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these costs were accrued by american reliable and were included in the fair value of net assets acquired by global indemnity group , inc. on story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes of global indemnity included elsewhere in this report . some of the information contained in this discussion and analysis or set forth elsewhere in this report , including information with respect to the company 's plans and strategy , constitutes forward-looking statements that involve risks and uncertainties . please see ยcautionary note regarding forward-looking statementsย at the end of this item 7 and ยrisk factorsย in item 1a above for more information . you should review ยrisk factorsย in item 1a above 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 herein . recent developments on march 23 , 2017 , the company issued subordinated notes due in 2047 in the aggregate principal amount of $ 130.0 million through an underwritten public offering . see note 12 of the notes to the consolidated financial statements in item 8 of part ii of this report for additional information on this debt issuance . in april , 2017 , the company entered into a $ 50 million commitment to purchase an alternative investment vehicle comprised of stressed and distressed debt instruments . as of december 31 , 2017 , the company has funded $ 16.5 million of this commitment leaving $ 33.5 million as unfunded . 54 the company was impacted by losses from hurricanes harvey , irma , and maria as well as the california wildfires during the third and fourth quarter of 2017. the company 's current estimate of net loss is approximately $ 58.7 million from hurricanes harvey , irma , and maria and the california wildfires . actual losses from these events may vary materially from the company 's current estimate due to the inherent uncertainties resulting from several factors , including the preliminary nature of the loss data available and potential inaccuracies and inadequacies of the data provided . effective september 16 , 2017 , david j.w . bruce , jason b. hurwitz , and arik rashkes were appointed to the company 's board of directors . on december 29 , 2017 , global indemnity acquired 3,397,031 of its a ordinary shares for approximately $ 83.0 million in the aggregate ( approximately $ 24.44 per share ) from former investors in vehicles managed by fox paine & company , llc . the company paid an $ 11.0 million advisory fee to fox paine in connection with the redemption as well as other services performed . the company sold $ 99.0 million of securities from its consolidated investment portfolio during december , 2017 to provide funding for the redemption and other obligations . during the fourth quarter of 2017 , global indemnity announced the adoption of a dividend program . although subject to the absolute discretion of the board of directors and factors , conditions , and prospects as such may exist from time to time when the board of directors considers the advisability of declaring a quarterly dividend , the company currently anticipates an initial dividend rate of $ 0.25 per share per quarter ( $ 1.00 per share per year ) . on december 21 , 2017 , a.m. best affirmed the financial strength rating of ยaย ( excellent ) for global indemnity reinsurance and its u.s. insurance subsidiaries . on december 22 , 2017 , the united states enacted a budget reconciliation act amending the internal revenue code of 1986. the tcja contains provisions that can materially affect the tax treatment of the company 's u.s. subsidiaries . among other things , the tcja reduces the u.s. corporate income tax rate to 21 percent , imposes a 10 percent base erosion minimum tax on income of a u.s. corporation determined without regard to certain otherwise deductible payments made to certain foreign affiliates ( including interest payments as well as gross premium or other consideration paid or accrued to a related foreign reinsurance company for reinsurance ) , and significantly limits the deductibility of interest expenses . as a result of the enactment of the tcja , effective january 1 , 2018 , premiums being ceded under the quota share arrangement may potentially be subject to a 10 % beat tax . as a result , global indemnity reinsurance and the company 's u.s. insurance companies have agreed to terminate the quota share arrangement effective january 1 , 2018. regulatory approval is still pending . overview the company operates and manages its business through three business segments : commercial lines , personal lines , and reinsurance operations . the company 's commercial lines segment distribute property and casualty insurance products through a group of approximately 120 professional general agencies that have limited quoting and binding authority , as well as a number of wholesale insurance brokers who in turn sell the company 's insurance products to insureds through retail insurance brokers . commercial lines operates predominantly in the excess and surplus lines marketplace . the company manages its commercial lines segment via product classification . these product classifications are : 1 ) penn-america , which includes property and general liability products for small commercial businesses 55 distributed through a select network of wholesale general agents with specific binding authority ; 2 ) united national , which includes property , general liability , and professional lines products distributed through program administrators with specific binding authority ; 3 ) diamond state , which includes property , casualty , and professional lines products distributed through wholesale brokers and program administrators with specific binding authority ; and 4 ) vacant express , which primarily insures dwellings which are currently vacant , undergoing renovation , or are under construction and is distributed through aggregators , brokers , and retail agents . story_separator_special_tag the actuarial methods used to project ultimate losses for both long-tail and short-tail reserve categories include , but are not limited to , the following : paid development method ; incurred development method ; expected loss ratio method ; bornhuetter-ferguson method using premiums and paid loss ; bornhuetter-ferguson method using premiums and incurred loss ; and average loss method . the paid development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident years with further expected changes in paid loss . selection of the paid loss pattern requires analysis of several factors including the impact of inflation on claims costs , the rate at which claims professionals make claim payments and close claims , the impact of judicial decisions , the impact of underwriting changes , the impact of large claim payments and other factors . claim cost inflation itself requires evaluation of changes in the cost of repairing or replacing property , changes in the cost of medical care , changes in the cost of wage replacement , judicial decisions , legislative changes and other factors . because this method assumes that losses are paid at a consistent rate , changes in any of these factors can impact the results . since the method does not rely on case reserves , it is not directly influenced by changes in the adequacy of case reserves . 