9 million , $ 146.2 million and $ 156.3 million , respectively . net cash paid for acquisitions was $ 149.9 million , $ 109.0 million and $ 138.2 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . refer to note 3 of the notes to consolidated financial statements for additional information on acquisitions . capital expenditures were $ 36.0 million , $ 38.0 million , and $ 20.8 million in 2012 , 2011 and 2010 , respectively . financing activities . in 2012 , cash used in financing activities was $ 124.7 million , which included $ 233.4 million in proceeds from debt and $ 311.4 million of repayments of debt on the revolving credit facility , $ 0.1 million of debt repayments on other debt , $ 7.7 million of dividend payments and $ 46.6 million of wabtec stock repurchases . in 2011 , cash used in financing activities was $ 46.8 million , which included $ 257.0 million in proceeds from debt and $ 243.5 million of repayments of debt on the revolving credit facility , $ 39.7 million of debt repayments on the term loan and other debt , $ 3.8 million of dividend payments and $ 26.0 million of wabtec stock repurchases . in 2010 , cash provided by financing activities was $ 25.8 million , which included $ 248.4 million in proceeds from debt and $ 185.4 million of repayments of debt on the revolving credit facility , $ 32.7 million of debt repayments on the term loan and other debt , $ 1.9 million of dividend payments and $ 8.4 million of wabtec stock repurchases . the following table shows outstanding indebtedness at december 31 , 2012 and 2011. replace_table_token_14_th cash balances at december 31 , 2012 and 2011 were $ 215.8 million and $ 285.6 million , respectively . 2011 refinancing credit agreement on november 7 , 2011 , the company refinanced its existing revolving credit and term loan facility with a consortium of commercial banks . this 2011 refinancing credit agreement provides the company with a $ 600 million , five-year revolving credit facility . the company incurred approximately $ 1.9 million of deferred financing cost related to the 2011 refinancing credit agreement . the facility expires on november 7 , 2016. the 2011 refinancing credit agreement borrowings bear variable interest rates indexed to the indices described below . at december 31 , 2012 , the company had available bank borrowing capacity , net of $ 32.5 million of letters of credit , of approximately $ 400.5 million , subject to certain financial covenant restrictions . under the 2011 refinancing credit agreement , the company may elect a base rate of interest or an interest rate based on the london interbank offered rate ( libor ) of interest ( the alternate rate ) . the base rate adjusts on a daily basis and is the greater of the federal funds effective rate plus 0.5 % per annum , the pnc , n.a . prime rate or the daily libor rate plus 100 basis points , plus a margin that ranges from 0 to 75 basis points . the alternate rate is based on quoted libor rates plus a margin that ranges from 75 to 175 basis points . both the base rate and alternate rate margins are dependent on the company 's consolidated total indebtedness to cash flow ratios . the initial base rate margin is 25 basis points and the alternate rate margin is 125 basis points . at december 31 , 2012 the weighted average interest rate on the company 's variable rate debt was 1.21 % . on january 12 , 2012 , the company entered into a forward starting interest rate swap agreement with a notional 32 value of $ 150 million . the effective date of the interest rate swap agreement is july 31 , 2013 , and the termination date is november 7 , 2016. the impact of the interest rate swap agreement will be to convert a portion of the company 's then outstanding debt from a variable rate to a fixed-rate borrowing . during the term of the interest rate swap agreement the interest rate on the notional value will be fixed at 1.415 % plus the alternate rate margin . the company is exposed to credit risk in the event of nonperformance by the counterparty . however , since only the cash interest payments are exchanged , exposure is significantly less than the notional amount . the counterparty is a large financial institution with an excellent credit rating and history of performance . the company currently believes the risk of nonperformance is negligible . the 2011 refinancing credit agreement limits the company 's ability to declare or pay cash dividends and prohibits the company from declaring or making other distributions , subject to certain exceptions . the 2011 refinancing credit agreement contains various other covenants and restrictions including the following limitations : incurrence of additional indebtedness ; mergers , consolidations , sales of assets and acquisitions ; additional liens ; sale and leasebacks ; permissible investments , loans and advances ; certain debt payments ; and imposes a minimum interest expense coverage ratio of 3.0 and a maximum debt to cash flow story_separator_special_tag these increases were offset by : an increase in accounts payable of $ 60.0 million , related to the increased inventory purchases and the timing of payments ; an increase in customer deposits of $ 41.4 million for certain transit and freight contracts ; an increase in accrued income taxes of $ 31.5 million due to payment timing ; and an increase in all other operating assets and liabilities , net , provided cash of $ 50.1 million due to the accrual for a court ruling and the payment timing of certain accrued liabilities . 31 investing activities . in 2012 , 2011 and 2010 , cash used in investing activities was $ 184.9 million , $ 146.2 million and $ 156.3 million , respectively . net cash paid for acquisitions was $ 149.9 million , $ 109.0 million and $ 138.2 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . refer to note 3 of the notes to consolidated financial statements for additional information on acquisitions . capital expenditures were $ 36.0 million , $ 38.0 million , and $ 20.8 million in 2012 , 2011 and 2010 , respectively . financing activities . in 2012 , cash used in financing activities was $ 124.7 million , which included $ 233.4 million in proceeds from debt and $ 311.4 million of repayments of debt on the revolving credit facility , $ 0.1 million of debt repayments on other debt , $ 7.7 million of dividend payments and $ 46.6 million of wabtec stock repurchases . in 2011 , cash used in financing activities was $ 46.8 million , which included $ 257.0 million in proceeds from debt and $ 243.5 million of repayments of debt on the revolving credit facility , $ 39.7 million of debt repayments on the term loan and other debt , $ 3.8 million of dividend payments and $ 26.0 million of wabtec stock repurchases . in 2010 , cash provided by financing activities was $ 25.8 million , which included $ 248.4 million in proceeds from debt and $ 185.4 million of repayments of debt on the revolving credit facility , $ 32.7 million of debt repayments on the term loan and other debt , $ 1.9 million of dividend payments and $ 8.4 million of wabtec stock repurchases . the following table shows outstanding indebtedness at december 31 , 2012 and 2011. replace_table_token_14_th cash balances at december 31 , 2012 and 2011 were $ 215.8 million and $ 285.6 million , respectively . 2011 refinancing credit agreement on november 7 , 2011 , the company refinanced its existing revolving credit and term loan facility with a consortium of commercial banks . this 2011 refinancing credit agreement provides the company with a $ 600 million , five-year revolving credit facility . the company incurred approximately $ 1.9 million of deferred financing cost related to the 2011 refinancing credit agreement . the facility expires on november 7 , 2016. the 2011 refinancing credit agreement borrowings bear variable interest rates indexed to the indices described below . at december 31 , 2012 , the company had available bank borrowing capacity , net of $ 32.5 million of letters of credit , of approximately $ 400.5 million , subject to certain financial covenant restrictions . under the 2011 refinancing credit agreement , the company may elect a base rate of interest or an interest rate based on the london interbank offered rate ( libor ) of interest ( the alternate rate ) . the base rate adjusts on a daily basis and is the greater of the federal funds effective rate plus 0.5 % per annum , the pnc , n.a . prime rate or the daily libor rate plus 100 basis points , plus a margin that ranges from 0 to 75 basis points . the alternate rate is based on quoted libor rates plus a margin that ranges from 75 to 175 basis points . both the base rate and alternate rate margins are dependent on the company 's consolidated total indebtedness to cash flow ratios . the initial base rate margin is 25 basis points and the alternate rate margin is 125 basis points . at december 31 , 2012 the weighted average interest rate on the company 's variable rate debt was 1.21 % . on january 12 , 2012 , the company entered into a forward starting interest rate swap agreement with a notional 32 value of $ 150 million . the effective date of the interest rate swap agreement is july 31 , 2013 , and the termination date is november 7 , 2016. the impact of the interest rate swap agreement will be to convert a portion of the company 's then outstanding debt from a variable rate to a fixed-rate borrowing . during the term of the interest rate swap agreement the interest rate on the notional value will be fixed at 1.415 % plus the alternate rate margin . the company is exposed to credit risk in the event of nonperformance by the counterparty . however , since only the cash interest payments are exchanged , exposure is significantly less than the notional amount . the counterparty is a large financial institution with an excellent credit rating and history of performance . the company currently believes the risk of nonperformance is negligible . the 2011 refinancing credit agreement limits the company 's ability to declare or pay cash dividends and prohibits the company from declaring or making other distributions , subject to certain exceptions . the 2011 refinancing credit agreement contains various other covenants and restrictions including the following limitations : incurrence of additional indebtedness ; mergers , consolidations , sales of assets and acquisitions ; additional liens ; sale and leasebacks ; permissible investments , loans and advances ; certain debt payments ; and imposes a minimum interest expense coverage ratio of 3.0 and a maximum debt to cash flow
| results of operations the following table shows our consolidated statements of operations for the years indicated . replace_table_token_4_th 2012 compared to 2011 the following table summarizes the results of operations for the period : replace_table_token_5_th 25 the following table shows the major components of the change in sales in 2012 from 2011 : replace_table_token_6_th net sales increased by $ 423.5 million to $ 2,391.1 million in 2012 from $ 1,967.6 million in 2011. the increase is due to higher sales of $ 153.9 million for specialty products and electronics from increased demand for freight original equipment rail products , and positive train control electronics and aftermarket products ; $ 138.3 million from acquisitions ; $ 97.7 million for remanufacturing , overhaul and build sales from increased demand for freight original equipment locomotives and aftermarket services for locomotives ; $ 40.8 million for brake products sales due to higher demand for original equipment brakes ; and $ 8.6 million for other products . company net sales decreased $ 19.9 million and income from operations decreased $ 2.4 million due to unfavorable effects of foreign exchange . net income for 2012 was $ 251.7 million or $ 5.19 per diluted share . net income increased due to higher sales volume . freight segment sales increased by $ 291.9 million , or 24.1 % , due to higher sales of $ 132.9 million for specialty products and electronics , primarily resulting from increased demand for original equipment rail products , and positive train control electronics and aftermarket rail products ; $ 65.7 million from acquisitions ; $ 46.1 million from increased demand for freight original equipment locomotives and aftermarket services for locomotives ; $ 41.4 million for brake products ; and $ 7.7 million for other products . for the freight segment , net sales decreased by $ 2.0 million due to unfavorable effects of foreign exchange .
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this discussion and other parts of this report contain forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations and intentions , and the expected impact that the covid-19 pandemic will continue to have on our business . our actual results could differ materially from those discussed in these forward-looking statements . in addition , statements that “ we believe ” and similar statements reflect our beliefs and opinions on the relevant subject . these statements are based upon information available to us as of the date of this annual report on form 10-k , and while we believe such information forms a reasonable basis for such statements , such information may be limited or incomplete , and our statements should not be read to indicate that we have conducted an exhaustive inquiry into , or review of , all potentially available relevant information . these statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in the section of this report titled “ risk factors. ” this discussion and analysis generally covers our financial condition and results of operations for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. for a discussion of the year ended december 31 , 2019 , as compared to the year ended december 31 , 2018 , refer to item 7 of part ii , “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the year ended december 31 , 2019 , which was filed with the united states securities and exchange commission on february 25 , 2020. overview at adamas pharmaceuticals , inc. , our mission is to make everyday life significantly better for people affected by neurological diseases . we are a fully integrated company focused on growing a portfolio of therapies to address a range of neurological diseases . with commercial and partnered medicines , we are focused on supporting our patient community and growing a portfolio of differentiated neurological therapies . we combine our proven expertise in discovery , development and commercialization with our passion for improving lives to deliver innovative medicines to reduce the burden of neurological diseases on patients , caregivers , and society . currently , we are primarily focused on the commercialization of gocovri in the united states . additionally , we are integrating osmolex er , which we acquired on january 4 , 2021 , and are commercializing the product in the united states . gocovri ® ( amantadine ) extended release capsules is the first and only fda-approved medicine indicated for the treatment of dyskinesia in patients with parkinson 's disease receiving levodopa-based therapy , with or without concomitant dopaminergic medications , and as an adjunctive treatment to levodopa/carbidopa in patients with parkinson 's disease experiencing off episodes . gocovri was approved for marketing by the u.s. food and drug administration , or fda , on august 24 , 2017 for its initial indication to treat dyskinesia . on february 1 , 2021 , we announced we had received marketing authorization from the fda for a supplemental new drug application ( snda ) for gocovri , gaining a second indication for the product as an adjunctive treatment for off episodes . the recent update to the label indication makes gocovri the only medicine clinically proven and approved to reduce both off and dyskinesia in parkinson 's patients taking a levodopa-based medication , resulting in a clinically meaningful increase in good on time . on june 17 , 2020 , we announced that we had discontinued further development of ( ads-5102 ) a potential additional indication for gocovri for the treatment of walking impairment in patients with multiple sclerosis ( “ msw ” ) . osmolex er ® ( amantadine ) extended release tablets , was approved by the fda on february 16 , 2018 , for the treatment of parkinson 's disease and drug-induced extrapyramidal reactions in adult patients . on january 4 , 2021 , we acquired the global rights to osmolex er from osmotica pharmaceuticals us llc , a subsidiary of osmotica pharmaceuticals plc . namzaric ® ( memantine hydrochloride extended release and donepezil hydrochloride ) capsules for the treatment of moderate to severe dementia of an alzheimer 's type , is marketed in the united states by allergan plc under an exclusive license agreement between us and forest laboratories holdings limited ( “ forest ” ) , an indirect , wholly-owned subsidiary of allergan plc ( collectively , “ allergan ” ) . we began recognizing royalty revenue on net sales of 46 namzaric in may 2020. going forward , we intend to expand our product pipeline by acquiring , through license or otherwise , additional candidates for research and development and potential commercialization . on december 1 , 2020 , we entered into a purchase agreement ( the “ asset purchase agreement ” ) with osmotica pursuant to which we acquired the global rights to osmolex er and existing inventory for $ 7.5 million and the assumption of certain liabilities . the asset purchase agreement closed on january 4 , 2021. on december 1 , 2020 , we entered into an agreement with healthcare royalty partners iii , l.p. ( “ hcr ” ) to amend certain key terms of our royalty-backed loan agreement ( “ royalty-backed loan ” ) with hcr , to be effective upon the closing of the asset purchase agreement with osmotica which subsequently closed on january 4 , 2021. for further discussion of the amended terms of the royalty-backed loan , see “ note 16 - subsequent events ” in the accompanying “ notes to consolidated financial statements ” in this annual report . story_separator_special_tag based on recent trends of namzaric net sales , we expect the tiered royalty to be in the low double digits through the term of the agreement , but is eliminated in any quarter where there is significant competition from generics . based on allergan 's and our current settlement agreements with the namzaric anda filers to date , the earliest date on which any of these agreements grant a license to market a namzaric anda filer 's generic version of namzaric is january 1 , 2025 ( or earlier in certain circumstances ) . alternatively , the namzaric anda filers with the earliest license date have the option to launch an authorized generic version of namzaric beginning on january 1 , 2026 instead of launching their own generic version of namzaric on january 1 , 2025. for further discussion of namzaric anda filers , see litigation and other legal proceedings in “ note 9 - commitments and contingencies ” in the accompanying “ notes to consolidated financial statements ” in this annual report . cost of product sales cost of product sales consists primarily of direct and indirect costs related to the manufacturing of gocovri products sold , including third-party manufacturing costs , packaging services , freight , allocation of overhead costs , and inventory adjustment charges . we began capitalizing inventory manufactured at the fda approved locations upon fda approval of gocovri and upon fda approval of a supplemental nda for a second manufacturing site with our current third-party manufacturer . we recorded inventory acquired prior to the regulatory approvals as research and development expense . 48 research and development expenses research and development expenses represent costs incurred to conduct research , such as the discovery and development of our wholly-owned product candidates . we recognize all research and development costs as they are incurred . research and development expenses consist of : fees paid to clinical investigators , clinical trial sites , consultants , and vendors , including contract research organizations , or cros , in conjunction with implementing , conducting , and monitoring our clinical trials and acquiring and evaluating clinical trial data , including all related fees , such as for investigator grants , patient screening fees , laboratory work , and statistical compilation and analysis ; expenses related to production of clinical supplies , including fees paid to contract manufacturing organizations , or cmos ; expenses related to establishment and validation of manufacturing capabilities for commercial supply ; expenses related to the buildup of commercial supply to support commercial launch , prior to fda approval ; expenses related to compliance with regulatory requirements ; other consulting fees paid to third parties ; and employee-related expenses , which include salaries , benefits , and stock-based compensation . the following table summarizes our research and development expenses incurred during the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_1_th ( 1 ) includes program costs we incurred for gocovri ( formerly referred to as ads-5102 ) for the treatment of dyskinesia in patients with parkinson 's disease , and ads-5102 ( gocovri ) for additional potential cns indications , including for the treatment of walking impairment in patients with multiple sclerosis . ( 2 ) we placed the ads-4101 development program on hold during the quarter ended june 30 , 2019. the program-specific expenses summarized in the table above include costs directly attributable to our product candidates . other research and development expenses include costs for early stage programs and costs not allocated to a specific program . we allocate benefits , stock-based compensation , and indirect costs to our product candidates on a program-specific basis , and we include these costs in the program-specific expenses . we begin to track and report program-specific expenses for early stage programs once they have been nominated and selected for further development and clinical-stage work has commenced . our investment in research and development activities , including the clinical development of our product candidates , has historically represented a significant portion of our total operating expenses . we have concluded the two-year phase 3 open-label study of gocovri , suspended investment in the development of ads-4101 , and completed additional analyses of the data from the inroads trial for ads-5102 for msw and will not initiate further phase 3 development . our research and development efforts are focused on completing activities for ads-5102 for msw , primarily continuing the open-label extension study through the end of 2020 and publishing the data from the inroads trial . as a result , we expect research and development costs to decrease from 2019 levels for the foreseeable future , based on this focused strategy . the process of conducting the necessary clinical research to obtain fda approval is costly and time consuming . 49 the actual probability of success for each product candidate and clinical program may be affected by a variety of factors , including but not limited to , the quality of the product candidate , early clinical data , investment in the program , competition , manufacturing capability , and commercial viability . furthermore , in the past we have entered into licensing arrangements with other pharmaceutical companies to develop and commercialize our product candidates , and we may enter into additional licensing arrangements or collaborations in the future . in situations in which third parties have control over the clinical development of a product candidate , the estimated completion dates are largely under the control of such third parties and not under our control . we can not forecast with any degree of certainty which of our product candidates , if any , will be subject to future licensing or collaboration arrangements or how such arrangements would affect our development plans or capital requirements . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates .
| results of operations fluctuations in operating results our re sults of operations have fluctuated from period to period in the past and , especially in light of the covid-19 pandemic , are likely to continue to do so in the future . we anticipate that our quarterly and annual results of operations will be impacted for the foreseeable future by several factors , including the impact on our operations as a result of the covid-19 pandemic , fluctuations in product sales due to variances in the number of paid prescriptions from period to period , conversions from our free drug trial program to paid prescriptions , and fluctuations in our medicare part d coverage gap liability and the volume of purchases eligible for government mandated discounts and rebates , as well as changes in discount percentages that may be impacted by potential future price increases and other factors . further , we expect the timing of expenditures related to our commercial activities associated with gocovri to vary from period to period , including those associated with the label revision for gocovri to include off episodes , and potential development of additional product candidates . due to these fluctuations , we believe that the period to period comparisons of our operating results are not necessarily a good indication of our future performance . 52 comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 ( in thousands , except percentages ) : replace_table_token_3_th nm - not meaningful .
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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 industrial wiping products , floor mats , facility service products and other non-garment items , and provide 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 decontaminate and clean work clothes and other items that may have been exposed to radioactive materials and service special cleanroom protective wear . 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 250,000 customer locations in the united states , canada and europe from 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 . 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 31 , 2013 using risk-free interest rates ranging from 2.8 % to 3.7 % 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 and the input of our attorneys and outside consultants based on changing legal or 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 eight to thirty-one years . 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 . derivative financial instruments us gaap requires that all our derivative instruments be recorded as other assets or other liabilities at fair value . all subsequent changes in a derivative 's fair value are recognized in income , unless specific hedge accounting criteria are met . cash flows associated with derivatives are classified in the same category as the cash flows hedged in our consolidated statements of cash flows . derivative instruments that qualify for hedge accounting are classified as a hedge of the variability of cash flows to be paid related to a recognized liability or a forecasted transaction . changes in the fair value of a derivative that is highly effective and designated as a cash flow hedge are recognized in accumulated other comprehensive income ( loss ) until expense from the cash flows of the hedged items are recognized . we perform an assessment at the inception of the hedge and on a quarterly basis thereafter , to determine whether our derivatives are highly effective in offsetting changes in the value of the hedged items . any changes in the fair value resulting from hedge ineffectiveness , is immediately recognized as income or expense . our hedging activities are transacted only with highly rated institutions , which reduces our exposure to credit risk in the event of nonperformance . as of august 31 , 2013 and august 25 , 2012 , we had no outstanding derivative instruments . supplemental executive retirement plan and other pension plans we recognize pension expense on an accrual basis over our employees ' estimated service periods .
| results of operations the following table presents , as a percent of total revenue , certain selected financial data for our three fiscal years ended august 31 , 2013 , august 25 , 2012 and august 27 , 2011. 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 31 , 2013 , august 25 , 2012 , and august 27 , 2011 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 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 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 merchandise costs related to the amortization of rental merchandise in service and 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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references to edison international parent and other refer to edison international parent and its competitive subsidiaries . unless otherwise described , all the information contained in this report relates to both filers . replace_table_token_2_th edison international 's earnings are prepared in accordance with gaap . management uses core earnings ( losses ) internally for financial planning and for analysis of performance . core earnings ( losses ) are also used when communicating with investors and analysts regarding edison international 's earnings results to facilitate comparisons of the company 's performance from period to period . core earnings ( losses ) are a non-gaap financial measure and may not be comparable to those of other companies . core earnings ( losses ) are defined as earnings attributable to edison international shareholders less non-core 3 items . non-core items include income or loss from discontinued operations and income or loss from significant discrete items that management does not consider representative of ongoing earnings , such as write downs , asset impairments and other income and expense related to changes in law , outcomes in tax , regulatory or legal proceedings , and exit activities , including sale of certain assets and other activities that are no longer continuing . edison international 's 2019 earnings increased $ 1,707 million , driven by an increase in sce 's earnings of $ 1,719 million and a decrease in edison international parent and other losses of $ 22 million , partially offset by $ 34 million of income from discontinued operations in 2018. sce 's higher net income consisted of $ 1,457 million of lower non-core losses and $ 262 million of higher core earnings . the increase in core earnings was due to the adoption of the 2018 grc final decision in 2019 , higher ferc revenue due to the settlement of sce 's 2018 formula rate proceeding and rate base growth , and the timing of regulatory deferral and cost recovery of incremental wildfire insurance expenses . these increases were partially offset by higher inspection , preventive maintenance and vegetation management costs that were not deferred as regulatory assets . edison international parent and other losses from continuing operations for 2019 consisted of $ 18 million of higher core losses and $ 40 million of lower non-core losses . the increase in core losses in 2019 was primarily due to higher interest expense and lower income tax benefits , partially offset by lower losses from the competitive businesses under edison energy group . consolidated non-core items for 2019 and 2018 for edison international included : charges of $ 218 million ( $ 157 million after-tax ) in 2019 and $ 2.5 billion ( $ 1.8 billion after-tax ) in 2018 for sce 's wildfire-related claims , net of expected recoveries from insurance and ferc customers . an impairment charge of $ 170 million ( $ 123 million after-tax ) recorded in 2019 for sce related to disallowed historical capital expenditures in sce 's 2018 grc final decision . a charge of $ 152 million ( $ 109 million after-tax ) recorded in 2019 from the amortization of sce 's contributions to the wildfire insurance fund . see `` notes to consolidated financial statements— note 12. commitments and contingencies '' for further information . inco me tax benefit of $ 88 million recorded in 2019 for sce related to changes in the allocation of deferred tax re-measurement between customers and shareholders as a result of a cpuc resolution issued in february 2019. the resolution determined that customers are only entitled to excess deferred taxes which were included when setting rates and other deferred tax re-measurements belong to shareholders . an impairment charge of $ 25 million ( $ 18 million after-tax ) in 2019 for edison energy following a goodwill assessment . a loss of $ 56 million ( $ 46 million after-tax ) in 2018 for edison international parent and other primarily related to sale of socore energy in april 2018. income of $ 12 million ( $ 9 million after-tax ) in 2018 for sce due to the elimination of the ghg reduction funding program as a result of the revised san onofre order instituting investigation settlement agreement among sce , sdg & e and various intervening parties , dated january 30 , 2018 and modified on august 2 , 2018. the 2018 settlement of the 1994 – 2006 california tax audits , which resulted in income tax expense of $ 12 million for edison international parent and other and income tax benefits of $ 66 million and $ 34 million for sce and discontinued operations , respectively . see `` results of operations '' for discussion of sce and edison international parent and other results of operations . 4 wildfire mitigation and wildfire insurance expenses in response to the increase in wildfire activity , and faster progression of and increased damage from wildfires across sce 's service territory and throughout california , sce is currently incurring wildfire mitigation and wildfire insurance related spending at levels significantly exceeding amounts authorized in its 2018 grc . several regulatory mechanisms , including but not limited to the gs & rp memorandum account , the fhpma , the wmp memorandum account and the wema , exist to allow sce to track and seek recovery of these incremental costs . in accordance with the accounting standards applicable to rate-regulated enterprises , sce defers costs as regulatory assets that are probable of future recovery from customers and has recorded regulatory assets for these incremental costs . as of december 31 , 2019 , sce has recognized $ 400 million of regulatory assets related to incremental wildfire mitigation expenses and $ 341 million of regulatory assets related to incremental wildfire insurance expenses . while sce believes such costs are probable of future recovery , there is no assurance that sce will collect all amounts currently deferred as regulatory assets . story_separator_special_tag the final decision allows a post-test year rate making mechanism that escalates capital additions by 2.49 % for both 2019 and 2020. it also allows operation and maintenance expenses to be escalated for 2019 and 2020 through the use of various escalation factors for labor , non-labor and medical expenses . the methodology set forth in the final decision results in a revenue requirement of $ 5.5 billion in 2019 and $ 5.9 billion in 2020. the revenue requirements in the 2018 grc final decision are retroactive to january 1 , 2018. sce recorded the prior period impact of the 2018 grc final decision in 2019 , including an increase to core earnings of $ 131 million from the application of the decision to revenue , depreciation expense and income tax expense and a non-core impairment of utility property , plant and equipment of $ 170 million ( $ 123 million after-tax ) related to disallowed historical capital expenditures . see `` results of operations—sce '' and `` notes to consolidated financial statements—note 1. summary of significant accounting policies '' for further information . 2020 cost of capital application in april 2019 , sce filed an application with the cpuc for authority to establish its authorized cost of capital for utility operations for a three-year term , beginning january 1 , 2020. in december 2019 , the cpuc issued a final decision increasing the common equity component of sce 's capital structure from its current authorized level of 48 % to 52 % in 2020 and correspondingly reducing its preferred equity component from 9 % to 5 % . the final decision maintains sce 's cpuc roe for the three-year period beginning january 1 , 2020 at 10.3 % . under the decision , sce 's annual cost of capital adjustment mechanism also remains unchanged . under the final decision , sce 's 2020 authorized cost of long-term debt and preferred equity are 4.74 % and 5.70 % , respectively . based on the approved capital structure and costs , sce 's weighted average return on rate base for 2020 will be 7.68 % . based on the revenue requirement approved in sce 's 2018 grc , sce 's cost of capital and capital structure approved in the final decision will result in a projected revenue requirement increase in 2020 of approximately $ 38 million from revenue currently included in cpuc electric rates of $ 5.9 billion . 2018 and 2019 ferc formula rate in december 2019 , the ferc approved a settlement on sce 's formula rates for the 2018 formula rate case that established sce 's ferc transmission revenue requirement for the ferc 2018 settlement period . the settlement provides for a weighted average roe of 11.2 % , which includes a previously authorized 50 basis point incentive for caiso participation and individual and previously authorized project incentives . under the settlement , if the ferc issues a final , unappealable ruling that finds sce is not eligible for the 50 basis point incentive for caiso participation , then the roe for the ferc 2018 settlement period will be reduced to 10.7 % . prior to the settlement , sce had been recognizing revenue during the ferc 2018 settlement period based on its expectations of the outcome of the 2018 formula rate case . regulatory assets and liabilities were adjusted based on the settlement of the 2018 formula rate case , which resulted in an increase in net income of $ 29 million related to 2018 , being recorded in 2019. the transmission revenue requirement and rates that have been billed to customers for the ferc 2018 settlement period were based on a total ferc weighted average roe of 11.58 % , and sce expects to refund excess amounts billed to customers during 2020. in the 2019 formula rate case , sce 's requested base 6 return on equity , as modified by a partial settlement approved by the ferc , is 11.97 % ( `` ferc base roe '' ) . this roe request reflects a conventional roe of 11.12 % and an additional roe of 0.85 % to compensate investors for current wildfire risk . as with sce 's requested roe in its 2020 cpuc cost of capital proceeding , this request reflects the anticipated impact of ab 1054 on sce 's requested roe . sce 's total roe request , inclusive of project incentives and a 0.5 % incentive for caiso participation , would be approximately 13.25 % . the 2019 formula rate was implemented in rates in november 2019 and remains subject to hearing and settlement procedures . amounts billed to customers under the 2019 formula rate will be subject to refund until the 2019 formula rate proceeding is ultimately resolved . in november 2019 , the ferc issued a decision in a pending midcontinent independent system operator transmission owners ( `` miso to '' ) proceeding which significantly revised the methodology used to determine miso to 's just and reasonable roe levels by restricting the valuation methodologies that would be recognized by the ferc in establishing a zone of reasonableness for roe . the decision also reiterated that authorized roe , including ferc-authorized project incentives , could not exceed the established zone of reasonableness . the updated methodology led to an authorized roe for miso to of 9.88 % , compared to their previously authorized roe of 12.38 % . numerous parties requested rehearing of the miso decision on various grounds and , in january 2020 , the ferc granted rehearing requests for the limited purpose of allowing the ferc additional time for consideration of the concerns raised . in december 2019 , the cpuc filed a protest with the ferc alleging that $ 419 million of costs associated with sce 's tehachapi transmission project are imprudent and should be disallowed from sce 's ferc rate base because these costs exceeded the maximum reasonable costs identified by the cpuc when it granted the project 's certificate of public convenience and necessity .
| results of operations sce sce 's results of operations are derived mainly through two sources : earning activities – representing revenue authorized by the cpuc and the ferc which is intended to provide sce a reasonable opportunity to recover its costs and earn a return on its net investment in generation , transmission and distribution assets . the annual revenue requirements are comprised of authorized operation and maintenance costs , depreciation , taxes and a return consistent with the capital structure . also , included in earnings activities are revenue or penalties related to incentive mechanisms , other operating revenue and regulatory charges or disallowances . cost-recovery activities – representing cpuc- and ferc-authorized balancing accounts which allow for recovery of specific project or program costs , subject to reasonableness review or compliance with upfront standards . cost-recovery activities include rates which provide recovery , subject to reasonableness review of , among other things , fuel costs , purchased power costs , public purpose related-program costs ( including energy efficiency and demand-side management programs ) and certain operation and maintenance expenses . sce earns no return on these activities . impact of 2018 grc the 2018 grc final decision determines the amount of revenue that sce is authorized to collect from customers to recover anticipated costs , including return on rate base . the 2018 grc final decision approved an authorized revenue requirement of $ 5.1 billion for 2018 , the first year ( `` test year '' ) of the three-year grc period , and authorized annual increases under a set escalation mechanism based on labor , non-labor and medical expenses . in the absence of a 2018 grc final decision , sce recognized revenue in 2018 and the first quarter of 2019 based on the 2017 authorized revenue requirement , adjusted for items sce determined to be probable of occurring , primarily the july 2017 cost of capital decision and tax reform .