57 for many reserve categories , paid loss data for recent periods may be too immature or erratic for reliable loss projections . this situation often exists for long-tail exposures . in addition , changes in the factors described above may result in inconsistent payment patterns . finally , estimating the paid loss pattern subsequent to the most mature point available in the data analyzed often involves considerable uncertainty for long-tail reserve categories . the incurred development method is similar to the paid development method , but it uses case incurred losses instead of paid losses . since this method uses more data ( case reserves in addition to paid losses ) than the paid development method , the incurred development patterns may be less variable than paid development patterns . however , selection of the incurred loss pattern requires analysis of all of the factors listed in the description of the paid development method . in addition , the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place and the use of case incurred losses may not eliminate the issues associated with estimating the incurred loss pattern subsequent to the most mature point available . the expected loss ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year . this method may be useful if loss development patterns are inconsistent , losses emerge very slowly , or there is relatively little loss history from which to estimate future losses . the selection of the expected loss ratio requires analysis of loss ratios from earlier accident years or pricing studies and analysis of inflationary trends , frequency trends , rate changes , underwriting changes , and other applicable factors . the bornhuetter-ferguson method using premiums and paid losses is a combination of the paid development method and the expected loss ratio method . this method normally determines expected loss ratios similar to the method used for the expected loss ratio method and requires analysis of the same factors described above . the method assumes that only future losses will develop at the expected loss ratio level . the percent of paid loss to ultimate loss implied from the paid development method is used to determine what percentage of ultimate loss is yet to be paid . the use of the pattern from the paid development method requires consideration of all factors listed in the description of the paid development method . the estimate of losses yet to be paid is added to current paid losses to estimate the ultimate loss for each accident year . this method will react very slowly if actual ultimate loss ratios are different from expectations due to changes not accounted for by the expected loss ratio calculation . the bornhuetter-ferguson method using premiums and incurred losses is similar to the bornhuetter-ferguson method using premiums and paid losses except that it uses case incurred losses . the use of case incurred losses instead of paid losses can result in development patterns that are less variable than paid development patterns . however , the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place . the method requires analysis of all the factors that need to be reviewed for the expected loss ratio and incurred development methods . the average loss method multiplies a projected number of ultimate incurred claims by an estimated ultimate average loss for each accident year to produce ultimate loss estimates . since projections of the ultimate number of claims are often less variable than projections of ultimate loss , this method can provide more reliable results for reserve categories where loss development patterns are inconsistent or too variable to be relied on exclusively . in addition , this method can more directly account for changes in coverage that impact the number and size of claims . however , this method can be difficult to apply to situations where very large claims or a substantial number of unusual claims result in volatile average claim sizes . projecting the ultimate number of claims requires analysis of several factors including the rate at which policyholders report claims to the company , the impact of judicial decisions , the impact of underwriting changes and other factors . estimating the ultimate average loss requires analysis of the impact of large losses and claim cost trends based on changes in the cost of repairing or replacing property , changes in the cost of medical care , changes in the cost of wage replacement , judicial decisions , legislative changes and other factors .
| underwriting results personal lines the components of income from the company 's personal lines segment and corresponding underwriting ratios are as follows : replace_table_token_17_th replace_table_token_18_th nm ย not meaningful ( 1 ) includes business written by american reliable that is ceded to insurance companies owned by assurant under a 100 % quota share reinsurance agreement of ( $ 1.3 ) million , $ 35.3 million , and $ 55.8 during the years ended december 31 , 2017 , 2016 , and 2015 , respectively . ( 2 ) includes excise tax related to cessions from the company 's personal lines to its reinsurance operations of $ 0.9 million , $ 0.9 million , and $ 1.3 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . ( 3 ) includes business ceded to the company 's reinsurance operations . premiums see ยresult of operationsย above for a discussion on consolidated premiums for 2017. other income other income was $ 6.3 million , $ 3.7 million and $ 3.5 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . other income is primarily comprised of fee income on installments , commission income , and accrued interest on the anticipated indemnification of unpaid loss and loss adjustment expense reserves . in accordance with a dispute resolution agreement between global indemnity group , inc. and american bankers group , inc. , any variance paid related to the loss indemnification will be subject to interest of 5 % compounded 69 semi-annually . the increase in other income is primarily the result of the company increasing its estimate of unpaid losses and loss adjustment expenses that would be indemnified by $ 19.4 million and $ 1.5 million during 2017 and 2016 , respectively .