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22,386 ( 2 ) 19.00 01/31/2029 34,380 ( 13 ) 45,382 — 68,750 ( 3 ) 13.50 02/06/2030 — — steven gelone 8,879 — ( 4 ) 72.05 07/05/2025 5,728 ( 12 ) 13,862 5,590 — ( 5 ) 83.40 02/04/2026 15,500 ( 13 ) story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our historical consolidated financial statements and the related notes thereto appearing elsewhere in this annual report . the objective of the following discussion and analysis is to provide material information relevant to your assessment of the financial condition and results of operations of our company , including an evaluation of the amounts and certainty of cash flows from operations and from outside sources , and to better allow you to view our company from management 's perspective . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report , 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 . on december 2 , 2020 , our board of directors effected a one-for-ten reverse stock split of our ordinary shares , or the reverse stock split . as a result of the reverse stock split , every ten ordinary shares of $ 0.01 each ( nominal value ) in the authorized and unissued and authorized and issued share capital of the company were consolidated into one ordinary share of $ 0.10 each ( nominal value ) , and the nominal value of each ordinary share was subsequently immediately reduced from $ 0.10 to $ 0.01 nominal value per share . all outstanding stock options , restricted stock units and warrants entitling their holders to purchase or acquire ordinary shares were adjusted as a result of the reverse stock split . accordingly , all ordinary share , common share , equity award , warrant and per share amounts have been adjusted to reflect the reverse stock split for all prior periods presented . overview we are a biopharmaceutical company engaged in the commercialization and research and development of novel anti-infective agents to treat serious infections . we have the commercial rights to two approved products , xenleta and sivextro , as well as one product candidate , contepo . in august 2019 , our first product was approved by the u.s. food and drug administration , or fda , and we made it available in the united states in september 2019 under the brand name xenleta . xenleta ( lefamulin ) is a first-in-class semi-synthetic pleuromutilin antibiotic for systematic administration in humans discovered and developed by our team . it inhibits the synthesis of bacterial protein , which is required for bacteria to grow by binding with high affinity , high specificity and at molecular targets that are different than other antibiotic classes . based on results from two global , phase 3 clinical trials , we believe that xenleta is well-positioned for use as a first-line monotherapy for the treatment of cabp due to its novel mechanism of action , targeted spectrum of activity , resistance profile , achievement of substantial drug concentration in lung tissue and fluid , availability of oral and intravenous , or iv , formulations and a generally well-tolerated safety profile . we believe xenleta represents a potentially important new treatment option for the five million adults in the united states diagnosed with cabp each year . on july 28 , 2020 , we announced that the european commission , or ec , issued a legally binding decision for approval of the marketing authorization application for xenleta ( lefamulin ) for the treatment of community-acquired pneumonia , or cap , in adults following a review by the european medicines agency , or ema . the ema approval of xenleta in cap patients when it is considered inappropriate to use antibacterial agents that are commonly recommended for initial treatment or when these agents have failed paves the way for the potential launch of xenleta , across the european economic area , or eea , and united kingdom , or u.k. the ec approved xenleta for all countries of the eea and u.k. we intend to work with a commercial partner to make xenleta available to patients in the eea and u.k. we submitted a new drug application , or nda , for marketing approval of contepo for the treatment of cuti in adults in the united states , utilizing the fda 's 505 ( b ) ( 2 ) pathway , in october 2018. the fda has granted fast track designation to contepo under the generating antibiotics incentives now act , or the gain act . in april 2019 , the fda issued a complete response letter , or crl , in connection with our nda for contepo for the treatment of cuti , including ap , stating that is was unable to approve the application in its current form . specifically , the crl requested that we address issues related to facility inspections and manufacturing deficiencies at our api contract 123 manufacturer . we held a “ type a ” meeting with the fda in july 2019 to discuss its findings and resubmitted our nda seeking marketing approval for contepo in december 2019. in june 2020 , the fda issued a second crl . although our european contract manufacturing partners were prepared for regulatory authority inspections , the second crl cited observations at our manufacturing partners that could not be resolved due to fda 's inability to conduct onsite inspections because of travel restrictions . story_separator_special_tag each share was issued and sold together with an accompanying ordinary share warrant at a combined price of $ 2.4525 , and each pre-funded warrant was issued and sold together with an accompanying ordinary share warrant at a combined price of $ 2.4425. the proceeds to us from the offering were $ 25.4 million gross and $ 23.4 million net after deducting the placement agent 's fees and estimated offering expenses . each pre-funded warrant had an exercise price per ordinary share equal to $ 0.01 and each pre-funded warrant was exercised in full on the issuance date . each ordinary share warrant has an exercise price per ordinary share equal to $ 2.39 , was exercisable on the date of issuance and will expire on the five-year anniversary of the date of issuance . business update regarding covid-19 on march 11 , 2020 , the world health organization declared the outbreak of covid-19 , which continues to spread throughout the u.s. and the world , as a pandemic . the outbreak is having an impact on the global economy , resulting in rapidly changing market and economic conditions . national and local governments around the world instituted certain measures , including travel bans , prohibitions on group events and gatherings , shutdowns of certain non-essential businesses , curfews , shelter-in-place orders and recommendations to practice social distancing . the covid-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees , communities and business operations , as well as the u.s. economy and financial markets . the full extent to which the covid-19 pandemic will directly or indirectly impact our business , results of operations and financial condition will depend on future developments that are highly uncertain and can not be accurately predicted , including new information that may emerge concerning covid-19 , the actions taken to contain it or treat its impact and the economic impact on local , regional , national and international markets . the full impact of covid-19 is unknown and may continue as the rates of infection have increased in many states in the u.s. , thus additional restrictive measures may be necessary . federal , state and local governmental policies and initiatives designed to reduce the transmission of covid-19 have resulted in , among other things , a significant reduction in physician office visits , the cancellation of elective medical procedures , and the adoption of work-from-home policies , all of which have had , and we believe will continue to have , an impact on our consolidated results of operations , financial position , and cash flows . in response to the covid-19 pandemic , we closed our administrative offices and shifted to a remote working business model . we have implemented a work-from-home policy for all of our employees , and we may take further actions that alter our operations as may be required by federal , state , or local authorities , or which we determine are in our best interests . the commercial and medical organizations have suspended in-person interactions with physicians and customers and were restricted to conducting educational and promotional activities virtually . the impact of the covid-19 pandemic could continue to have a material adverse effect on our business , results of operations , financial condition , liquidity and prospects in the near-term and beyond 2021. while we have used all currently available information in our forecasts , the ultimate impact of the covid-19 pandemic and our product sales for xenleta and sivextro , on our results of operations , financial condition and cash flows is highly uncertain , and can not currently be accurately predicted . our results of operations , financial condition and cash flows are dependent on future developments , including the duration of the pandemic and the related length of its impact on the global economy , such as a lengthy or severe recession or any other negative trend in the u.s. or global economy and any new information that may emerge concerning the covid-19 outbreak and the actions to contain it or treat its impact , which at the present time are highly uncertain and can not be predicted with any accuracy . covid-19 has demonstrated the devastating impact that infectious diseases can have on public health and the economy . similar to other acute respiratory virus infections , including influenza virus , patients infected with sars-cov-2 are at increased risk of developing concomitant bacterial pneumonia . in published reports , bacterial pneumonia has been shown to affect nearly 50 % of hospitalized patients with covid-19 , with an associated mortality of almost 50 % . as a result , the world health organization currently recommends empiric antimicrobials to treat all likely pathogens causing severe acute respiratory infections and sepsis as soon as possible in patients with covid-19 . 125 sivextro is approved for the treatment of acute bacterial skin and skin structure infections , or absssis , caused by certain susceptible gram-positive microorganisms . before we were permitted to sell sivextro under the distribution agreement , we were required to secure a sales force of a certain size and the restrictions related to covid-19 must be eased in a sufficient manner to permit us to promote and distribute sivextro . re-securing a sales force of a certain size for the promotion and distribution of sivextro will result in significant additional expense and our efforts to secure a sales force may not be successful . in september 2020 , we began a small and focused sales effort for sivextro and xenleta , by utilizing 15 sales representatives and expanded this effort to a total of 60 sales representatives in november 2020 and we may expand it further in 2021 . xenleta is approved for the treatment of cabp in adults in the united states .
| results of operations comparison of years ended december 31 , 2019 and 2020 replace_table_token_2_th revenues revenues decreased by $ 4.5 million from $ 9.5 million for the year ended december 30 , 2019 to $ 5.0 million for the year ended december 31 , 2020 , primarily due to a $ 3.5 million decrease in collaboration revenue and a $ 1.4 million decrease in product revenue , net , partially offset by a $ 0.4 million increase in research premiums and government grants provided to us by the austrian government . the decrease in collaboration revenues was primarily due 132 to the $ 5.0 million recognized in 2019 under our sinovant license agreement , partially offset by $ 1.8 million recognized in 2020 under our sivextro distribution agreement with merck & co. , inc. cost of product sales cost of product sales primarily represents direct and indirect manufacturing costs of our xenleta product . prior to the fda approval of xenleta on august 19 , 2019 , the inventory costs for the product were expensed as research and development expenses since the approval was outside of our control and therefore not considered probable . as such , the majority of the expenses incurred for our initial inventories of xenleta has been previously expensed . as a result , we anticipate that our cost of product sales will remain at relatively low levels for a period of time until our initial pre-launch inventory stock has been distributed by our customers based on end user consumption demand . for the year ended december 31 , 2020 , cost of product sales included a $ 0.7 million non-cash reserve for excess and obsolete inventory due to the uncertainty of commercial activities underlying xenleta sales .
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f-9 hospitality properties trust notes to financial statements ( continued ) december 31 , 2012 ( dollars in thousands , except per share data ) 2. summary of significant accounting policies ( continued ) cash and cash equivalents . we consider highly liquid investments with original maturities of three months or less at date of purchase to be cash equivalents . restricted cash . restricted cash , or ff & e reserve escrows , consists of amounts escrowed pursuant to the terms of our management agreements and leases to fund periodic renovations and improvements at our hotels . deferred financing costs . we capitalize costs incurred to borrow and we amortize those costs as interest expense over the term of the related borrowing . deferred financing costs were $ 15,062 and $ 12,542 story_separator_special_tag the following information should be read in conjunction with our consolidated financial statements and accompanying notes included in this annual report on form 10-k. overview ( dollar amounts in thousands ) story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0000945394/000104746913002026/ # bg12601a_main_toc '' > management agreements and leases at december 31 , 2012 , we owned or leased 289 hotels operated under 10 operating agreements ; 232 of these hotels were leased by us to our wholly owned trss and managed by hotel operating companies , one hotel was leased by one of our trss from a third party and managed by a hotel operating company and 56 were leased to third parties . as described above , our lease with host for 53 hotels expired on december 31 , 2012. as of january 1 , 2013 , we leased these hotels to one of our trss and continued the previously existing brand and hotel management agreement . at december 31 , 2012 , we also owned 185 travel centers that were leased to ta under two agreements . our consolidated statements of income and comprehensive income include operating revenues and expenses of our managed hotels and rental income from leased hotels and travel centers . additional information regarding the terms of our management agreements and leases is included in the table on pages 81 through 84 below . 64 results of operations ( dollar amounts in thousands , except per share amounts ) year ended december 31 , 2012 compared to year ended december 31 , 2011 replace_table_token_7_th references to changes in the income and expense categories below relate to the comparison to consolidated results for the year ended december 31 , 2012 , compared with the year ended december 31 , 2011. the increase in hotel operating revenues in 2012 compared to 2011 was caused primarily by increased revenues at certain of our managed hotels due to increases in adr and higher occupancies , the conversion of 19 hotels from leased to managed properties in june 2011 and our 2012 hotel acquisitions . these increases were partially offset by decreases in revenues at certain of our managed hotels undergoing renovations or rebrandings during 2012 which resulted in lower occupancies . additional revenue statistics of our hotels are included in the table on page 85 . 65 the decrease in rental income hotels is a result of the conversion of the 19 hotels from leased to managed in june 2011 , partially offset by increases in the minimum rents due to us as we funded improvements at certain of our leased hotels since january 1 , 2011. the increase in rental income travel centers is primarily a result of increases in the minimum rents due to us from ta for improvements we purchased at certain of our travel centers since january 1 , 2011. rental income for the 2012 and 2011 periods includes $ 149 and $ 4,789 of straight line rent , respectively . the increase in percentage rent hotels is a result of increased sales at certain of our leased hotels in 2012 versus 2011. the increase in percentage rent travel centers is a result of the payment of percentage rent to us under one of our leases with ta , which first became payable in 2012. ff & e reserve income represents amounts paid by certain of our hotel tenants into restricted accounts owned by us , the purpose of which is to accumulate funds for future capital expenditures . the terms of our hotel leases require these amounts to be calculated as a percentage of total sales at our hotels . the decrease in ff & e reserve income is primarily the result of the conversion of the 19 hotels from leased to managed in june 2011 , partially offset by increased levels of sales at our leased hotels in the respective periods of 2012 versus 2011. we do not report the amounts , if any , which are escrowed as ff & e reserves for our managed hotels as ff & e reserve income . the increase in hotel operating expenses was primarily caused by the conversion of the 19 hotels from leased to managed in june 2011 , our 2012 hotel acquisitions and increased expenses associated with higher occupancy at certain of our managed hotels , partially offset by operating expense decreases at certain hotels undergoing renovations . certain of our managed hotel portfolios had net operating results that were , in the aggregate , $ 76,978 and $ 60,265 less than the minimum returns due to us in 2012 and 2011 , respectively . when the shortfalls are funded by the managers of these hotels under the terms of our operating agreements , we reflect such fundings ( including security deposit applications ) in our consolidated statements of income and comprehensive income as a reduction to hotel operating expenses . the reduction to hotel operating expenses was $ 46,386 and $ 58,772 for 2012 and 2011 , respectively . we had $ 30,592 and $ 1,493 of shortfalls not funded by managers for 2012 and 2011 , respectively , which represents the unguaranteed portion of our minimum returns from marriott and from sonesta . story_separator_special_tag the increase in percentage rent hotels is a result of increased sales at certain of our leased hotels in 2011 versus 2010. the decrease in ff & e reserve income is primarily the result of the conversion of the 37 hotels from leased to managed during 2011 , partially offset by increased levels of sales at certain of our leased hotels in 2011 versus 2010. the increase in hotel operating expenses was primarily caused by the conversion of 37 hotels from leased to managed during 2011 , and increased expenses associated with higher occupancy at our managed hotels , partially offset by the funding by certain of our managers of minimum return deficiencies and our application of security deposits to cover minimum return deficiencies . certain of our managed hotel portfolios had net operating results that were , in the aggregate , $ 60,264 and $ 85,592 less than the minimum returns due to us in 2011 and 2010 , respectively . when the shortfalls are funded by the managers of these hotels under the terms of our operating agreements , we reflect these fundings ( including security deposit applications ) in our consolidated statements of income as a reduction to hotel operating expenses . the reduction in operating expenses was $ 58,771 and $ 85,592 in 2011 and 2010 , respectively . we had $ 1,493 of shortfalls not funded by managers in 2011 which represents the unguaranteed portion of our minimum returns from marriott . the decrease in depreciation and amortization hotels is primarily due to certain of our depreciable assets becoming fully depreciated in 2010 and 2011 and the impact of not recording depreciation on 21 hotels classified as held for sale beginning in july 2011 , partially offset by the depreciation and amortization of assets acquired with funds from our ff & e reserve accounts in 2010 and 2011. the increase in depreciation and amortization travel centers is primarily due to the depreciation and amortization of improvements made to our travel centers during 2010 and 2011. the increase in general and administrative costs is primarily due to an increase in business management and legal fees in 2011 versus 2010. acquisition related costs represent legal and other costs incurred in connection with our hotel acquisition activities . we recorded a $ 163,681 loss on asset impairment in 2010 to reduce the carrying value of certain of our hotels to their estimated fair value . we recorded a $ 16,384 loss on asset impairment in 2011 to further reduce the carrying value of certain of these hotels . the increase in operating income is primarily due to the revenue and expense changes discussed above , particularly the loss on asset impairment recorded in 2010. the decrease in interest income is due to lower average cash balances during 2011 versus 2010. the decrease in interest expense is primarily due to lower weighted average interest rates and lower average borrowings in 2011 compared to 2010 . 69 in 2010 , we recorded a $ 6,720 loss on the extinguishment of debt relating to the purchase of $ 185,696 aggregate principal amount of our 3.8 % convertible senior notes due 2027 for an aggregate purchase price of $ 185,626 , excluding accrued interest . the loss on extinguishment of debt includes unamortized issuance costs and discounts of $ 7,260 and $ 588 of transaction costs , net of the equity component of the notes of $ 1,058. equity in earnings ( losses ) of an investee represents our proportionate share of the earnings ( losses ) of aic . the increase in income tax expense is primarily the result of an increase in state income taxes as a result of higher taxable income for state income tax purposes in the 2011 period compared to the 2010 period . the increases in net income , net income available for common shareholders and net income available for common shareholders per common share in 2011 compared to 2010 are primarily a result of the changes discussed above , particularly the loss on asset impairment recorded in 2010. liquidity and capital resources ( dollar amounts in thousands , except per share amounts ) our managers and tenants as of december 31 , 2012 , all 474 of our properties are operated under 12 management agreements or leases . all costs of operating and maintaining our properties are paid by our hotel managers as agents for us or by our tenants for their own account . our hotel managers and tenants derive their funding for property operating expenses , and returns and rents due to us , generally from property operating revenues and , to the extent that these parties themselves fund our minimum returns and minimum rents , from their separate resources . our hotel managers and tenants include marriott , intercontinental , hyatt , carlson , sonesta , wyndham and morgans . our travel centers are leased to ta . we define coverage for each of our hotel management agreements or leases as total property level revenues minus all property level expenses which are not subordinated to the minimum returns and minimum rents due to us divided by the minimum returns or minimum rent payments due to us . more detail regarding coverage , guarantees and other features of our hotel operating agreements is presented on pages 81 through 84. during the year ended december 31 , 2012 , eight of our ten hotel operating agreements generated coverage of less than 1.0x ( 0.38x to 0.88x ) ; our sonesta no . 2 and marriott no . 1 agreements generated coverage of 2.17x and 1.0x during the year ended december 31 , 2012 , respectively . we define coverage for our travel center leases as property level revenues minus all property level expenses divided by the minimum rent payments due to us . during the twelve months ended september 30 , 2012 , the operating results from our 185 properties in our two travel center leases each generated coverage of 1.71x .
| hotel operations . in 2012 , the u.s. hotel industry generally showed improvement in average daily rate , or adr , occupancy and revpar over 2011 , but these measures are still below levels prior to the recent recession . we believe the increases in adr , occupancy and revpar at certain of our hotels in 2012 have been below hotel industry averages primarily due to the disruption and displacement caused by renovation and rebranding activities . during the twelve months ended december 31 , 2012 , we had 138 of our hotels under renovation for all or part of the period and we rebranded 39 hotels during 2012. we expect our high level of hotel renovation activity to continue through 2013 and into 2014. our hotel tenants and managers . many of our hotel operating agreements contain security features , such as guarantees and security deposits , which are intended to protect minimum returns and rents due to us in accordance with our operating agreements regardless of hotel performance . however , the effectiveness of various security features to provide uninterrupted receipt by us of minimum returns and rents is not assured , particularly if the u.s. economy and the lodging industry take an extended period to recover from the severe declines experienced during the recent recession , if economic conditions decline , or if our hotel renovation activities described above do not result in improved operating results at these hotels . further , certain of the guarantees that have been granted to us are limited in amount and duration and do not provide for payment of the entire amount of the applicable minimum return shortfalls . if our tenants , managers or guarantors do not earn or pay the minimum returns and rents due to us , our cash flows will decline and we may be unable to pay distributions to our shareholders , repay our debt or fund our debt service obligations .