| 7,000 |
incentive compensation plan in 2012 , the company 's board of directors and shareholders approved the 2012 incentive compensation plan ( the โ initial 2012 plan โ ) , which provides for the grant of equity , including restricted stock awards , restricted stock units , non-qualified stock options and incentive stock options in compliance with the internal revenue code of 1986 , as amended , to employees , officers , directors , consultants and advisors of the company who are expected to contribute to the company 's future growth story_separator_special_tag story_separator_special_tag using the โ modified retrospective โ method , meaning the standard is applied only to the most current period presented in the financial statements . topic 606 requires the company to identify the performance obligations in our revenue arrangements โ that is , those promised goods and services ( or bundles of promised goods or services ) that are distinct โ and allocate the transaction price of the revenue arrangement to those performance obligations on the basis of estimated standalone selling prices ( โ ssp 's โ ) . sales of hardware which include sales of radio frequency solutions in the network solutions segment , digital signal processing hardware in the embedded solutions segment and power meters and analyzers and noise generators and components in the test and measurement segment generally consist of one performance obligation which is satisfied upon shipment to the customer . when contract terms require transfer of control upon delivery at a customer 's location , revenue is recognized on the date of delivery . sales of hardware to distributors that include a limited right of return are recorded net of expected returns . sale of software licenses in the embedded solutions segment may involve multiple performance obligations including multiple software releases and consultancy services . in these cases transaction price is allocated to each distinct performance obligation on the basis of ssp and revenue is recognized when the distinct performance obligation is satisfied . the company determines performance obligations and ssp 's in arrangements with multiple performance obligations in accordance with topic 606 which requires significant judgement . services arrangements involving repairs and calibrations in the company 's test and measurement segment are generally considered a single performance obligation and revenue is recognized as the services are rendered . certain software arrangements in the embedded solutions segment may involve the transfer of software along with significant customization services . in these cases the customization services and software licenses are combined as one distinct performance obligation and revenue is recognized over time as the project is completed . the duration of these performance obligations are typically one year or less . leases we lease office space and certain equipment under non-cancelable lease agreements . prior to january 1 , 2019 , we applied the accounting guidance in asc 840 , leases , to our lease agreements . the leases were reviewed for classification as operating or capital leases . for operating leases , rent was recognized on a straight-line basis over the lease period . for capital leases , we recorded the leased asset with a corresponding liability and amortized the asset over the lease term . payments were recorded as reductions to the liability with an appropriate interest charge recorded based on the then-outstanding remaining liability . effective january 1 , 2019 , we adopted asu no . 2016-02 , leases ( topic 842 ) using the modified retrospective transition method and established our lease accounting policy pursuant to this new standard . we initially applied the transition provisions at january 1 , 2019 , which allowed us to continue to apply the legacy guidance in asc 840 for periods prior to 2019. based on the new guidance , we assess all arrangements , that convey the right to control the use of property , plant and equipment , at inception , to determine if it is , or contains , a lease based on the unique facts and circumstances present in that arrangement . for those leases identified , we determine the lease classification , recognition , and measurement at the lease commencement date . for arrangements that contain a lease we : ( i ) identify lease and non-lease components ; ( ii ) determine the consideration in the contract ; ( iii ) determine whether the lease is an operating or financing lease ; and ( iv ) recognize lease right of use ( โ rou โ ) assets and corresponding lease liabilities . lease liabilities are recorded based on the present value of lease payments over the expected lease term . the corresponding rou asset is measured from the initial lease liability , adjusted by ( i ) accrued or prepaid rents ; ( ii ) remaining unamortized initial direct costs and lease incentives ; and ( iii ) any impairments of the rou asset . the interest rate implicit in our lease contracts is typically not readily determinable and as such , we use our incremental borrowing rate based on the information available at the lease commencement date , which represents an internally developed rate that would be incurred to borrow , on a collateralized basis , over a similar term , an amount equal to the lease payments in a similar economic environment . 21 business combinations business combinations are accounted under the acquisition method of accounting in accordance with accounting standards codification ( โ asc โ ) 805 , โ business combinations โ which requires assets acquired and liabilities assumed be recorded at their fair values on the acquisition date . goodwill represents the excess of the purchase price over the fair value of the net assets acquired . the fair values of the assets acquired and liabilities assumed are determined based upon management 's valuation and involves making significant estimates and assumptions based on facts and circumstances that existed as of the acquisition date . story_separator_special_tag โ asc 740 requires recognition of deferred tax assets and liabilities for temporary differences between tax basis of assets and liabilities and the amounts at which they are carried in the financial statements , based upon the enacted rates in effect for the year in which the differences are expected to reverse . the company establishes a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized . the company periodically assesses the value of its deferred tax assets and determines the necessity for a valuation allowance . realization of the company 's deferred tax assets is dependent upon the company generating sufficient taxable income in the appropriate tax jurisdictions in future years to obtain benefit from the reversal of net deductible temporary differences and from utilization of net operating losses . the amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed . uncertain tax positions under asc 740 , the company must recognize and disclose uncertain tax positions only if it is more-likely-than-not that the tax position will be sustained on examination by the taxing authority , based on the technical merits of the position . the amounts recognized in the financial statements attributable to such position , if any , are recorded if there is a greater than 50 % likelihood of being realized upon the ultimate resolution of the position . the company has analyzed its filing positions in all of the jurisdictions where it is required to file income tax returns . as of december 31 , 2019 and 2018 , the company has identified its federal tax return and its state tax return in new jersey as โ major โ tax jurisdictions , as defined in asc 740 , in which it is required to file income tax returns . additionally , the company has identified the united kingdom as โ major โ tax jurisdiction as of december 31 , 2019 and 2018. based on the evaluations noted above , the company has concluded that there are no significant uncertain tax positions requiring recognition or disclosure in its consolidated financial statements . based on a review of tax positions for all open years and contingencies as set out in the company 's notes to the consolidated financial statements , no reserves for uncertain income tax positions have been recorded pursuant to asc 740 during the years ended december 31 , 2019 and 2018 , and the company does not anticipate that it is reasonably possible that any material increase or decrease in its unrecognized tax benefits will occur within the next twelve months . stock-based compensation the company follows the provisions of asc 718 , โ compensation - stock compensation โ which requires that compensation expense be recognized based on the fair value of the stock awards . the fair value of the stock awards is equal to the fair value of the company 's stock on the date of grant . the fair value of options at the date of grant is estimated using the black-scholes option pricing model . when options are granted , the company takes into consideration guidance under asc 718 and sec staff accounting bulletin no . 107 ( sab 107 ) when determining assumptions . the expected option life is derived from assumed exercise rates based upon historical exercise patterns and represents the period of time that options granted are expected to be outstanding . the expected volatility is based upon historical volatility of our shares using daily price observations over an observation period that approximates the expected life of the options . the risk-free rate is based on the u.s. treasury yield curve rate in effect at the time of grant for periods similar to the expected option life . the company accounts for forfeitures when they occur . management estimates are necessary in determining compensation expense for stock options with performance-based vesting criteria . compensation expense for this type of stock-based award is recognized over the period from the date the performance conditions are determined to be probable of occurring through the date the applicable conditions are expected to be met . if the performance conditions are not considered probable of being achieved , no expense is recognized until such time as the performance conditions are considered probable of being met , if ever . management evaluates whether performance conditions are probable of occurring on a quarterly basis . 23 inventories and inventory valuation inventories are stated at the lower of cost ( average cost ) or net realizable value . the company reviews inventory for excess and obsolescence based on best estimates of future demand , product lifecycle status and product development plans . allowances for doubtful accounts the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . a key consideration in estimating the allowance for doubtful accounts has been , and will continue to be , our customer 's payment history and aging of its accounts receivable balance . impairment of long-lived assets long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . determination of recoverability is based on an estimate of undiscounted cash flows resulting from the use of the assets and their eventual disposition . measurement of an impairment loss for long-lived assets that management expects to hold for sale is based on the fair value of the assets . long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell . warranties the company generally offers standard warranties against product defects . we estimate future warranty costs to be incurred based on historical warranty claims experience including estimates of material and service costs over the warranty period .