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item 13. certain relationships and related transactions , and director independence . during the fiscal year ended october 31 , 2011 , mr. gregory neely loaned $ 34,874 to the company . the amount due is non-interest bearing , unsecured and due on demand . during december 2011 , the company sold 146,883 shares of restricted common stock for $ 14,688 at $ .10 per share in reliance upon regulation s under the securities act of 1933. during december 2011 , mr. gregory neely , a director and officer of the company was reimbursed $ 6,757 for previous advances to the company , and he subsequently advanced an additional $ 4,000 to the company . item 14. principal accounting fees and services . the aggregate fees billed by our principal accounting firm for fees billed for fiscal years ended october 31 , 2011 and 2010 , are as follows : replace_table_token_9_th 29 the company does not currently have an audit committee . as a result , our board of directors performs the duties and functions of an audit committee . the company 's board of directors will evaluate and approve in advance , the scope and cost of the engagement of our auditor before the auditor renders audit and non-audit services . we do not rely on pre-approval policies and procedures . part iv item 15. exhibits . financial statement schedules . exhibits 1.1 the articles of incorporation of the company are incorporated by reference herein to exhibits 1.1 and 1.2 to the form 10 registration statement filed by the company on october 15 , 2010 [ file no . 001-34911 ] 3.1 the by laws of the company are hereby incorporated herein by reference to exhibit 2 to the form 10 registration statement of the company . 10.1 the mining claim of the company in clark county , nevada , is hereby incorporated herein by reference to exhibit 3 to the form 10 registration statement of the company . 21. description of subsidiaries is hereby incorporated herein by reference to exhibit 21 to the form 10-k annual report of the company for its fiscal year ended october 31 , 2010 . 31.1 certification of stephen dewingaerde 31.2 certification of gregory j. neely 32.1 certification of stephen dewingaerde and gregory j. neely 10.2 geological evaluation report of laurence sookochoff , p . eng . , dated october 29 , 2010 , is hereby incorporated by reference herein by reference to exhibit 10.2 to amendment no . 1 to the form 10 registration statement of the company 30 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 . rockford minerals inc. date : february 13 , 2012 by : stephen dewingaerde stephen dewingaerde president pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . rockford minerals inc. date : : february 13 , 2012 by : stephen dewingaerde stephen dewingaerde president and director by : gregory j. neely gregory j. neely treasurer , chief financial officer and accounting officer , and director 31 story_separator_special_tag plan of operation as of october 31 , 2011 , the company had a cash balance of $ 2,860 in comparison to $ 17,137 at october 31 , 2010. in order to meet our budgeted cash requirements over the next 12 months , we anticipate raising money from equity financing from the sale of our common stock , additional shareholder loan commitments and or the sale of part of our interest in our mineral claim . if we are not successful in raising additional financing , we anticipate that we will not be able to proceed with our business plan . in such a case , we may decide to discontinue our current business plan and seek other business opportunities . any business opportunity may require our management to perform diligence on possible acquisition of additional resource properties . such due diligence would likely include purchase investigation costs , such as professional fees by consulting geologists , preparation of geological reports on the properties , conducting title searches and travel costs for site visits . our current cash on hand will not be sufficient to acquire any resource property and additional funds will be required to close any possible acquisition . as a reporting company , we will need to maintain our periodic filings with the appropriate regulatory authorities and will incur legal and accounting costs . if no other such opportunities are available and we can not raise additional capital to sustain minimum operations , we may be forced to discontinue business . we do not have any specific alternative business opportunities in mind and have not planned for any such contingency . based on the nature of our business , we anticipate incurring operating losses in the foreseeable future . we base this expectation , in part , on the fact that very few mineral claims in the exploration stage ultimately develop into producing , profitable mines . our future financial results are also uncertain due to a number of factors , some of which are outside our control . these factors include the following : our ability to raise additional funding ; the market price for minerals that may be found on our use1 – 4 and little butte mineral claims ; the results of our proposed exploration programs on our mineral properties ; and 21 our ability to find joint venture partners for the development of our property interests due to our lack of operating history and present inability to generate revenues , our auditors have stated their opinion that there currently exists substantial doubt about our ability to continue as a going concern story_separator_special_tag item 13. certain relationships and related transactions , and director independence . during the fiscal year ended october 31 , 2011 , mr. gregory neely loaned $ 34,874 to the company . the amount due is non-interest bearing , unsecured and due on demand . during december 2011 , the company sold 146,883 shares of restricted common stock for $ 14,688 at $ .10 per share in reliance upon regulation s under the securities act of 1933. during december 2011 , mr. gregory neely , a director and officer of the company was reimbursed $ 6,757 for previous advances to the company , and he subsequently advanced an additional $ 4,000 to the company . item 14. principal accounting fees and services . the aggregate fees billed by our principal accounting firm for fees billed for fiscal years ended october 31 , 2011 and 2010 , are as follows : replace_table_token_9_th 29 the company does not currently have an audit committee . as a result , our board of directors performs the duties and functions of an audit committee . the company 's board of directors will evaluate and approve in advance , the scope and cost of the engagement of our auditor before the auditor renders audit and non-audit services . we do not rely on pre-approval policies and procedures . part iv item 15. exhibits . financial statement schedules . exhibits 1.1 the articles of incorporation of the company are incorporated by reference herein to exhibits 1.1 and 1.2 to the form 10 registration statement filed by the company on october 15 , 2010 [ file no . 001-34911 ] 3.1 the by laws of the company are hereby incorporated herein by reference to exhibit 2 to the form 10 registration statement of the company . 10.1 the mining claim of the company in clark county , nevada , is hereby incorporated herein by reference to exhibit 3 to the form 10 registration statement of the company . 21. description of subsidiaries is hereby incorporated herein by reference to exhibit 21 to the form 10-k annual report of the company for its fiscal year ended october 31 , 2010 . 31.1 certification of stephen dewingaerde 31.2 certification of gregory j. neely 32.1 certification of stephen dewingaerde and gregory j. neely 10.2 geological evaluation report of laurence sookochoff , p . eng . , dated october 29 , 2010 , is hereby incorporated by reference herein by reference to exhibit 10.2 to amendment no . 1 to the form 10 registration statement of the company 30 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 . rockford minerals inc. date : february 13 , 2012 by : stephen dewingaerde stephen dewingaerde president pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . rockford minerals inc. date : : february 13 , 2012 by : stephen dewingaerde stephen dewingaerde president and director by : gregory j. neely gregory j. neely treasurer , chief financial officer and accounting officer , and director 31 story_separator_special_tag plan of operation as of october 31 , 2011 , the company had a cash balance of $ 2,860 in comparison to $ 17,137 at october 31 , 2010. in order to meet our budgeted cash requirements over the next 12 months , we anticipate raising money from equity financing from the sale of our common stock , additional shareholder loan commitments and or the sale of part of our interest in our mineral claim . if we are not successful in raising additional financing , we anticipate that we will not be able to proceed with our business plan . in such a case , we may decide to discontinue our current business plan and seek other business opportunities . any business opportunity may require our management to perform diligence on possible acquisition of additional resource properties . such due diligence would likely include purchase investigation costs , such as professional fees by consulting geologists , preparation of geological reports on the properties , conducting title searches and travel costs for site visits . our current cash on hand will not be sufficient to acquire any resource property and additional funds will be required to close any possible acquisition . as a reporting company , we will need to maintain our periodic filings with the appropriate regulatory authorities and will incur legal and accounting costs . if no other such opportunities are available and we can not raise additional capital to sustain minimum operations , we may be forced to discontinue business . we do not have any specific alternative business opportunities in mind and have not planned for any such contingency . based on the nature of our business , we anticipate incurring operating losses in the foreseeable future . we base this expectation , in part , on the fact that very few mineral claims in the exploration stage ultimately develop into producing , profitable mines . our future financial results are also uncertain due to a number of factors , some of which are outside our control . these factors include the following : our ability to raise additional funding ; the market price for minerals that may be found on our use1 – 4 and little butte mineral claims ; the results of our proposed exploration programs on our mineral properties ; and 21 our ability to find joint venture partners for the development of our property interests due to our lack of operating history and present inability to generate revenues , our auditors have stated their opinion that there currently exists substantial doubt about our ability to continue as a going concern
| results of operation the company did not have any operating revenues or income from its inception ( october 29 , 2007 ) through october 31 , 2011. for the period from inception , october 29 , 2007 , through the fiscal year ended october 31 , 2011 , the company recognized a net cumulative loss of $ 152,729. some general and administrative expenses during the year were accrued . expenses for the year were comprised of costs mainly associated with legal , accounting and office expenses . revenues : the company did not have any revenues during the fiscal years ended october 31 , 2011 and 2010. the mining claim of the company has not been developed nor have any production operations been conducted on the mining claim of the company . mineral exploration : the company has acquired a mining claim and has conducted preliminary mining exploration testing and evaluation of its claim . during the fiscal year ended october 31 , 2011 , the company incurred $ 140 of costs , compared to $ 290 during the fiscal year ended october 31 , 2010 , a decrease of approximately $ 150 or 52 % . professional fees : the company incurred an increase in professional fees during the fiscal year ended october 31 , 2011 , of $ 47,812 , compared to $ 33,213 during the fiscal year ended october 31 , 2010 , an increase of $ 14,599 or 43 % . professional fees were incurred primarily for legal fees and accounting fees . general and administrative expenses : during the fiscal year ended october 31 , 2011 , the company incurred general and administrative expenses of $ 13,646 , compared to $ 7,877 during the fiscal year ended october 31 , 2010 , an increase of $ 5,769 or 73 % . general and administrative expenses were incurred primarily for office expenses and filing fees .
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the components of income tax expense ( benefit ) from continuing operations are as follows ( in thousands ) : year ended june 30 , 2013 2012 current federal $ $ state and local 17 foreign $ $ 17 deferred federal state and local foreign total tax expense $ $ 17 a reconciliation of the reported income tax expense to the amount that would result by applying the u.s. federal statutory rate to the income ( loss ) before income taxes to the actual amount story_separator_special_tag the following information should be read in conjunction with the consolidated financial statements and the accompanying notes included below in item 8 and risk factors included above in item 1a of this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements . overview astrotech corporation ( nasdaq : astc ) ( astrotech , the company , we , us or our ) , a washington corporation , is a commercial aerospace company that was formed in 1984 to leverage the environment of space for commercial purposes . for nearly 30 years , the company has remained a crucial player in space commerce activities . we have supported the launch of 23 shuttle missions and more than 300 spacecraft . we 've designed and built space hardware and processing facilities and constructed world-class processing facilities . we currently own , operate and maintain world-class spacecraft processing facilities ; prepare and process scientific research from microgravity and develop and manufacture sophisticated chemical sensor equipment . our efforts are focused on : providing world-class facilities and related support services necessary for the preparation of satellites and payloads . providing satellite and payload processing and integration service and support . designing , fabricating and utilizing equipment and hardware for launch activities . supplying propellant and associated services for spacecraft . managing launch logistics and support . working with development partners to build industry specific applications using our sensor equipment . commercializing unique space-based technologies . our business units astrotech space operations ( aso ) aso provides support to its government and commercial customers as they successfully process complex communication , earth observation and deep space satellites in preparation for their launch on a variety of launch vehicles . processing activities include satellite ground transportation ; pre-launch hardware integration and testing ; satellite encapsulation , fueling , launch pad delivery ; and communication linked launch control . our aso facilities can accommodate five-meter class satellites , encompassing the majority of u.s.-based satellites . aso 's service capabilities include designing and building spacecraft processing equipment and facilities . additionally , aso provides propellant services including designing , building and testing propellant service equipment for servicing spacecraft . aso accounted for 99 % of our consolidated revenues for the year ended june 30 , 2013. revenue for our aso business unit is generated primarily from various fixed-priced contracts with launch service providers in both the government and commercial markets and the design and fabrication of space launch equipment . the services and facilities we provide to our customers support the final assembly , checkout , and countdown functions associated with preparing and launching spacecraft . the revenue and cash flows generated from our aso operations are primarily related to the number of spacecraft launches and the fabrication of the gse for the u.s. government . other factors that have impacted , and are expected to continue to impact , earnings and cash flows for this business include : 21 the continuing limited availability of competing facilities at the major domestic launch sites that can offer comparable services , leading to an increase in government and commercial use of our services . our ability to design and fabricate spacecraft preparation and processing equipment . our ability to control our capital expenditures , which are primarily limited to modifications required to accommodate payload processing for new launch vehicles and upgrading building infrastructure . our ability to complete customer specified facility modifications within budgeted costs and time commitments . uncertainty in government funding and support for key space programs . the impact of competition and industry consolidation and our ability to win new contracts . spacetech our other business unit is a technology incubator designed to commercialize space-industry technologies . this business unit is currently pursuing two distinct opportunities : 1 st detect 1 st detect develops , manufactures and sells ultra - small mass spectrometers and related equipment . mass spectrometers , in general , measure the mass and relative abundance of ions in a sample to create a mass spectrum . this resulting mass spectrum is a unique fingerprint for each chemical that can be compared to a reference library of mass spectra to verify the identity of a sample . mass spectrometers can identify chemicals with more accuracy and precision than competing instruments given their extreme sensitivity and specificity and they are a staple of almost all analytical laboratories . by leveraging technology initiated by an engagement with nasa to develop a mass spectrometer for the iss , the company has developed a series of instruments that are significantly smaller , lighter , faster and less expensive than competing mass spectrometers , and significantly more sensitive and accurate than other competing chemical detectors . our efforts have resulted in a technology that can provide mass spectrometry performance in real-time or in the field . the mms-1000 tm is a small , low power mass spectrometer designed initially for the laboratory market . the unique design of this unit enables mass spectrometric quality chemical analysis in a small package ( about the size of a shoebox ) that operates off less power than a typical light bulb . story_separator_special_tag the fair value of awards that are expected to vest is recorded as an expense over the vesting period . noncontrolling interest noncontrolling interest accounting is applied for any entities where the company maintains more than 50 % and less than 100 % ownership . the company clearly identifies the noncontrolling interest in the balance sheets and income statements . we also disclose three measures of net income ( loss ) : net income ( loss ) , net income ( loss ) attributable to noncontrolling interest , and net income ( loss ) attributable to astrotech corporation . our operating cash flows in our consolidated statements of cash flows reflect net income ( loss ) , while our basic and diluted earnings per share calculations reflect net income ( loss ) attributable to astrotech corporation . state of texas funding the company accounts for the state of texas funding in the amount of $ 1.8 million in its majority owned subsidiary 1st detect as a contribution of capital and has reflected the disbursement in the equity section of the consolidated balance sheet . while the award agreement includes both a common stock purchase right and a note payable to the state of texas , the economic substance of the transaction is that the state of texas has purchased shares of 1 st detect in exchange for the granted award . income taxes the company accounts for income taxes under the asset and liability method . deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts . valuation allowances are established , when necessary , to reduce deferred tax assets to amounts that are more likely than not to be realized . as of june 30 , 2013 , the company has established a full valuation allowance against all of its net deferred tax assets . fasb asc 740 , income taxes ( fasb asc 740 ) addresses the accounting for uncertainty in income taxes recognized in an entity 's financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return . the company has an unrecognized tax benefit of $ 0.1 million for the years ended june 30 , 2013 and 2012. for the year ended june 30 , 2013 and 2012 , the company 's effective tax rate differed from the federal statutory rate of 35 % , primarily due to recording changes to the valuation allowance placed against its net deferred tax assets . 24 the company files income tax returns in the u.s. federal jurisdiction and in various states . due to the company 's loss carryover position , it is subject to u.s. federal and state income tax examination adjustments to its carryover benefits generated after 1999. currently , the company is under examination by the internal revenue service for its 2008 through 2010 tax year . consolidated results of operations results of operations for the years ended june 30 , 2013 and 2012 the following table sets forth the significant components in the consolidated statements of operations for the year ended june 30 , 2013 compared with 2012. the financial information and the discussion below should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements . replace_table_token_4_th the following table sets forth the percentage of total revenue of significant components in the consolidated statements of operations for the year ended june 30 , 2013 compared with 2012 : replace_table_token_5_th * represents less than 1 % of period revenue revenue . total revenue decreased to $ 24.0 million for the year ended june 30 , 2013 from $ 26.1 million for the year ended june 30 , 2012. this decrease is primarily attributable to a reduction in revenue earned on the fabrication of the gse for the u.s. government . 25 a breakdown of revenue for the years ended june 30 , 2013 and 2012 is as follows : replace_table_token_6_th gross profit . gross profit increased to $ 8.3 million for the year ended june 30 , 2013 , as compared to $ 7.3 million for the year ended june 30 , 2012. the increase in gross margin is more reflective of our satellite payload processing that is generally near-term fixed-price . this year , we experienced an increase in satellite payload processing and a decrease in activity for the fabrication of the gse for the u.s. government , as compared to the prior year . selling , general and administrative expense . selling , general and administrative decreased to $ 6.8 million for the year ended june 30 , 2013 from $ 7.1 million for the year ended june 30 , 2012. the decrease was primarily attributable to a reduction in employee incentive compensation expense . research and development expense . research and development expense decreased to $ 2.1 million for the year ended june 30 , 2013 from $ 2.6 million for the year ended june 30 , 2012. this decrease is a result of the delivery and installation of 1 st detect evaluation units to potential customers , which were recorded as an offset to research and development expense . interest and other expense , net . interest and other expense , net , decreased to $ 0.2 million for the year ended june 30 , 2013 from $ 1.0 million for the year ended june 30 , 2012. the decrease is attributable to a reserve that the company took against the note receivable , due december 2012 , in the amount of $ 0.7 million representing the full carried book value of the note at june 30 , 2012 ( see note 6 ) . story_separator_special_tag equipment . debt credit facilities in october 2010 , we entered into a financing facility with a commercial bank providing a $ 7.0 million term loan note and a $ 3.0 million revolving credit facility .
| segment results of operations aso selected financial data for the years ended june 30 , 2013 and 2012 of our aso business unit is as follows : replace_table_token_7_th revenue . total revenue decreased to $ 23.9 million for the year ended june 30 , 2013 from $ 25.8 million for the year ended june 30 , 2012. this decrease is primarily attributable to revenue earned on the fabrication of the gse for the u.s. government . gross profit . gross profit increased to $ 8.2 million for the year ended june 30 , 2013 from $ 7.1 million for the year ended june 30 , 2012. this year , we experienced an increase in satellite payload processing and a decrease in activity for the fabrication of the gse for the u.s. government , as compared to the prior year . 26 selling , general and administrative expense . selling , general and administrative expense decreased to $ 4.9 million for the year ended june 30 , 2013 from $ 5.0 million for the year ended june 30 , 2012. the decrease was primarily attributable to a reduction in employee incentive compensation expense . interest and other expense , net . interest and other expense , net , decreased to $ 0.2 million for the year ended june 30 , 2013 from $ 1.0 million for the year ended june 30 , 2012. the decrease is attributable to a reserve that the company took against the note receivable , due december 2012 , in the amount of $ 0.7 million representing the full carried book value of the note at june 30 , 2012 ( see note 6 ) . spacetech selected financial data for the years ended june 30 , 2013 , and 2012 of our spacetech business unit is as follows : replace_table_token_8_th revenue . total revenue decreased to $ 0.1 million for the year ended june 30 , 2013 compared to $ 0.3 million for the year ended june 30 , 2012 .
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actual results may differ substantially and adversely from those referred to herein due to a number of factors , including but not limited to those described below and in `` item 1a - risk factors ” and elsewhere in this annual report . overview we design and manufacture semiconductor products for data center , telecommunications and industrial and defense applications . headquartered in lowell , massachusetts , we have more than 65 years of application expertise , with silicon , gallium arsenide and indium phosphide fabrication , manufacturing , assembly and test , and operational facilities throughout north america , europe and asia . we design , develop and manufacture differentiated , high-value products for customers who demand high performance , quality and reliability . we offer a broad portfolio of thousands of standard and custom devices , which include integrated circuits ( `` ic '' ) , multi-chip modules ( `` mcm '' ) , diodes , amplifiers , switches and switch limiters , passive and active components and complete subsystems , across dozens of product lines serving over 8,000 end customers in three primary markets . our semiconductor products are electronic components that our customers incorporate into their larger electronic systems , such as , wireless basestations , high capacity optical networks , radar , medical systems and test and measurement . our primary markets are : ( 1 ) telecom , which includes carrier infrastructure like long-haul/metro , 5g and fttx/pon ; ( 2 ) data centers , enabled by our broad portfolio of analog ics and photonic components for high speed optical module customers ; and ( 3 ) i & d , which includes military and commercial radar , rf jammers , electronic countermeasures , communication data links , satellite communications and multi-market applications , which include industrial , medical , test and measurement and scientific applications . see `` item 1 - business '' for additional information . basis of presentation we have one reportable operating segment and all intercompany balances have been eliminated in consolidation . we have a 52 or 53-week fiscal year ending on the friday closest to the last day of september with fiscal years 2019 , 2018 and 2017 each consisting of 52 weeks . to offset the effect of holidays , for fiscal years in which there are 53 weeks , we typically include the extra week in the first quarter of our fiscal year . description of our revenue revenue . substantially all of our revenue is derived from sales of high-performance rf , microwave and millimeterwave semiconductor products . we design , integrate , manufacture and package differentiated product solutions that we sell to customers through our direct sales organization , our network of independent sales representatives and distributors . we believe the primary drivers of our future revenue growth will include : engaging early with our lead customers to develop custom and standard products and solutions that can be driven across multiple growth markets ; leveraging our core strength and leadership position in standard , catalog products that service all of our end applications ; increasing content of our semiconductor solutions in our customers ' systems through cross-selling our dozens of product lines ; introducing new products through internal development and acquisitions with market reception that command higher prices based on the application of advanced technologies , added features , higher levels of integration and improved performance ; and continued growth in the demand for high-performance analog and optical semiconductors in our three primary markets in particular . our core strategy is to develop and innovate high-performance products that address our customers ' most difficult technical challenges in our primary markets : data center , telecom and i & d . while sales in any or all of our primary markets may slow or decline from period to period , over the long-term we generally expect to benefit from our strength in these markets . we expect our revenue in the data center market to be driven by the adoption of cloud-based components and the migration to an application centric architecture , which we expect will drive adoption of higher speed optical and photonic components . we expect our revenue in the telecom market to be driven by 5g , with continued upgrades and expansion of communications equipment to support mobile computing devices such as smartphones and tablets , increasing adoption of our high performance rf , millimeterwave , optical and photonic components . 35 we expect our revenue in the i & d market to be driven by the broad product portfolio we offer that services applications such as test and measurement , satellite communications , civil and military radar , industrial , scientific and medical applications . growth in this market is subject to changes in governmental programs and budget funding , which is difficult to predict . we expect revenue in this market to be further supported by growth in applications for our multi-market catalog products . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements . the preparation of financial statements , in conformity with generally accepted accounting principles ( `` gaap '' ) in the u.s. , requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . by their nature , these estimates and judgments are subject to an inherent degree of uncertainty and could be material if our actual or expected experience were to change unexpectedly . on an ongoing basis , we re-evaluate our estimates and judgments . we base our estimates and judgments on our historical experience and on other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . story_separator_special_tag we record an amount as an estimate of probable additional income tax liability at the largest amount that we feel is more likely than not , based upon the technical merits of the position , to be sustained upon audit by the relevant tax authority . historically , we have not experienced material differences in our estimates and actual results . for additional information related to these and other accounting policies refer to note 2 - summary of significant accounting policies to our consolidated financial statements included in this annual report which is incorporated by reference herein . 37 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; '' > gross profit . in fiscal year 2019 , our gross profit decreased by $ 25.0 million , or 10.2 % , compared to fiscal year 2018 . gross margin of 44.2 % in fiscal year 2019 increased 110 basis points , compared to fiscal year 2018 . gross profit during 2019 was primarily impacted by lower fiscal year 2019 revenue , lower gross profit as a result of the may 2018 sale of our lr4 business and higher inventory reserves primarily associated with data center products , partially offset by the recognition of $ 7.0 million of licensing revenue during fiscal year 2019. research and development . in fiscal year 2019 , research and development expense decreased by $ 14.2 million , or 8.0 % , to $ 163.5 million representing 32.7 % of revenue , compared with $ 177.7 million , or 31.2 % of revenue in fiscal year 2018 . research and development expense decreased in the 2019 period primarily as a result of lower compensation-related costs , lower share-based compensation , as well the closure of certain design facilities associated with restructuring actions . research and development expense increased as a percentage of revenue due to the decrease in net revenue during fiscal year 2019. selling , general and administrative . in fiscal year 2019 , selling , general and administrative expenses decreased by $ 8.4 million , or 5.2 % to $ 153.3 million , or 30.7 % of revenue , compared with $ 161.7 million , or 28.3 % of revenue , for fiscal year 2018 . selling , general and administrative expenses decreased in the fiscal year 2019 period primarily due to lower share-based compensation , lower amortization expense , and lower other compensation-related costs as a result of restructuring actions . selling , general and administrative expense increased as a percentage of revenue due to the decrease in net revenue during fiscal year 2019. impairment charges . in fiscal year 2019 impairment charges were $ 264.8 million , or 53.0 % of revenue , primarily related to the $ 257.0 million impairment of intangible assets , as well as the impairment of $ 7.1 million impairment of equipment from construction in process that will not be placed in service . see note 17 - impairments to the consolidated financial statements included in this annual report for additional information . restructuring charges . in fiscal year 2019 , restructuring charges were $ 19.5 million , or 3.9 % of our revenue , compared with $ 6.3 million , or 1.1 % of our revenue , for fiscal year 2018 . during the fiscal quarter ended june 28 , 2019 , we committed to a plan to strategically realign , streamline and improve certain of our business and operations , including reducing our workforce by approximately 250 employees or 20 % and exiting seven development facilities in france , japan , the netherlands , florida , massachusetts , new jersey and rhode island . we also committed to reducing certain development activities for one of our product lines , and will no longer invest in the design and development of optical modules and subsystems for data center applications . we incurred restructuring charges of $ 11.6 million in fiscal year 2019 under this plan , including $ 6.3 million of employee-related costs , $ 4.0 million of impairment of fixed assets and $ 1.3 million of other costs . we expect to incur restructuring costs of approximately $ 2.5 million to $ 3.4 million through fiscal year 2020 as we complete this restructuring action , which primarily consists of $ 2.6 million of employee related costs and $ 0.8 million of facility-related costs . we expect annual expense savings of approximately $ 50 million dollars , primarily in research and development expenses , once this plan is fully implemented . during the fiscal quarter ended march 29 , 2019 , we committed to a plan to exit certain design facilities and activities ( `` design facilities plan '' ) . we incurred restructuring charges of $ 2.5 million in fiscal year 2019 under this plan , which primarily consists of $ 0.3 million of employee-related costs and $ 2.2 million of facility-related costs . we do not expect to incur further restructuring costs for the design facilities plan . during the fiscal quarter ended september 28 , 2018 , we committed to a plan to exit certain production and product lines , primarily related to certain production facilities located in ithaca , new york ( `` ithaca plan '' ) . for these facilities , we incurred restructuring charges of $ 5.5 million in fiscal year 2019 , including $ 1.5 million of employee-related costs and $ 4.0 million of facility-related costs . we do not expect to incur further restructuring costs for the ithaca plan . refer to note 15 - restructurings in this annual report on form 10-k for additional information . warrant liability gain . in fiscal year 2019 , we recorded a warrant gain of $ 0.8 million , or 0.2 % of revenue , compared to a gain of $ 27.6 million , or 4.8 % of revenue , for fiscal year 2018 . the difference between periods were driven by a decrease in the estimated fair value of common stock warrants we issued in december 2010 , which we carry as a liability at fair value .
| results of operations as discussed in note 23 - divested businesses and discontinued operations to our consolidated financial statements included in this annual report , we have adjusted certain amounts associated with discontinued operations in our results of operations , cash flows and assets and liabilities for all periods presented . the following table sets forth , for the periods indicated , our statements of operations data ( in thousands ) : replace_table_token_3_th ( 1 ) includes ( a ) amortization expense related to intangible assets arising from acquisitions and ( b ) share-based compensation expense included in our consolidated statements of operations as set forth below ( in thousands ) : replace_table_token_4_th ( 2 ) represents changes in the fair value of common stock warrants recorded as liabilities and adjusted each reporting period to fair value . ( 3 ) includes specific litigation costs of $ 0.2 million , $ 3.5 million and $ 2.3 million incurred in fiscal years 2019 , 2018 and 2017 , respectively , primarily related to a now settled lawsuit against infineon technologies americas corporation and infineon technologies ag . ( 4 ) in fiscal years 2018 and 2017 , includes approximately $ 0.2 million and $ 43.2 million , respectively , of costs for step-up in valuation of acquired business inventories to fair value . ( 5 ) includes change in control payments associated with the appliedmicro acquisition of $ 21.3 million for fiscal year 2017 , of which $ 12.0 million was recorded as selling , general and administrative expenses and $ 9.3 million was recorded as discontinued operations . ( 6 ) see note 23 - divested business and discontinued operations to the consolidated financial statements included in this annual report for additional information . 38 ( 7 ) impairment charges in fiscal year 2019 include $ 264.8 million for impairment of customer relationship and acquired technology intangible assets as well as equipment .
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the 8.25 % notes rank equally in right of payment with all of our existing and future unsubordinated indebtedness other than our issuer senior debt and our limited secured acquisition debt ( each as defined below ) . the 8.25 % notes rank senior in right of payment to all of our existing and future subordinated indebtedness and to certain limited secured acquisition indebtedness of the company ( the “ limited secured acquisition debt ” ) . the limited secured acquisition debt includes ( i ) story_separator_special_tag the following discussion should be read in conjunction with , and is qualified in its entirety by reference to , the consolidated financial statements and related notes appearing elsewhere in this report . overview centrus energy corp. ( “ centrus ” or the “ company ” ) is a trusted supplier of nuclear fuel and services for the nuclear power industry . references to “ centrus ” , the “ company ” , or “ we ” include centrus energy corp. and its wholly owned subsidiaries as well as the predecessor to centrus , unless the context otherwise indicates . centrus ' primary business involves the sale of low-enriched uranium ( “ leu ” ) or its components and natural uranium to utilities operating commercial nuclear power plants . leu is a critical component in the production of nuclear fuel for reactors that produce electricity . we supply leu to both domestic and international utilities for use in nuclear reactors worldwide . we provide leu from multiple sources including our inventory , medium- and long- term supply contracts , and spot purchases . as a long-term supplier of leu to our customers , our objective is to provide value through the reliability and diversity of our supply sources . our long-term goal is to resume commercial enrichment production , and we are exploring approaches to that end . with our multi-decade experience in uranium enrichment , we continue to be a leader in the development of advanced uranium enrichment technology . we are performing research and demonstration work on our advanced centrifuge technology to support u.s. energy and national security through our contract with ut-battelle , llc ( “ ut-battelle ” ) , the management and operating contractor of oak ridge national laboratory ( “ ornl ” ) for the u.s. department of energy ( “ doe ” ) . we believe that this technology could play a critical role in meeting u.s. national and energy security needs and achieving our nation 's nonproliferation objectives . the nuclear industry in general , and the nuclear fuel industry in particular , is in a period of significant change , which continues to affect the competitive landscape centrus faces . the nuclear fuel industry remains oversupplied , creating downward pressures on commodity pricing , with uncertainty regarding the timing of industry expansion globally . changes in the competitive landscape may adversely affect pricing trends , change customer spending patterns , or create uncertainty . to address these changes , we may seek to adjust our cost structure and operations and evaluate opportunities to grow our business organically or through acquisitions and other strategic transactions . we are working to leverage our unique technical expertise and facilities to support leading companies in the fields of advanced nuclear reactors , nuclear medicine , and related industries as well as the u.s. government . centrus ' experience developing , licensing and manufacturing advanced nuclear technologies positions us to provide critical design , engineering , manufacturing and other services to a broad range of potential clients , including those involving sensitive or classified technologies . we are also actively considering , and expect to consider from time to time in the future , potential strategic transactions , which could involve , without limitation , acquisitions and or dispositions of businesses or assets . these transactions could also involve joint ventures or investments in businesses , products or technologies . in connection with any such transaction , we may seek additional debt or equity financing , contribute or dispose of assets , assume additional indebtedness , or partner with other parties to consummate a transaction . refer to part i , item 1 , business , for additional information . 35 market conditions and outlook in march 2011 , an earthquake and tsunami caused irreparable damage to four reactors in fukushima , japan . as a consequence , approximately 60 reactors in japan and germany were taken offline , and other countries curtailed or slowed their construction of new reactors or accelerated their retirement of existing plants . while some reactors in japan have restarted and many are expected to restart within the next few years , supply and demand dynamics for nuclear fuel continue to be depressed . in addition , low natural gas prices and an increase in outputs from renewable sources have put financial pressure on some reactor operators in the united states ; six reactors have been shut down in recent years and several more face the prospect of premature shut down in the next few years . the united states remains the largest market in the world for nuclear fuel , with 99 commercial reactors in operation today . although the market for nuclear fuel is expected to remain oversupplied for the remainder of this decade and into the 2020s , the market is expected to grow as the nuclear power industry expands around the world . according to the world nuclear association ( “ wna ” ) , there are 57 reactors under construction and 158 firmly planned around the world , compared to 449 currently in operation . this includes growth in china , russia , and india . the new reactor builds will have the potential to improve market conditions in the long-term . nuclear power is the largest source of carbon-free energy in the united states ; globally it is second only to hydropower . additionally , climate negotiators in paris in 2015 agreed to target limiting global average temperature increases . story_separator_special_tag cost of sales for swu and uranium cost of sales for swu and uranium is based on the amount of swu and uranium sold and delivered during the period and unit inventory costs . unit inventory costs are determined using the monthly moving average cost method . changes in purchase costs have an effect on inventory costs and cost of sales over current and future periods . cost of sales includes costs for inventory management at offsite licensed locations . cost of sales also includes legacy costs related to former employees of the portsmouth and paducah gaseous diffusion plants . actuarial gains and losses related to the retiree benefit plans are recognized immediately in the statement of operations when plan obligations are remeasured at year-end or when lump sum payments reach certain levels . 38 contract services segment our contract services segment reflects our technical , manufacturing and engineering services offered to public and private sector customers , including the american centrifuge engineering and testing activities we perform as a contractor for ut-battelle . with our private sector customers , we seek to leverage our domestic enrichment experience and engineering know-how to assist customers with a range of engineering and advanced manufacturing projects including the production of fuel for next-generation nuclear reactors and the development of related facilities . the contracts with ut-battelle provide for fixed payments for monthly reports or for fixed payments upon completion of milestones . for contracts that provide fixed payments for monthly reports , revenue is recognized as deliverables are completed and as fees are earned . for contracts that provide fixed payments for completion of milestones , revenue is recognized as each milestone is completed . costs incurred in performing the contract work are expensed as cost of sales . american centrifuge the company has a long record as a global leader in advanced technology , manufacturing and engineering . our manufacturing , engineering and testing facilities and our highly-trained workforce are deeply engaged in advancing the next generation of uranium enrichment technology . we are exploring a number of options for returning to domestic production in the future . in february 2016 , we completed a successful three-year demonstration of the existing american centrifuge technology at its facility in piketon , ohio , with 120 machines linked together in a cascade to simulate industrial operating conditions . since then our government contracts with ut-battelle have provided for continued engineering and testing work on the american centrifuge technology at our facilities in oak ridge , tennessee . our recently completed contract with ut-battelle was for the period from october 1 , 2016 , through september 30 , 2017 , and generated revenue of approximately $ 25.0 million . on october 26 , 2017 , the parties executed a new fixed price contract for the period from october 1 , 2017 , through september 30 , 2018 , that is expected to generate total revenue of approximately $ 16.0 million upon completion of defined milestones . the ornl contracts have been funded incrementally . funding for the program is provided to ut-battelle by the federal government , which is currently operating under a continuing resolution . american centrifuge expenses that are outside of our contracts with ut-battelle are included in advanced technology license and decommissioning costs on the consolidated statement of operations , including ongoing costs to maintain the demobilized piketon facility and our nrc licenses at that location . rent for the piketon facility is based on the cost of lease administration and regulatory oversight in piketon and was approximately $ 1.5 million for both 2017 and 2016. in the second quarter of 2016 , the company commenced with the d & d of the piketon facility in accordance with the requirements of the nrc and doe . for additional details on costs , schedule and accrued liabilities related to the d & d of the piketon facility , refer to “ — results of operations ” below and “ — american centrifuge —piketon facility costs and d & d obligations ” in note 16 , commitments and contingencies , of the consolidated financial statements . site services work and related receivables we formerly performed sites services work under contracts with doe and its contractors at the former portsmouth and paducah gaseous diffusion plants . there is the potential for additional revenue to be recognized for this work pending the outcome of legal proceedings related to the company 's claims for payment and the potential release of previously established valuation allowances on receivables . 39 on january 11 , 2018 , the company entered into a settlement agreement with doe and the united states government regarding breach of contract claims relating to work performed by the company under contracts with doe and subcontracts with doe contractors . as of december 31 , 2017 , the receivables balance related to the claims being settled is $ 14.5 million . the company had unapplied payments from doe of $ 19.3 million as of december 31 , 2017. under the settlement agreement , payment from doe consists of applying the $ 19.3 million of credits and a cash payment of $ 4.7 million . the criteria to recognize additional revenues were satisfied at the time the settlement agreement was finalized and the company expects to record revenues of approximately $ 9.5 million in the first quarter of 2018 related to the settlement . refer to note 4 , receivables , and note 19 , subsequent event , of the consolidated financial statements for further details . unresolved claims with doe relate to certain pension and postretirement benefits costs . in december 2012 , the company invoiced doe for $ 42.8 million , representing its share of pension and postretirement benefits costs related to the transition of portsmouth site employees to doe 's d & d contractor , as permitted by government cost accounting standards ( “ cas ” ) and based on cas calculation methodology .