| overview the company is a global designer and manufacturer of advanced rf , microwave and millimeter wave components , modules , systems and instruments . serving the wireless , telecommunication , satellite , military , aerospace , semiconductor and medical industries , wireless telecom group products enable innovation across a wide range of traditional and emerging wireless technologies . with a unique set of high-performance products including peak power meters , signal analyzers , signal processing modules , lte physical layer and stack software , power splitters and combiners , gps repeaters , public safety monitors , noise sources , and programmable noise generators , wireless telecom group supports the development , testing and deployment of wireless technologies around the globe . key 2019 developments and financial results fiscal 2019 was a year with some disappointments as well as growth oriented investment . consolidated and segment revenue declined from the prior year which negatively impacted profitability . these declines were driven by lower high margin software sales and delays of certain large projects expected to be awarded in the year . lower software revenue was caused by the slowdown of 4g software sales which was not offset by the adoption of emerging 5g software and standards . despite these challenges , the company invested in future growth and profitability through acquisitions and r & d investments and believes the revenue declines in 2019 can be overcome . the decline in embedded solutions software and services revenue from prior years represented declines in the company 's highest margin revenue streams . further , the test and measurement segment experienced a 4.5 % revenue decline as large government projects were delayed , but increased segment gross profit margin from 49.4 % to 54.0 % . the industry in which the network solutions segment operates was impacted by highly competitive pricing from offshore vendors as well as a slowdown in large venue projects .
| 7,001 |
note 10 : employee benefit plans defined benefit pension plan the company 's retirement income plan , a trusteed defined benefit pension plan , provides monthly benefits upon retirement at age 65 to substantially all employees with at least one year of service prior story_separator_special_tag overview the following discussion should be read in conjunction with โ selected financial data , โ and the consolidated financial statements included elsewhere in this document . see also โ forward-looking statements โ on page 2. rpc , inc. ( โ rpc โ ) provides a broad range of specialized oilfield services primarily to independent and major oilfield companies engaged in exploration , production and development of oil and gas properties throughout the united states , including the southwest , mid-continent , gulf of mexico , rocky mountain and appalachian regions , and in selected international markets . the company 's revenues and profits are generated by providing equipment and services to customers who operate oil and gas properties and invest capital to drill new wells and enhance production or perform maintenance on existing wells . our key business and financial strategies are : - to focus our management resources on and invest our capital in equipment and geographic markets that we believe will earn high returns on capital , and maintain an appropriate capital structure . - to maintain a flexible cost structure that can respond quickly to volatile industry conditions and business activity levels . - to maintain an efficient , low-cost capital structure , which includes an appropriate use of debt financing . - to maintain an appropriate blend of revenues between long-term committed contractual relationships and spot market revenues . committed contractual relationships allow us to plan our operations with more certainty and efficiency . under spot market work , we work at prevailing market rates and can take advantage of short-term opportunities which may be more profitable under certain circumstances . - to maintain high asset utilization , which leads to increased revenues and leverage of direct and overhead costs , while also ensuring that increased maintenance resulting from high utilization does not interfere with customer performance requirements or jeopardize safety . - to deliver equipment and services to our customers safely . - to secure adequate sources of supplies of certain high-demand raw materials used in our operations , both in order to conduct our operations and to enhance our competitive position . - to maintain and selectively increase market share . - to maximize stockholder return by optimizing the balance between cash invested in the company 's productive assets , the payment of dividends to stockholders , and the repurchase of our common stock on the open market . - to align the interests of our management and stockholders . in assessing the outcomes of these strategies and rpc 's financial condition and operating performance , management generally reviews periodic forecast data , monthly actual results , and other similar information . we also consider trends related to certain key financial data , including revenues , utilization of our equipment and personnel , maintenance and repair expenses , pricing for our services and equipment , profit margins , selling , general and administrative expenses , cash flows and the return on our invested capital . we continuously monitor factors that impact the level of current and expected customer activity levels , such as the price of oil and natural gas , changes in pricing for our services and equipment and utilization of our equipment and personnel . our financial results are affected by geopolitical factors such as political instability in the petroleum-producing regions of the world , overall economic conditions and weather in the united states , the prices of oil and natural gas , and our customers ' drilling and production activities . current industry conditions are characterized by natural gas prices which have gradually increased following declines in 2011 and the first two quarters of 2012 , but which remain too low to encourage natural gas drilling activity in the u.s. domestic market . in the first quarter of 2013 , u.s. natural gas drilling activity was at its lowest level since the second quarter of 1999. furthermore , u.s. natural gas production reached historical highs during the fourth quarter of 2012 , in spite of declining natural gas drilling activity . we believe that further near-term negative impacts of high natural gas production will be minimal , because during the first quarter of 2013 natural gas drilling has declined to less than 25 percent of total u.s. domestic drilling activity . however , we also believe that this condition decreases the possibility that our customers ' natural gas-directed drilling activities will increase significantly in the near term . the price of oil did not fluctuate significantly during 2012 , but has remained high enough to encourage our customers to continue conducting oil-directed drilling activities . during the