| results of operations segment information the following table presents elements of the accompanying consolidated statements of operations that are categorized by segment ( dollar amounts in millions ) : replace_table_token_5_th revenue revenue from the leu segment declined $ 77.4 million ( or 28 % ) in 2017 compared to 2016. the volume of swu sales decreased 21 % . the average price billed to customers for sales of swu declined 4 % , reflecting the particular contracts under which swu were sold during the periods and the trend of lower swu market prices in recent years . revenue from the leu segment for 2017 was within guidance provided throughout 2017 and reflects expected declines in swu and uranium volumes delivered compared to 2016. revenue from the contract services segment declined $ 15.5 million ( or 40 % ) in 2017 compared to 2016 due to the reduced scope of contract work for american centrifuge technology services in the current year and the timing of revenue recognition in the prior year . as a result of the contract signed with ut-battelle in march 2016 , revenue in 2016 included $ 30.4 million for work in 2016 as well as $ 8.1 million for march 2016 reports on work performed in the fourth quarter of 2015. total revenue for 2017 was within guidance provided throughout 2017 . 45 cost of sales cost of sales for the leu segment declined $ 98.2 million ( or 42 % ) in 2017 compared to 2016 primarily due to the changes in swu sales volumes noted above and declines in the average cost of sales per swu . cost of sales is affected by sales volumes , unit costs of inventory , and direct charges to cost of sales such as inventory valuation adjustments and legacy costs related to former gdp employees and other residual costs related to the paducah gdp .
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chief among the steps we are taking to make these improvements was the introduction of our first true e-commerce solution on july 6 , 2010. with the introduction of this e-commerce solution , customers are able to more easily place orders and obtain information about their accounts . sales representatives are increasing their effectiveness with the abundance of information available to them electronically through our e-quote system which is a companion to the e-commerce solution introduced . not only is our e-commerce solution easy and efficient to use , it should also facilitate reducing transactional costs thus enabling us to accommodate higher sales without significantly increasing overhead . the passage in 2010 of the patient protection and affordable care act along with the health care and educational reconciliation act will affect our future operations . the addition of millions to the rolls of the insured will increase demand for services . that increased demand could lead to increased sales of our products . the magnitude of those increases is difficult to assess at this time . a negative impact of this legislation as enacted is its imposition of an excise tax on all manufacturers of medical devices . our current estimate is that this tax would exceed $ 500,000 annually for dynatronics , barring a change in the statute . because of the phase-in of various provisions in the legislation , the full effects on our business and industry are not expected to be felt until 2013 at the earliest . this makes it difficult to project the full impact this legislation will have on our business in future periods . there is also a possibility that future congresses will amend the legislation prior to it becoming fully effective or the courts may rule all or part of the legislation unconstitutional . in addition , rule-making under the law is not yet complete . in the meantime , we are working to take full advantage of every opportunity presented by this legislation to increase sales and to offset any negative effects that may accompany those opportunities . we continue to focus research and development efforts on new product innovation and enhancing existing products . several products are currently under development and are scheduled for introduction in the latter part of calendar 2011. the commitment to innovation of high-quality products has been a hallmark of dynatronics and will continue throughout the coming year . this renewed emphasis on r & d contributed in large part to lower profitability in fiscal year 2011. r & d costs for us have been cyclical in nature and are reflective of the fact we are in a more intense part of the development cycle . once the new products are introduced , r & d costs are expected to cycle back to a lower level until the next new products are further advanced in the development cycle . management is confident the short-term costs associated with the more intense part of the development cycle will yield long-term benefits and are important to assuring that we maintain our reputation for being an innovator and leader in product development in the industry . r & d costs are expensed as incurred . economic pressures from the recent recession in the united states have affected available credit that would facilitate large capital purchases , and have also reduced demand for discretionary services such as those provided by the purchasers of our aesthetic products . as a result , we reduced our expenses in the synergie division . the synergie elite aesthetic product line introduced in april 2008 continues to have appeal due to its design and price point . we believe that our aesthetic devices remain the best value on the market and we are seeking innovative ways to market these products , including strategic partnerships , both domestic and international , to help regain sales momentum . as the economy begins to improve , we expect to see increased sales of these higher margin products . we have long believed that international markets present an untapped potential for growth and expansion . adding new distributors in several countries will be the key to this expansion effort . our past efforts to improve international marketing have yielded only marginal improvements . we remain committed , however , to finding the most cost effective ways to expand our markets internationally . over the coming year , our efforts will be focused on partnering with key manufacturers and distributors interested in our product line or technology . our utah operation , where all electrotherapy , ultrasound , traction , light therapy and synergie products are manufactured , is certified to iso 13485:2003 , an internationally recognized standard of excellence in medical device manufacturing . this designation is an important requirement in obtaining the ce mark certification , which allows us to market our products in the european union and in other international locations . 17 refining our business model for supporting sales representatives and distributors also will be a focal point of operations . we will continue to evaluate the most efficient ways to maintain our satellite sales offices and warehouses . in addition , more emphasis is being placed on pricing management to protect margins for both manufactured and distributed products . the ongoing refinement of this model is expected to yield further efficiencies that will better achieve sales goals while at the same time reduce expenses . our efforts to prudently reduce costs in the face of some economic uncertainty have made us a leaner operation . we will continue to be vigilant in maintaining appropriate overhead costs and operating costs while still building appropriate support for anticipated increases in sales . the strategic decision four years ago to merge with key dealers and vertically integrate our operations has opened new opportunities for us to expand our distribution operations . historically , we have been a manufacturer and designer of physical medicine and aesthetic products that also distributed story_separator_special_tag chief among the steps we are taking to make these improvements was the introduction of our first true e-commerce solution on july 6 , 2010. with the introduction of this e-commerce solution , customers are able to more easily place orders and obtain information about their accounts . sales representatives are increasing their effectiveness with the abundance of information available to them electronically through our e-quote system which is a companion to the e-commerce solution introduced . not only is our e-commerce solution easy and efficient to use , it should also facilitate reducing transactional costs thus enabling us to accommodate higher sales without significantly increasing overhead . the passage in 2010 of the patient protection and affordable care act along with the health care and educational reconciliation act will affect our future operations . the addition of millions to the rolls of the insured will increase demand for services . that increased demand could lead to increased sales of our products . the magnitude of those increases is difficult to assess at this time . a negative impact of this legislation as enacted is its imposition of an excise tax on all manufacturers of medical devices . our current estimate is that this tax would exceed $ 500,000 annually for dynatronics , barring a change in the statute . because of the phase-in of various provisions in the legislation , the full effects on our business and industry are not expected to be felt until 2013 at the earliest . this makes it difficult to project the full impact this legislation will have on our business in future periods . there is also a possibility that future congresses will amend the legislation prior to it becoming fully effective or the courts may rule all or part of the legislation unconstitutional . in addition , rule-making under the law is not yet complete . in the meantime , we are working to take full advantage of every opportunity presented by this legislation to increase sales and to offset any negative effects that may accompany those opportunities . we continue to focus research and development efforts on new product innovation and enhancing existing products . several products are currently under development and are scheduled for introduction in the latter part of calendar 2011. the commitment to innovation of high-quality products has been a hallmark of dynatronics and will continue throughout the coming year . this renewed emphasis on r & d contributed in large part to lower profitability in fiscal year 2011. r & d costs for us have been cyclical in nature and are reflective of the fact we are in a more intense part of the development cycle . once the new products are introduced , r & d costs are expected to cycle back to a lower level until the next new products are further advanced in the development cycle . management is confident the short-term costs associated with the more intense part of the development cycle will yield long-term benefits and are important to assuring that we maintain our reputation for being an innovator and leader in product development in the industry . r & d costs are expensed as incurred . economic pressures from the recent recession in the united states have affected available credit that would facilitate large capital purchases , and have also reduced demand for discretionary services such as those provided by the purchasers of our aesthetic products . as a result , we reduced our expenses in the synergie division . the synergie elite aesthetic product line introduced in april 2008 continues to have appeal due to its design and price point . we believe that our aesthetic devices remain the best value on the market and we are seeking innovative ways to market these products , including strategic partnerships , both domestic and international , to help regain sales momentum . as the economy begins to improve , we expect to see increased sales of these higher margin products . we have long believed that international markets present an untapped potential for growth and expansion . adding new distributors in several countries will be the key to this expansion effort . our past efforts to improve international marketing have yielded only marginal improvements . we remain committed , however , to finding the most cost effective ways to expand our markets internationally . over the coming year , our efforts will be focused on partnering with key manufacturers and distributors interested in our product line or technology . our utah operation , where all electrotherapy , ultrasound , traction , light therapy and synergie products are manufactured , is certified to iso 13485:2003 , an internationally recognized standard of excellence in medical device manufacturing . this designation is an important requirement in obtaining the ce mark certification , which allows us to market our products in the european union and in other international locations . 17 refining our business model for supporting sales representatives and distributors also will be a focal point of operations . we will continue to evaluate the most efficient ways to maintain our satellite sales offices and warehouses . in addition , more emphasis is being placed on pricing management to protect margins for both manufactured and distributed products . the ongoing refinement of this model is expected to yield further efficiencies that will better achieve sales goals while at the same time reduce expenses . our efforts to prudently reduce costs in the face of some economic uncertainty have made us a leaner operation . we will continue to be vigilant in maintaining appropriate overhead costs and operating costs while still building appropriate support for anticipated increases in sales . the strategic decision four years ago to merge with key dealers and vertically integrate our operations has opened new opportunities for us to expand our distribution operations . historically , we have been a manufacturer and designer of physical medicine and aesthetic products that also distributed
| results of operations fiscal year 2011 compared to fiscal year 2010 net sales net sales in fiscal year 2011were $ 32,692,859 , compared to $ 32,962,392 in fiscal year 2010. sales of manufactured capital equipment were lower than in 2010 , due to lower demand associated with the ongoing general economic weakness and the uncertainty surrounding the future effects of health care reform in the united states . the drop in sales of manufactured capital equipment in 2011 was offset by increased sales of distributed exercise equipment and certain medical supplies . historically , uncertain economic times limit growth and expansion that typically create the demand for capital equipment . although our three initial gpo contracts with amerinet , premier and first choice began on march 1 , 2011 , they did not contribute materially to sales in fiscal year 2011. we began the process of introducing dynatronics ' branded products to gpo member facilities in march 2011. while the process of converting business to our brand will take time , we are optimistic about the potential of this new market for the company . sales of manufactured physical medicine products represented approximately 43 % and 45 % of our physical medicine product sales in fiscal years 2011 and 2010 , respectively . distribution of products manufactured by other suppliers accounted for the balance of our physical medicine product sales in those years . sales of manufactured aesthetic products in fiscal years 2011 and 2010 represented approximately 77 % and 74 % of our aesthetic product sales , respectively , with distributed products making up the balance . the majority of our sales revenues come from the sale of physical medicine products , both manufactured and distributed . in fiscal years 2011 and 2010 , sales of physical medicine products accounted for 92 % of total sales .
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intangible assets consist of intellectual property , developed game technology , analytics technology , user base , trade names , and in-process research and development . certain intangible assets acquired in a business combination are recognized as assets apart from goodwill . we use either the income , cost or market approach to aid in our conclusions of such fair values and asset lives . the income approach presumes that the value of an asset can be estimated by the net economic benefit to story_separator_special_tag overview our business we are a leading developer , publisher and marketer of interactive entertainment for consumers around the globe . our products are currently designed for console gaming systems , such as sony 's ps4 and microsoft 's xbox one , and pc , including smartphones and tablets . we deliver our products through physical retail , digital download , online platforms and cloud streaming services . we endeavor to be the most creative , innovative and efficient company in our industry . our core strategy is to capitalize on the popularity of video games by developing and publishing high-quality interactive entertainment experiences across a range of genres . we focus on building compelling entertainment franchises by publishing a select number of titles for which we can create sequels and incremental revenue opportunities through virtual currency , add-on content , and in-game purchases . most of our intellectual property is internally owned and developed , which we believe best positions us financially and competitively . we have established a portfolio of proprietary software content for the major hardware platforms in a wide range of genres , including action , adventure , family/casual , racing , role-playing , shooter , sports and strategy , which we distribute worldwide . we believe that our commitment to creativity and innovation is a distinguishing strength , enabling us to differentiate our products in the marketplace by combining advanced technology with compelling storylines and characters that provide unique gameplay experiences for consumers . we have created , acquired or licensed a group of highly recognizable brands to match the broad consumer demographics that we serve , ranging from adults to children and game enthusiasts to casual gamers . another cornerstone of our strategy is to support the success of our products in the marketplace through innovative marketing programs and global distribution on platforms and through channels that are relevant to our target audience . our revenue is primarily derived from the sale of internally developed software titles and software titles developed by third parties . operating margins are dependent in part upon our ability to release new , commercially successful software products and to manage effectively their development and marketing costs . we have internal development studios located in australia , canada , china , czech republic , hungary , india , spain , south korea , the united kingdom , and the united states . software titles published by our rockstar games label are primarily internally developed . we expect rockstar games , our wholly-owned publisher of the grand theft auto , max payne , midnight club , red dead redemption , and other popular franchises , to continue to be a leader in the action / adventure product category and to create groundbreaking entertainment by leveraging our existing titles as well as by developing new brands . we believe that rockstar games has established a uniquely original , popular cultural phenomenon with its grand theft auto series , which is the interactive entertainment industry 's most iconic and critically acclaimed brand and has sold-in over 290 million units . the latest installment , grand theft auto v , has sold-in over 105 million units worldwide and includes access to grand theft auto online . on october 26 , 2018 , rockstar games launched red dead redemption 2 , which has been a critical and commercial success that set numerous entertainment industry records . rockstar games is also well known for developing brands in other genres , including the l.a. noire , bully and manhunt franchises . rockstar games continues to expand on our established franchises by developing sequels , offering downloadable episodes , content and virtual currency , and releasing titles for smartphones and tablets . our 2k label has published a variety of popular entertainment properties across all key platforms and across a range of genres including shooter , action , role-playing , strategy , sports and family/casual entertainment . we expect 2k to continue to develop new , successful franchises in the future . 2k 's internally owned and developed franchises include the critically acclaimed , multi-million unit selling bioshock , mafia , sid meier 's civilization , and xcom series . 2k also publishes successful externally developed franchises , such as borderlands . 2k 's realistic sports simulation titles include our flagship nba 2k series , which continues to be the top-ranked nba basketball video game , the wwe 2k professional wrestling series , and the golf club . our private division label is dedicated to bringing titles from top independent developers to market . private division will publish three upcoming titles based on new ip from renowned industry creative talent , including the outer worlds and ancestors : the humankind odyssey , both of which are planned for release in calendar 2019. additionally , private division is the publisher of kerbal space program , which we acquired in may 2017. social point develops and publishes popular free-to-play mobile games that deliver high quality , deeply-engaging entertainment experiences , including its two most successful games , dragon city and monster legends . in addition , social point has a robust development pipeline with a number of exciting games planned for launch in the coming years . we are continuing to execute on our growth initiatives in asia , where our strategy is to broaden the distribution of our existing products and expand our online gaming presence , especially in china and south korea . story_separator_special_tag our `` results of operations , '' discloses that net revenue from digital online channels comprised 63.0 % of our net revenue for the fiscal year ended march 31 , 2019 . we expect online delivery of games and game offerings to continue to grow and to become an increasing part of our business over the long-term . 27 product releases we released the following key titles in fiscal year 2019 : replace_table_token_5_th product pipeline we have announced the following key titles to date ( this list does not represent all titles currently in development ) : replace_table_token_6_th fiscal 2019 financial summary on april 1 , 2018 , we adopted asu 2014-09 , revenue from contracts with customers ( topic 606 ) and related amendments ( the “ new revenue accounting standard ” ) using the modified retrospective method . therefore , no prior amounts have been restated in our tables and discussion below . refer to note 1 to our consolidated financial statements for our accounting policy disclosure for revenue recognition . in general , the adoption of topic 606 results in a more accelerated revenue pattern , due primarily to ( i ) the elimination of the requirement for vendor-specific objective evidence ( `` vsoe '' ) of fair value when allocating between multiple performance obligations and ( ii ) the change of our estimated service period to a user life . however , the impact on a given period may differ from this general trend . in october 2018 , we released red dead redemption 2. the acceleration of revenue for this title was material and is the primary component of the significant increases in certain of our operating results as a result of the adoption of topic 606 throughout the discussion in our `` results of operations '' below . see notes 1 and 2 to our consolidated financial statements for further information . our net revenue for fiscal year ended march 31 , 2019 was led by titles from a variety of our top franchises , primarily red dead redemption 2 , grand theft auto , nba 2k , and wwe 2k . our net revenue increased to $ 2,668.4 million , an increase of $ 875.5 million or 48.8 % compared to the fiscal year ended march 31 , 2018 . this increase included a $ 741.2 million increase 28 in net revenue as a result of the adoption of topic 606 , as described above . the remaining increase was driven by sales of the titles described above . during the fiscal year ended march 31 , 2019 , we recognized a tax benefit of $ 107.1 million from a reduction in our valuation allowance on certain u.s. deferred tax assets as a result of a determination that it was more-likely-than-not that such deferred tax assets would be realized . our determination took into account the successful launch of red dead redemption 2 during the current fiscal year along with our recent positive trend of earnings . for the fiscal year ended march 31 , 2019 , our net income was $ 333.8 million , as compared to net income of $ 173.5 million in the prior year . diluted earnings per share for the fiscal year ended march 31 , 2019 was $ 2.90 , as compared to diluted income per share of $ 1.54 for the fiscal year ended march 31 , 2018 . our operating income for the fiscal year ended march 31 , 2019 increased compared to the operating income for fiscal year ended march 31 , 2018 , due primarily to higher gross profit due primarily to higher revenue as a result of the adoption of topic 606 as described above and the successful launch red dead redemption 2 , partially offset by higher operating expenses primarily due to higher selling and marketing expense for titles released during the current fiscal year . at march 31 , 2019 , we had $ 1,392.0 million of cash and cash equivalents and restricted cash , compared to 1,246.4 million at march 31 , 2018 . the increase in cash and cash equivalents and restricted cash from march 31 , 2018 was due primarily to net cash provided by operating activities from sales , primarily of red dead redemption 2 , partially offset by investments in software development and licenses as well as royalty payments . these net increases were offset by net cash used in financing activities , which was primarily related to repurchases of common stock under our share repurchase program and tax payments related to net share settlements of our restricted stock , and to a lesser extent net cash used in investing activities , which was primarily related to bank time deposits and purchases of fixed assets . critical accounting policies and estimates our most critical accounting policies , which are those that require significant judgment , include revenue recognition ; price protection and allowances for returns ; capitalization and recognition of software development costs and licenses ; fair value estimates including valuation of goodwill , intangible assets , and long-lived assets ; valuation and recognition of stock-based compensation ; and income taxes . see note 1 - basis of presentation and significant accounting policies in the notes to our consolidated financial statements in this annual report on form 10-k. recently adopted and recently issued accounting pronouncements see note 1 - basis of presentation and significant accounting policies . operating metric net bookings we monitor net bookings as a key operating metric in evaluating the performance of our business . net bookings is defined as the net amount of products and services sold digitally or sold-in physically during the period and includes licensing fees , merchandise , in-game advertising , strategy guides , and publisher incentives .
| results of operations the following table sets forth , for the periods indicated , our statements of operations , net revenue by geographic region , net revenue by platform and net revenue by distribution channel : replace_table_token_7_th replace_table_token_8_th fiscal years ended march 31 , 2019 and 2018 replace_table_token_9_th ( 1 ) includes $ 149,075 and $ 24,610 of stock-based compensation expense in 2019 and 2018 , respectively . 30 in general , the adoption of topic 606 results in a more accelerated revenue pattern , due primarily to ( i ) the elimination of the requirement for vendor-specific objective evidence ( `` vsoe '' ) of fair value when allocating between multiple performance obligations and ( ii ) the change of our estimated service period to a user life . however , the impact on a given period may differ from this general trend . in october 2018 , we released red dead redemption 2. the acceleration of revenue for this title due to the adoption of topic 606 was material and is the primary component of the significant increases as a result of the adoption of topic 606 throughout the discussion below . see note 1 and note 2 to our consolidated financial statements for further information . for the fiscal year ended march 31 , 2019 , net revenue increased by $ 875.5 million , as compared to the prior year . this increase included a $ 741.2 million increase in net revenue as a result of the adoption of topic 606 , as described above . the remaining increase was due to ( i ) an increase of $ 129.6 million in net revenue from red dead redemption 2 , ( ii ) an increase of $ 53.4 million in net revenue from grand theft auto online , and ( iii ) an increase of $ 43.9 million in net revenue from our nba 2k franchise . these increases were partially offset by ( i ) a decrease of $ 51.5
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avista utilities generates , transmits and distributes electricity and distributes natural gas . the utility also engages in wholesale purchases and sales of electricity and natural gas . ecova – an indirect subsidiary of avista corp. ( 79.0 percent owned as of december 31 , 2012 ) provides energy efficiency and cost management programs and services for multi-site customers and utilities throughout north america . ecova 's service lines include expense management services for utility and telecom needs as well as strategic energy management and efficiency services that include procurement , conservation , performance reporting , financial planning , facility optimization and continuous monitoring , and energy efficiency program management for commercial enterprises and utilities . we have other businesses , including sheet metal fabrication , venture fund investments and real estate investments , as well as certain other operations of avista capital . these activities do not represent a reportable business segment and are conducted by various direct and indirect subsidiaries of avista corp. , including am & d , doing business as metalfx . the following table presents net income ( loss ) attributable to avista corp. shareholders for each of our business segments ( and the other businesses ) for the year ended december 31 ( dollars in thousands ) : replace_table_token_14_th executive level summary overall net income attributable to avista corporation shareholders was $ 78.2 million for 2012 , a decrease from $ 100.2 million for 2011 . this was due to a decrease in earnings at each of our businesses . earnings at avista utilities decreased primarily due to reduced retail loads during the first and fourth quarters of the year ( as a result of warmer weather ) and due in part to lower usage at certain industrial customers , due to temporary operational challenges . in addition , there were increases in other operating expenses ( including costs under a voluntary severance incentive program ) , and depreciation and amortization , partially offset by the implementation of general rate increases . net income at ecova decreased as revenue growth for the expense and data management services and energy management services at ecova was not as high as expected and did not offset increased operating costs . in addition , ecova 's earnings were reduced by increased costs associated with completing and integrating the acquisitions of prenova and lpb and an increase in depreciation and amortization . net income at other subsidiaries decreased due losses on investments , inclusive of an impairment loss recognized during the third quarter , increased costs associated with strategic consulting and other corporate costs , and increased litigation costs related to the previous operations of avista energy . these losses were partially offset by positive earnings at metalfx . these results , including a quantification of their respective impacts , are discussed in detail below . avista utilities avista utilities is our most significant business segment . our utility financial performance is dependent upon , among other things : weather conditions , regulatory decisions , allowing our utility to recover costs , including purchased power and fuel costs , on a timely basis , and to earn a reasonable return on investment , the price of natural gas in the wholesale market , including the effect on the price of fuel for generation , and the price of electricity in the wholesale market , including the effects of weather conditions , natural gas prices and other factors affecting supply and demand . 27 avista corporation based on our forecasts for our utility operations for 2013 through 2016 , we expect annual electric customer growth to average 0.7 percent to 1.3 percent per year and annual natural gas customer growth to average 0.7 percent to 1.8 percent within our service area . we anticipate retail electric load growth to average between 0.7 percent and 1.0 percent and natural gas load growth to average between 0.7 percent and 1.4 percent . we anticipate customer and load growth at the lower end of the range in 2013 and a modest recovery as the economy strengthens during the four-year period . while the number of electric and natural gas customers is growing , the average annual usage by each residential customer has not changed significantly . for further discussion regarding utility customer growth , load growth , and the general economic conditions in our service territory , see `` economic conditions and utility load growth '' . in our utility operations , we regularly review the need for rate changes in each jurisdiction to improve the recovery of costs and capital investments in our generation , transmission and distribution systems . general rate increases went into effect in idaho on october 1 , 2011 , in washington on january 1 , 2012 , and in oregon effective march 15 , 2011 , june 1 , 2011 and june 1 , 2012. on october 11 , 2012 we filed electric and natural gas general rate increase requests in idaho , which are currently the subject of a settlement that is before the ipuc for approval ( see discussion below under `` idaho general rate cases '' ) . in december 2012 , the utc approved a settlement agreement in our washington general rate cases , which were originally filed on april 2 , 2012 , that provides for electric and natural gas rate increases effective january 1 , 2013 and january 1 , 2014. we are making significant capital investments in generation , transmission and distribution systems to preserve and enhance service reliability for our customers and replace aging infrastructure . utility capital expenditures were $ 271.2 million for 2012 . we expect utility capital expenditures to be about $ 260 million for each of 2013 and 2014 . these estimates of capital expenditures are subject to continuing review and adjustment ( see discussion under “ avista utilities capital expenditures ” ) . story_separator_special_tag see further discussion of the specific covenants below under `` ecova credit agreement '' . in november 2012 , we issued $ 80.0 million of 4.23 percent first mortgage bonds due in 2047 as an obligation of avista corp. net total proceeds from the sale of the new bonds were used to repay a portion of the borrowings outstanding under our $ 400.0 million committed line of credit and for general corporate purposes . there are $ 50.0 million in first mortgage bonds maturing in 2013 and we expect to issue up to $ 100 million of long-term debt during the second half of 2013 . in may 2012 , we cash settled interest rate swap contracts ( notional amount of $ 75.0 million ) and paid a total of $ 18.5 million . the interest rate swap contracts were settled in connection with the pricing of $ 80.0 million of first mortgage bonds as described above . upon settlement of the interest rate swaps , the regulatory asset or liability ( included as part of long-term debt ) is amortized as a component of interest expense over the life of the forecasted interest payments . in august 2012 , we entered into two sales agency agreements under which we may issue up to 2.7 million shares of our common stock from time to time . in 2012 , we sold 0.9 million shares and received net proceeds of $ 23.4 million ( net of issuance costs ) . as of december 31 , 2012 , we had 1.8 million shares available to be issued under these agreements . in 2012 we received net proceeds of $ 29.1 million ( net of issuance costs ) by issuing common stock , including $ 23.4 million under our sales agency agreements . during 2013 , we expect to issue up to $ 50 million of common stock in order to maintain our capital structure at an appropriate level for our business . after considering the issuances of long-term debt and common stock during 2013 , we expect net cash flows from operating activities , together with cash available under our $ 400.0 million committed line of credit agreement , to provide adequate resources to fund capital expenditures , dividends , and other contractual commitments . avista utilities – regulatory matters general rate cases we regularly review the need for electric and natural gas rate changes in each state in which we provide service . we will continue to file for rate adjustments to : provide for recovery of operating costs and capital investments , and provide the opportunity to improve our earned returns as allowed by regulators . with regards to the timing and plans for future filings , the assessment of our need for rate relief and the development of rate case plans takes into consideration short-term and long-term needs , as well as specific factors that can affect the timing of rate filings . such factors include , but are not limited to , in-service dates of major capital investments and the timing of changes in 29 avista corporation major revenue and expense items . we filed general rate cases in washington in may 2011 ( which were settled with new rates effective january 1 , 2012 ) and in idaho in july 2011 ( which were settled with new rates effective october 1 , 2011 ) . we filed general rate cases in washington in april 2012 ( which were settled with new rates effective january 1 , 2013 and january 1 , 2014 ) and idaho in october 2012 ( which are the subject of a settlement that is before the ipuc ( see discussion below under `` idaho general rate cases '' ) ) . washington general rate cases in november 2010 , the utc approved an all-party settlement stipulation in our general rate case filed in march 2010. as agreed to in the settlement stipulation , electric rates for washington customers increased by an average of 7.4 percent , which was designed to increase annual revenues by $ 29.5 million . natural gas rates for washington customers increased by an average of 2.9 percent , which was designed to increase annual revenues by $ 4.6 million . the new electric and natural gas rates became effective on december 1 , 2010. in december 2011 , the utc approved a settlement agreement in our electric and natural gas general rate cases filed in may 2011. as agreed to in the settlement agreement , base electric rates for our washington customers increased by an average of 4.6 percent , which was designed to increase annual revenues by $ 20.0 million . base natural gas rates for our washington customers increased by an average of 2.4 percent , which was designed to increase annual revenues by $ 3.75 million . the new electric and natural gas rates became effective on january 1 , 2012. the settlement agreement provided for the deferral of certain generation plant maintenance costs . in order to address the variability in year-to-year maintenance costs , beginning in 2011 , we deferred certain changes in maintenance costs related to our coyote springs 2 natural gas-fired generation plant and our 15 percent ownership interest in units 3 & 4 of the colstrip generation plant . these maintenance costs may be much higher in certain years because certain significant maintenance procedures are less frequent than annual and , therefore , may not be properly represented in test year expenses used in our filed rate requests . for 2011 and 2012 the company compared actual , non-fuel , maintenance expenses for the coyote springs 2 and colstrip plants with the amount of baseline maintenance expenses used to establish base retail rates , and deferred the difference . this deferral occurred annually , with no carrying charge , with deferred costs being amortized over a four-year period , beginning in the year following the period costs are deferred .
| results of operations the following provides an overview of changes in our consolidated statements of income . more detailed explanations are provided , particularly for operating revenues and operating expenses , in the business segment discussions ( avista utilities , ecova and the other businesses ) that follow this section . 2012 compared to 2011 utility revenues decreased $ 89.1 million , after elimination of intracompany revenues of $ 88.2 million for 2012 and $ 93.1 million for 2011 . including intracompany revenues , electric revenues decreased $ 20.0 million and natural gas revenues decreased $ 74.1 million . retail electric revenues decreased $ 5.9 million due to a decrease in volumes sold which was primarily the result of warmer weather during the heating season and lower usage at certain industrial customers , due to temporary operational challenges at these customers . this was mostly offset during the third quarter due to warmer weather ( and increased cooling loads ) , which increased electric use per customer and also general rate increases . retail natural gas revenues decreased $ 36.6 million due to a decrease in volumes caused by warmer weather . ecova revenues increased $ 17.8 million to $ 155.7 million primarily as a result of ecova 's acquisitions of prenova effective november 30 , 2011 and lpb effective january 31 , 2012 . 34 avista corporation utility resource costs decreased $ 96.9 million , after elimination of intracompany resource costs of $ 88.2 million for 2012 and $ 93.1 million for 2011 . including intracompany resource costs , electric resource costs decreased $ 32.9 million and natural gas resource costs decreased $ 68.9 million .