first quarter of 2013 , the price of oil has increased compared to the fourth quarter of 2012. the consistently high price of oil over the past two years and the price increase during the first quarter of 2013 have positive implications for rpc 's activity levels in 2013. rpc has operations in most of the areas in which drilling activity is directed towards oil , and we increased our presence in these areas during 2012. the average u.s. rig count increased by two percent during 2012. during the first quarter of 2013 , the rig count was approximately 12 percent lower than the first quarter of 2012 and three percent lower than the fourth quarter of 2012. the rig count during the first quarter of 2013 is approximately 13 percent lower than the peak rig count attained during the prior u.s. drilling cycle improvement , which occurred during the third quarter of 2008. the u.s. domestic rig count may increase during 2013 , but any increases are likely to be modest due to weak natural gas prices and high natural gas production from existing wells . story_separator_special_tag during 2012 , the average price of benchmark natural gas liquids was 31.4 percent lower than in the prior year , and it declined an additional 16.0 percent early in the first quarter of 2013. these trends have negative implications for our near-term activity levels , since the recent decline in domestic drilling activity is due to declines in natural gas-directed drilling . on the other hand , the average price of oil remained high during 2012 , and has risen early in the first quarter of 2013. the high price of oil should continue to have a positive impact on our customers ' activity levels and our financial results , since there are a number of significant u.s. domestic shale resource plays which produce oil and petroleum liquids , and rpc has operational locations and revenue-producing equipment in these locations . the effect of these trends is evident in the current composition of the u.s. domestic rig count , approximately 75 percent of which was directed towards oil during the first quarter of 2013. we believe that the trend of an increased percentage of oil-directed drilling and a decreased percentage of gas-directed drilling will continue in the near term . we believe that this trend will continue due to continued low prices for natural gas , as well as high production from existing natural gas wells . we do not believe that the overall rig count will increase significantly during 2013 unless the price of natural gas increases significantly . we continue to monitor the market for our services and the competitive environment in 2013. we are concerned about the continued low price of natural gas and natural gas liquids , and the fact that the high cost of completing wells in many unconventional shale plays will discourage our customers from conducting drilling and completion activities in these areas until these commodity prices improve . we also monitor the competitive environment because the high historical financial returns and favorable long-term outlook for our industry continue have attracted new entrants and encouraged existing service companies to purchase additional revenue-producing equipment . although these catalysts for increased competitive pressures began to subside during 2012 , we believe that there is an excessive service capacity in the u.s. domestic market at the present time , given the current level and composition of drilling and completion activities . because of these concerns , we anticipate that our equipment purchases will be lower in 2013 than in 2012. our consistent response to the industry 's potential uncertainty is to maintain sufficient liquidity and a conservative capital structure and monitor our discretionary spending . although we have used our bank credit facility to finance our expansion , we will continue to maintain a conservative financial structure by industry standards . based on current industry conditions , we believe that the company 's consolidated revenues will increase moderately in 2013 compared to 2012 and financial performance in the period will also improve moderately . 19 story_separator_special_tag style= '' font-family : times new roman ; font-size : 10pt '' > interest expense and interest income . interest expense was $ 2.0 million in 2012 compared to $ 3.5 million in 2011. the decrease in 2012 is due to a lower average debt balance on our revolving credit facility coupled with slightly lower interest rates net of interest capitalized on equipment and facilities under construction . interest income increased to $ 30 thousand in 2012 compared to $ 18 thousand in 2011. income tax provision . the income tax provision was $ 168.2 million in 2012 compared to $ 182.4 million in 2011. this decrease was due to lower income before taxes in 2012 compared to 2011 as the effective tax rate of 38.0 percent in 2012 was comparable to the effective tax rate of 38.1 percent in 2011. net income and diluted earnings per share . net income was $ 274.4 million in 2012 , or $ 1.27 per diluted share , compared to net income of $ 296.4 million , or $ 1.35 per diluted share in 2011. this decline was due to higher , as a percentage of revenues , costs of revenues , selling , general and administrative expenses , and depreciation and amortization expenses . year ended december 31 , 2011 compared to year ended december 31 , 2010 revenues . revenues in 2011 increased $ 713.4 million or 65.1 percent compared to 2010. the technical services segment revenues for 2011 increased 69.8 percent from the prior year due primarily to a larger fleet of revenue-producing equipment , higher activity levels from expanded customer commitments and improved pricing . the support services segment revenues for 2011 increased 25.3 percent from the prior year due to improved pricing and higher activity levels . domestic revenues increased 69 percent during 2011 compared to 2010 to $ 1,757.7 million due to increased customer activity levels coupled with increased capacity of equipment and improved pricing . the average price of oil increased by approximately 20 percent while the average price of natural gas decreased by nine percent during 2011 compared to the prior year . the average domestic rig count during 2011 was 22 percent higher than in 2010. our revenues and earnings grew at a greater rate than the changes in these industry indicators because of an increased capacity of revenue-producing equipment , higher equipment utilization and improved pricing compared to 2010. this increase in drilling activity , as well as the increased amount of horizontal and directional drilling , had a positive impact on our financial results . at the present time , we believe that our activity levels are affected equally by the price of natural gas and the price of oil , since oil-directed activity as a percentage of total u.s. activity has increased significantly during 2011. we also believe that the total number of directional and horizontal wells more directly affect our activity levels , regardless of whether the wells are directed towards oil or natural gas .