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as an insurance provider , we collect premiums on an ongoing basis to pay future benefits to our policy and contract holders . our core operations include issuing : whole life insurance ; endowments ; credit insurance ; final expense ; and limited liability property policies . the company derives its revenues principally from 1 ) premiums earned for insurance coverages provided to insureds ; 2 ) net investment income ; and 3 ) net realized capital gains and losses . profitability of our insurance operations depends heavily upon the company 's underwriting discipline , as we seek to manage exposure to loss through favorable risk selection and diversification , management of claims , use of reinsurance , the size of our in force block , actual mortality and morbidity experience , and our ability to manage our expense ratio , which we accomplish through economies of scale and management of acquisition costs and other underwriting expenses . pricing adequacy depends on a number of factors , including the ability to obtain regulatory approval for rate changes , proper evaluation of underwriting risks , the ability to project future losses based on historical loss experience adjusted for known trends , the company 's response to competitors , and expectations about regulatory and legal developments and expense levels . the company seeks to price our insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin . for many of our insurance products , the company is required to obtain approval for the premium rates from state insurance departments . the profitability of fixed annuities , riders and other “ spread-based ” product features depends largely on the company 's ability to earn target spreads between earned investment rates on assets and interest credited to policyholders . the investment return , or yield , on invested assets is an important element of the company 's earnings since insurance products are priced with the assumption that premiums received can be invested for a period of time before benefits are paid . the majority of the company 's invested assets have been held in available-for-sale and held-to-maturity securities , primarily in asset classes of corporate bonds , municipal bonds , and government obligation bonds . the current and projected low interest rate environment is having a significant impact on the determination of insurance contract liabilities and assets regarding reserves and deferred acquisition costs . the primary investment objective for the company is to maximize economic value , consistent with acceptable risk parameters , including the management of credit risk and interest rate sensitivity of invested assets , while generating sufficient after-tax income to meet policyholder and corporate obligations . the company maintains a conservative investment strategy that may vary based on a variety of factors including business needs , regulatory requirements and tax considerations . 22 citizens , inc. and consolidated subsidiaries current financial highlights our assets grew from $ 1.1 billion as of december 31 , 2011 , to $ 1.2 billion as of december 31 , 2012 . total stockholders ' equity increased from $ 248.0 million at december 31 , 2011 , to $ 263.1 million at december 31 , 2012 . insurance premiums rose 5.3 % and 6.1 % in 2012 and 2011 , respectively , primarily from sales in our life insurance segment , which increased $ 7.8 million from amounts reported in 2011 . net investment income increased 5.4 % and 3.0 % for 2012 and 2011 , respectively , and was flat in 2010 . the average yield on the consolidated investment portfolio has declined significantly from a yield of 4.20 % in 2010 down to 3.92 % in 2011 and continued to decline at a more moderate pace to a yield of 3.81 % in 2012 . the increase in the investment asset balances due to premium revenue growth was sufficient to offset the lower yield in the declining rate environment and resulted in an increase in net investment income . realized net investment gains in the past three years resulted primarily from sales of securities that had been previously impaired due to declines in market values . these gains were partially offset by other-than-temporary impairments on investment securities and other long-term assets that were recorded in 2012 , 2011 and 2010 of $ 1,319,000 , $ 631,000 and $ 27,000 , respectively , reported as realized losses . claims and surrenders expense increased 7.7 % from the comparable period in 2011 as the home service segment was impacted by hurricane isaac which hit the louisiana coast on august 29 , 2012 and caused increased property claims . in addition , death claims expense in the current year is higher compared to 2011 due to the release of incurred but unreported death claims liability in 2011 of $ 0.7 million . changes in reserves resulted in liability increases from greater sales of endowment products that build up reserves at a faster pace than whole life longer term mortality based products . additionally , the sustained low interest rate environment also results in a higher reserve development due to the lower interest yield assumptions in the current period compared to prior years . life insurance . for over thirty-five years , cica and its predecessors have accepted policy applications from foreign nationals for u.s. dollar-denominated ordinary whole life insurance and endowment policies . we make our insurance products available using third-party marketing organizations and independent marketing consultants . endowment product sales have been on the rise and represented approximately 81 % of new sales . the company offers a ten , fifteen and twenty year endowment and our top selling endowment is a product that matures at age sixty-five . we also introduced a new product in 2011 that is an endowment at age eighteen with a payout over four or five years . story_separator_special_tag the increase in surrender expense is primarily related to our international business and is expected to increase over time due to the aging of this block of business . a significant portion of surrenders relates to policies that have been in force over fifteen years and no longer have a surrender charge associated with them . total direct insurance inforce reported in 2012 and 2011 was $ 4.6 billion compared to $ 4.5 billion in 2010 . endowment benefits increased in each of the last three years . we have a series of international policies that carry an immediate endowment benefit of an amount selected by the policy owner . these benefits have been popular in the pacific rim and latin america , where the company has experienced increased interest in our guaranteed products in recent years . like policy dividends , annual guaranteed endowments are factored into the premium and , as such , the increase has no impact on profitability . the company expects these benefits to continue to increase as this block of business increases and persists . 28 citizens , inc. and consolidated subsidiaries property claims increased 16 % to approximately $ 2.3 million in 2012 compared with the amount reported for 2011 due to hurricane issac claims experience in the current year with $ 0.5 million uninsured losses . the 2010 reported property claim amounts were lower than historical experience . reserves . the change in future policy benefit reserves has increased 14.4 % and 25.5 % in 2012 and 2011 due primarily to the current low interest rate environment necessitating higher reserves for policies issued in the last few years due to lower long term yield projections compared to prior assumptions . in addition , we continue to experience growth in new sales of endowment products , which require higher initial reserve levels , than whole life products . endowment sales totaled approximately $ 14.3 million , $ 12.3 million and $ 9.4 million in 2012 , 2011 and 2010 , respectively . policyholder dividends . policyholder dividends have risen at a rate corresponding with the growth rate in new international life insurance premiums . the company issues long duration participating policies to foreign residents that are expected to pay dividends to policyholders based upon actual experience . policyholder dividends are factored into the premiums and have no impact on profitability . commissions . commission expense fluctuates in a direct relationship to new and renewal insurance premiums and has increased 2.7 % in 2012 compared to 2011 as premium revenues have increased . other general expenses . total general expenses decreased over the past several years on a consolidated basis as management has created efficiencies and improved processes . the decrease year to year was primarily related to lower audit , legal and consulting fees , as well as employee benefit cost reductions . we moved to a self insurance health plan for our employees in 2010 and have successfully decreased our overall benefit expenses . we perform an expense study on an annual basis , utilizing an enterprise-wide time study , and we adjust cost allocations among entities as needed based upon this review . any allocation changes are reflected in the segment operations , but do not impact total expenses . deferred policy acquisition costs . capitalized deferred policy acquisition costs ( `` dac '' ) were $ 29.1 million , $ 27.8 million and $ 26.2 million in 2012 , 2011 and 2010 . these costs will vary based upon successful efforts related to newly issued policies and renewal business . significantly lower amounts are capitalized related to renewal business in correlation with the lower commissions paid on that business compared to first year business which have higher commission rates . amortization of deferred policy acquisition costs is impacted by persistency and may fluctuate from year to year . amortization costs increased in 2012 compared to 2011 as a result of the asset balance growth . policy persistency was comparable in the life segment for the periods presented , but declined in the home service segment in 2012 and 2011 , resulting in higher amortization . in addition , the prolonged low interest rate environment impacted the assumptions used in the development of the dac asset for new policies issued in 2012 and 2011. this resulted in a lower dac balance and increased amortization by approximately $ 0.4 million and $ 1.4 million in 2012 and 2011 , respectively . cost of customer relationships acquired and other intangibles . the higher amortization in 2010 and 2011 was related primarily to the icc acquisition and greater amortization due to the increase in lapses on this new block of business . the current year amortization level recorded in 2012 is indicative of what we expect going forward or until we make additional acquisitions . federal income tax . federal income tax expense was $ 1.5 million , $ 2.8 million and $ 3.7 million in 2012 , 2011 and 2010 , respectively , resulting in effective tax rates of 25.0 % , 25.1 % and 20.0 % , respectively . the company began purchasing tax-exempt state and local bonds in the second half of 2011 and continued to do so in 2012 in the non-insurance companies where the full tax benefit can be realized . in addition , the fair value change related to outstanding warrants of $ 0.5 million , $ 1.1 million , and $ 0.2 million were reported as an increase in revenues in 2012 , 2011 and 2010 respectively , which was not taxable and also impacted our corporate tax rate . differences between our effective tax rate and the statutory tax rate result from income and expense items that are treated differently for financial reporting and tax purposes . 29 citizens , inc. and consolidated subsidiaries segment operations our business is comprised of three operating business segments , as detailed below .
| consolidated results of operations a discussion of consolidated results is presented below , followed by a discussion of segment operations and financial results by segment . 24 citizens , inc. and consolidated subsidiaries revenues insurance revenues are primarily generated from premium revenues and investment income . in addition , realized gains and losses on investment holdings can significantly impact revenues from year to year . replace_table_token_4_th premium income . premium income derived from life , accident and health , and property insurance sales , increased 5.3 % during 2012 . the increase resulted primarily from renewal premiums , which totaled $ 142.2 million , $ 135.1 million and $ 127.1 million in 2012 , 2011 and 2010 , respectively . new sales , termed as first year premiums , increased 6.1 % , 6.6 % and 2.1 % in the life segment in 2012 , 2011 and 2010. endowment sales represent a significant portion of new business sales internationally with the 20 year endowment and endowment to age 65 as our top products . in addition , most of our life insurance policies contain a policy loan provision , which allows the policyholder to use cash value of a policy to pay premiums . the policy loan asset balance increased 10.0 % and 9.8 % in 2012 and 2011 , year over year . net investment income . net investment income increased to $ 31.7 million in 2012 compared to $ 30.1 million in 2011 , despite a decline in the yield on investments as we experienced higher average invested assets as a result of investment of new premium revenue . net investment income performance is summarized as follows . replace_table_token_5_th yields on invested assets vary between segment operations due to different portfolio mixes in the segments . the life segment has a higher concentration in u.s. government securities while the home service segment has a larger concentration in the corporate and municipal sectors .
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we also leverage our technology into other markets with advanced manufacturing applications including medical equipment , pharmaceutical manufacturing , energy generation and environmental monitoring . we have a diverse base of customers that includes manufacturers of semiconductor capital equipment and semiconductor devices , thin film capital equipment used in the manufacture of flat panel displays , leds , solar cells , data storage media and other coating applications ; and other industrial , medical , energy generation , environmental monitoring and manufacturing companies , and university , government and industrial research laboratories . during the years 2012 , 2011 and 2010 , approximately 62 % , 61 % and 64 % of our net sales , respectively , were to semiconductor capital equipment manufacturers and semiconductor device manufacturers . we expect that sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers will continue to account for a substantial portion of our sales . effective in the second quarter of fiscal 2012 , we changed our reporting segments from one to four segments based upon the information that is provided to the company 's chief operating decision maker . the company 's new reportable segments are : advanced manufacturing capital equipment , analytical solutions group , europe region sales & service , and asia region sales & service . the advanced manufacturing capital equipment segment includes the development , manufacture , sales and servicing of instruments and control products , power and reactive gas products and vacuum products , all of which are utilized in semiconductor processing and other similar advanced manufacturing processes . sales in this segment include both external sales and intercompany sales ( which are recorded at agreed upon transfer prices ) . external sales of these products made in europe or asia are reported as sales in the europe region sales & service or asia region sales & service segments . the analytical solutions group includes , gas composition analysis , information technology products and custom fabrication services . the europe and asia region sales and service groups mainly resell and service the advanced manufacturing capital equipment and analytical solutions group products sold into their respective regions . we group our products into four groups of similar products based upon similarity of product function . these four groups of products are : instruments and control products , power and reactive gas products , vacuum products and analytical solutions group products . since the second quarter of 2012 , we have seen a weakening in our orders and sales in the semiconductor markets as worldwide economic uncertainty and slowing consumer spending resulted in lower electronics demand and a slowing of investments in semiconductor production capacity . net revenues to semiconductor capital equipment manufacture and semiconductor device manufacture customers declined by 20 % in 2012 compared to 2011 and declined by 8 % in 2011 compared to 2010 , after growing by 167 % in 2010 compared to 2009. the semiconductor capital equipment industry is subject to rapid demand shifts , which are difficult to predict , and we are uncertain as to the timing or extent of future demand or any future weakness in the semiconductor capital equipment industry . 25 our net revenues sold to other advanced markets , which exclude semiconductor capital equipment and semiconductor device product applications , decreased 24 % in 2012 compared to the prior year . this decline was primarily caused by decreases in the solar and led markets , which in total declined by 63 % , as manufacturers are absorbing existing inventories from 2010 and 2011. our net revenues to all other non-semiconductor markets ( excluding solar and led ) declined by 7 % in 2012 compared to the prior year . these advanced markets include general industrial , medical , solar , thin films , pharmaceutical and other markets . approximately 38 % of our net sales for 2012 were to other advanced markets and we anticipate that these markets will grow and will represent a larger portion of our revenue . a significant portion of our net sales is to operations in international markets . during the years 2012 , 2011 and 2010 , international net sales accounted for approximately 49 % , 52 % and 43 % of our net sales , respectively . a significant portion of our international net sales were sales in japan and korea . we expect that international net sales will continue to represent a significant percentage of our total net sales . on august 29 , 2012 , we completed our acquisition of plasmart , inc. located in daejeon , korea . plasmart develops radio frequency ( rf ) , plasma generation and monitoring systems for the semiconductor , flat panel display , active matrix organic light emitting diodes and solar photovoltaic industries . the purchase price was $ 22.6 million , net of $ 0.1 of cash acquired , after final working capital post close adjustments . during 2010 , we executed a plan to divest two product lines , as their growth potential no longer met our long-term strategic objectives . we completed the sale of ion systems , inc. ( ion ) during the second quarter of 2010 and the sale of the assets of the yield dynamics , llc ( ydi ) business during the third quarter of 2010 and received total net proceeds of $ 15.6 million . the results of operations of the two product lines have been classified as discontinued operations in the consolidated statements of operations and comprehensive income for all periods presented . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . 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 liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . story_separator_special_tag accordingly , share-based compensation cost is measured at the grant date , based upon the fair value of the award . we typically issue restricted stock units ( rsus ) as stock-based compensation . we also provide employees the opportunity to purchase shares through an employee stock purchase program ( espp ) . for rsus , the fair value is the stock price on the date of grant . for shares issued under our espp , we have estimated the fair value on the date of grant using the black scholes pricing model , which is affected by our stock price as well as 27 assumptions regarding a number of complex and subjective variables . these variables include our expected stock price volatility over the term of the awards , expected life , risk free interest rate and expected dividends . management determined that blended volatility , a combination of historical and implied volatility , is more reflective of market conditions and a better indicator of expected volatility than historical or implied volatility alone . we are also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates . certain rsus involve stock to be issued upon the achievement of performance conditions ( performance shares ) under our stock incentive plans . such performance shares become available subject to time-based vesting conditions if , and to the extent that , financial or operational performance criteria for the applicable period are achieved . accordingly , the number of performance shares earned will vary based on the level of achievement of financial or operational performance objectives for the applicable period . until such time that our performance can ultimately be determined , each quarter we estimate the number of performance shares more likely than not to be earned based on an evaluation of the probability of achieving the performance objectives . such estimates are revised , if necessary , in subsequent periods when the underlying factors change our evaluation of the probability of achieving the performance objectives . accordingly , share-based compensation expense associated with performance shares may differ significantly from the amount recorded in the current period . the assumptions used in calculating the fair value of share-based payment awards represents management 's best estimates , but these estimates involve inherent uncertainties and the application of management 's judgment . as a result , if factors change and we use different assumptions , our stock-based compensation expense could be materially different in the future . intangible assets , goodwill and other long-lived assets . as a result of our acquisitions , we have identified intangible assets and generated significant goodwill . definite-lived intangible assets are valued based on estimates of future cash flows and amortized over their estimated useful life . goodwill and indefinite-lived intangible assets are subject to annual impairment testing as well as testing upon the occurrence of any event that indicates a potential impairment . intangible assets and other long-lived assets are also subject to an impairment test if there is an indicator of impairment . the carrying value and ultimate realization of these assets is dependent upon estimates of future earnings and benefits that we expect to generate from their use . if our expectations of future results and cash flows are significantly diminished , intangible assets and goodwill may be impaired and the resulting charge to operations may be material . when we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment , we use the projected undiscounted cash flow method to determine whether an impairment exists , and then measure the impairment using discounted cash flows . the estimation of useful lives and expected cash flows require us to make significant judgments regarding future periods that are subject to some factors outside of our control . changes in these estimates can result in significant revisions to the carrying value of these assets and may result in material charges to the results of operations . we have elected to perform our annual goodwill impairment test as of october 31 of each year , or more often if events or circumstances indicate that there may be impairment . goodwill is the amount by which the cost of acquired net assets exceeded the fair value of those net assets on the date of acquisition . we allocate goodwill to reporting units at the time of acquisition or when there is a change in the reporting structure and bases that allocation on which reporting units will benefit from the acquired assets and liabilities . reporting units are defined as operating segments or one level below an operating segment , referred to as a component . we have the option of first assessing qualitative factors to determine whether it is necessary to perform the current two-step impairment test or we can perform the two-step impairment test without doing the qualitative assessment . in the current fiscal year , we performed the quantitative two-step goodwill impairment analysis . in the first step , we compare the fair value of our reporting unit to its carrying value . if the carrying value of the net 28 assets assigned to the reporting unit exceeds the fair value of our reporting unit , then the second step of the impairment test is performed in order to determine the implied fair value of the reporting unit 's goodwill . if the carrying value of our reporting unit 's goodwill exceeds its implied fair value , then we record an impairment loss equal to the difference . we determined the fair value of our reporting units using a discounted cash flow analysis , derived from internal earnings and internal and external market forecasts . discount rates are based on a weighted average cost of capital ( wacc ) , which represents the average rate a business must pay its providers of debt and equity .
| results of operations the following table sets forth , for the periods indicated , the percentage of total net sales of certain line items included in our consolidated statements of operations and comprehensive income data : replace_table_token_5_th year ended 2012 compared to 2011 and 2010 net revenues replace_table_token_6_th product revenues decreased $ 182.2 million during 2012 compared to the prior year . product revenues related to our semiconductor capital equipment manufacturer and semiconductor device manufacturer customers decreased by $ 101.3 million , or 23.3 % , as we believe that slowing consumer spending resulted in lower electronics demand , rising chip inventories and a slowing of investment in semiconductor production capacity . our product revenues for other advanced markets , which exclude semiconductor capital equipment and semiconductor device product applications , decreased by $ 80.9 million , or 28.4 % . we saw a significant decrease in the solar and led markets , which in total decreased by 63.4 % , as end market customers continued to utilize existing product shipments from 2010 and 2011 . 30 product revenues decreased $ 44.4 million during 2011 compared to the prior year . product revenues related to our semiconductor capital equipment manufacturer and semiconductor device manufacturer customers decreased by $ 51.6 million , or 10.6 % , as we believe that slowing consumer spending has resulted in lower electronics demand , rising chip inventories and a slowing of investment in semiconductor production capacity . our product revenues for other advanced markets , which exclude semiconductor capital equipment and semiconductor device product applications , increased by $ 7.2 million , or 2.6 % . we saw an increase in our solar and general industrial markets , offset by decreases in film , led , medical and other markets . our domestic product revenues decreased by $ 93.2 million , or 20.7 % , mainly due to a high concentration of sales to the semiconductor markets .
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