| results of operations replace_table_token_3_th year ended december 31 , 2012 compared to year ended december 31 , 2011 revenues . revenues in 2012 increased $ 135.2 million or 7.5 percent compared to 2011. the technical services segment revenues for 2012 increased 7.8 percent from the prior year due primarily to an increase in the fleet of revenue-producing equipment and higher activity levels partially offset by lower pricing for our services within this segment . the support services segment revenues for 2012 increased 3.4 percent compared to 2011 due primarily to higher activity levels in several of the service lines . operating profit in the technical services segment declined due to lower personnel and equipment utilization as well as lower pricing . operating profit in the support services segment declined due primarily to lower utilization and pricing in our rental tools service line . domestic revenues increased 6.4 percent during 2012 compared to 2011 to $ 1.9 billion due primarily to a larger fleet of revenue-producing equipment and higher activity levels in most service lines partially offset by lower pricing for our services in several service lines . the average price of oil remained stable while the average price of natural gas decreased by 31 percent during 2012 compared to the prior year . the average domestic rig count during 2012 was two percent higher than in 2011. our revenues grew at a higher rate than the changes in our industry indicators because of increases in our fleet of revenue-producing equipment compared to 2011. however , increasingly competitive pricing for our services , as well as lower utilization of our revenue-producing equipment and personnel in 2012 compared to 2011 , negatively impacted our operating income , income before income taxes , net income and earnings per share .
| 7,002 |
asu 2016-13 is effective for public business entities that meet the definition of a securities and exchange commission ( sec ) filer , for fiscal years beginning after december 15 , 2019 , including interim periods within those fiscal years . for public business entities that do not meet the definition of an sec filer , the asu is effective for fiscal years beginning after december 15 , 2020 , including interim periods within those fiscal years . with certain exceptions , transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted . the bank expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning story_separator_special_tag โ this discussion and analysis reflects our financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations . the information in this section has been derived from the financial statements , which appear elsewhere in this annual report . you should read the information in this section in conjunction with the other business and financial information provided in this annual report . 24 overview ssb bank 's business consists primarily of making loans to real estate investors , businesses and consumers . we also invest in securities , which consist of federal home loan bank of pittsburgh stock , mortgage-backed securities issued by u.s. government-sponsored entities , corporate bonds , tax-exempt municipal bonds , and u.s. treasury notes . ssb bank also has a mortgage banking operation that generates one- to four-family residential mortgage loans through three mortgage loan originators and three correspondent mortgage banks . such residential mortgage loans are originated both for sale in the secondary market and for retention in our portfolio . however , the origination of loans for sale became a larger focus for ssb bank at the beginning of 2017. we are seeking to rely less on correspondent banks for loan originations , focusing instead on self-generated originations . ssb bank offers a variety of deposit accounts , including checking accounts , savings and money market accounts , and time deposits . we also utilize advances from the federal home loan bank of pittsburgh for liquidity and for asset/liability management purposes . ssb bank also offers various merchant services to businesses , consisting of multiple credit card processing solutions and other ancillary services such as internet banking . these services are offered through a third-party partner . our results of operations rely heavily on net interest income , which is the difference between interest earned on interest-earning assets and interest expense on interest-bearing liabilities . the results of operations are also affected by non-interest income , non-interest expenses , and the provision for loan losses . primary sources of non-interest income are gains on the sale of loans , earnings on bank-owned life insurance , and loan servicing fees . primary non-interest expenses are personnel costs , occupancy , professional fees , federal deposit insurance premiums , and data processing . our financial condition and results of operations may also be affected by general and local economic and competitive conditions , changes in market interest rates , governmental policies , and actions of financial regulatory authorities . business strategy our business strategy is to use our capital to both serve our community and maintain a profitable community savings bank . our goals have been to grow our core deposit base , effectively manage our cost of funds , and develop strong business relationships with our customers . we have traditionally not had any significant sources of non-interest income ; however , more recently , our mortgage banking operations have generated gains on loan sales and servicing fee income . our current business strategy consists of the following : grow our loan portfolio , with a focus on expanding multi-family and commercial and industrial lending with limited growth in commercial real estate lending . we believe that commercial lending and multi-family lending offer opportunities to invest in our community , to increase the overall yield earned on our loans , and to assist in managing interest rate risk . we intend to continue to expand our originations of these loans in our primary market area . at the same time , we intend to continue our traditional residential mortgage lending activities , including our mortgage banking operations where we sell into the secondary market fixed-rate residential mortgage loans we originate , and retain the servicing rights . the mortgage banking operations serve as a source of non-interest income through serving fee income and gains on sales of loans . โ increase our core deposit base . deposits are our primary source of funds for lending . while historically we relied on time deposits as a source of funds , we are now focused on increasing core deposits . we consider savings , checking , money market , and commercial deposits to be core deposits . core deposits are the funding source that is least costly and least sensitive to interest rate fluctuations . core deposits also help us maintain loan-to-deposit ratios at levels consistent with regulatory expectations . going forward , we will seek to increase such deposits , particularly by expanding upon our relationships with new and existing commercial customers . furthermore , we have invested in technologies , such as remote check capture and mobile and on-line banking that should help to attract core deposits . โ โ 25 manage credit risk to maintain a low level of non-performing assets . strong asset quality is a key to the long-term financial success of any bank . our credit risk management strategy focuses on well-defined credit and investment policies and procedures that we believe promote conservative lending and investment practices , conservative loan underwriting criteria and active credit monitoring . โ manage interest rate risk . interest rate risk management is central to our budgeting , liquidity and asset management . story_separator_special_tag accordingly , changes resulting from the tax cuts and jobs act enacted on december 22 , 2017 have been recognized in the financial statements as of and for the year ended december 31 , 2017. deferred taxes are based on a valuation model and the determination on a quarterly basis whether all or a portion of the deferred tax asset will be recognized . fair value measurements . the fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties , other than in a forced or liquidation sale . ssb bank estimates the fair value of a financial instrument and any related asset impairment using a variety of valuation methods . where financial instruments are actively traded and have quoted market prices , quoted market prices are used for fair value . when the financial instruments are not actively traded , other observable market inputs , such as quoted prices of securities with similar characteristics , may be used , if available , to determine fair value . when observable market prices do not exist , we estimate fair value . these estimates are subjective in nature and imprecision in estimating these factors can impact the amount of revenue or loss recorded . a more detailed description of the fair values measured at each level of the fair value hierarchy and the methodology utilized by ssb bank can be found in note 14 to the financial statements . investment securities . available for sale and held to maturity securities are reviewed quarterly for possible other-than-temporary impairment . the review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss , the length of time the fair value has been below cost , the expectation for that security 's performance , the creditworthiness of the issuer and our intent and ability to hold the security to recovery . a decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the statements of net income . at december 31 , 2017 , we believe the unrealized losses are primarily a result of increases in market yields from the time of purchase . in general , as market yields rise , the fair value of securities will decrease ; as market yields fall , the fair value of securities will increase . management generally views changes in fair value caused by changes in interest rates as temporary ; therefore , these securities have not been classified as other-than-temporarily impaired . management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance . furthermore , management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value . 27 loan portfolio story_separator_special_tag โ loan maturity . the following tables set forth certain information at december 31 , 2017 and december 31 , 2016 regarding the dollar amount of loan principal repayments becoming due during the periods indicated . the tables do not include any estimate of prepayments that may significantly shorten the average loan life and may cause actual repayment experience to differ from that shown below . demand loans , which are loans having no stated repayment schedule or no stated maturity , are reported as due in one year or less . โ โ โ december 31 , 2017 โ โ โ โ one-to-four family mortgage loans โ โ commercial mortgage loans โ โ commercial and industrial loans โ โ consumer loans โ โ total loans โ โ โ โ ( dollars in thousands ) โ amounts due in : โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ 1 year or less โ โ โ $ 6,746 โ โ โ โ $ 4,023 โ โ โ โ $ 4,341 โ โ โ โ $ 75 โ โ โ โ $ 15,185 โ โ more than 1 year through 2 years โ โ โ โ 7 โ โ โ โ โ 1,040 โ โ โ โ โ 323 โ โ โ โ โ 112 โ โ โ โ โ 1,482 โ โ more than 2 years through 3 years โ โ โ โ 19 โ โ โ โ โ 3,338 โ โ โ โ โ 704 โ โ โ โ โ 156 โ โ โ โ โ 4,217 โ โ more than 3 years through 5 years โ โ โ โ 1,276 โ โ โ โ โ 18,200 โ โ โ โ โ 2,660 โ โ โ โ โ 1,026 โ โ โ โ โ 23,162 โ โ more than 5 years through 10 years โ โ โ โ 5,456 โ โ โ โ โ 16,106 โ โ โ โ โ 3,356 โ โ โ โ โ 1,461 โ โ โ โ โ 26,379 โ โ more than 10 years through 15 years โ โ โ โ 7,365 โ โ โ โ โ 5,308 โ โ โ โ โ 72 โ โ โ โ โ 1,102 โ โ โ โ โ 13,847 โ โ more than 15 years โ โ โ โ 54,989 โ โ โ โ โ 2,107 โ โ โ โ โ โ โ โ โ โ โ 82 โ โ โ โ โ 57,178 โ โ total โ โ โ $ 75,858 โ โ โ โ $ 50,122 โ โ โ โ $ 11,456 โ โ โ โ $ 4,014 โ โ โ โ $ 141,450 โ โ โ 28 โ โ โ december 31 , 2016 โ โ โ โ one-to-four family mortgage loans โ โ commercial mortgage loans โ โ commercial and industrial loans โ โ consumer loans โ โ total loans โ โ โ โ ( dollars in thousands ) โ amounts due in : โ โ โ โ โ
| general . loans are our primary interest-earning asset . at december 31 , 2017 , net loans represented 81.8 % of our total assets . loan portfolio analysis . the following table sets forth the composition of our loan portfolio by type of loan at the dates indicated . โ โ โ at december 31 , โ โ โ โ 2017 โ โ 2016 โ โ โ โ amount โ โ percent โ โ amount โ โ percent โ โ โ โ ( dollars in thousands ) โ mortgage loans : โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ one-to-four family โ โ โ $ 75,858 โ โ โ โ โ 53.63 % โ โ โ โ $ 68,472 โ โ โ โ โ 65.74 % โ โ commercial โ โ โ โ 50,122 โ โ โ โ โ 35.43 โ โ โ โ โ 25,207 โ โ โ โ โ 24.20 โ โ โ โ โ โ โ 125,980 โ โ โ โ โ 89.06 โ โ โ โ โ 93,679 โ โ โ โ โ 89.94 โ โ commercial and industrial โ โ
| 7,003 |
-68- the following table presents our unaudited pro forma historical results for the years ended december 31 , 2010 and 2009 as if we had acquired mico at january 1 , 2009 and mico had entered into a 25 % quota-share reinsurance agreement with donegal mutual on that date : story_separator_special_tag overview donegal mutual insurance company ( ยdonegal mutualย ) organized us as an insurance holding company on august 26 , 1986 ( see ยbusiness - history and organizational structureย for more information ) . our insurance subsidiaries , atlantic states insurance company ( ยatlantic statesย ) , southern insurance company of virginia ( ยsouthernย ) , le mars insurance company ( ยle marsย ) , the peninsula insurance company and peninsula indemnity company ( collectively , ยpeninsula groupย ) , sheboygan falls insurance company ( ยsheboygan fallsย ) and michigan insurance company ( ยmicoย ) write personal and commercial lines of property and casualty coverages exclusively through a network of independent insurance agents in certain mid-atlantic , midwest , new england and southern states . we acquired mico on december 1 , 2010 and we have included mico 's results of operations in our consolidated results from that date . the personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies . the commercial lines products of our insurance subsidiaries consist primarily of commercial automobile , commercial multi-peril and workers ' compensation policies . we also own 48.2 % of the outstanding stock of donegal financial services corporation ( ยdfscย ) , a unitary thrift holding company . donegal mutual owns the remaining 51.8 % of the outstanding stock of dfsc . at december 31 , 2011 , donegal mutual held approximately 39 % of our outstanding class a common stock and approximately 75 % of our outstanding class b common stock . as a result of this ownership , donegal mutual has 66 % of the aggregate voting power of our outstanding shares of class a common stock and our outstanding shares of class b common stock . donegal mutual and atlantic states entered into a proportional reinsurance agreement , or pooling agreement , effective october 1 , 1986. under this pooling agreement , donegal mutual and atlantic states pool and then share proportionately substantially all of their respective premiums , losses and expenses . atlantic states ' participation in the pool has been 80 % since march 1 , 2008. the operations of our insurance subsidiaries and donegal mutual are interrelated due to the pooling agreement and other factors . while maintaining the separate corporate existence of each company , our insurance subsidiaries and donegal mutual conduct business together as the donegal insurance group . as such , donegal mutual and our insurance subsidiaries share the same business philosophy , the same management , the same employees and the same facilities and offer the same types of insurance products ( see ยbusiness - history and organizational structureย for more information regarding the pooling agreement and other transactions with our affiliates ) . our results of operations and financial condition have been impacted by three recent transactions : in october 2009 , donegal mutual consummated an affiliation with southern mutual insurance company ( ยsouthern mutualย ) , pursuant to which donegal mutual purchased a surplus note of southern mutual in the principal amount of $ 2.5 million , donegal mutual designees became a majority of the members of southern mutual 's board of directors and donegal mutual agreed to provide quota-share reinsurance to southern mutual for 100 % of its business . effective october 31 , 2009 , donegal mutual began to include business assumed from southern mutual in its pooling agreement with atlantic states . southern mutual writes primarily personal lines of insurance in georgia and south carolina . in december 2010 , we acquired mico , which had been a majority-owned subsidiary of west bend mutual insurance company ( ยwest bendย ) for approximately $ 42.3 million in cash . mico writes various lines of property and casualty insurance and had direct written premiums of $ 105.4 million and net written premiums of $ 27.1 million for the year ended december 31 , 2010. effective on december 1 , 2010 , mico entered into a 50 % quota-share agreement with third-party reinsurers and a 25 % quota-share reinsurance agreement with donegal mutual to replace the 75 % quota-share reinsurance agreement mico maintained with west bend through november 30 , 2010. in may 2011 , dfsc merged with union national financial corporation ( ยunnfย ) , with dfsc as the surviving company in the merger . under the merger agreement , province bank fsb , which dfsc owned , and union national community bank , which unnf owned , also merged and began doing business as union community bank fsb ( ยucbย ) . ucb is a federal savings bank with 13 branch offices in lancaster county , pennsylvania , and $ 533.2 million in assets at december 31 , 2011. donegal mutual contributed $ 22.1 million and we contributed $ 20.6 million to dfsc as additional capital to facilitate the mergers . we use the equity method of accounting for our investment in dfsc . under the equity method , we record our investment at cost , with adjustments for our share of dfsc 's earnings and losses as well as changes in dfsc 's equity due to unrealized gains and losses . in february 2009 , our board of directors authorized a share repurchase program , pursuant to which we may purchase up to 300,000 shares of our class a common stock at market prices prevailing from time to time in the open market subject to the provisions of securities and exchange commission rule 10b-18 and in privately negotiated transactions . we purchased 119,257 and 9,702 shares of our class a common stock under this program during 2011 and 2010 , respectively . at december 31 , 2011 , we had the authority to purchase 163,372 shares under this program . story_separator_special_tag our insurance subsidiaries recognized a ( decrease ) increase in their liability for losses and loss expenses of prior years of ( $ 168,460 ) , ( $ 2.9 ) million and $ 9.8 million in 2011 , 2010 and 2009 , respectively . our insurance subsidiaries made no significant changes in their reserving philosophy , key reserving assumptions or claims management personnel , and there have been no significant offsetting changes in estimates that increased or decreased their loss and loss expense reserves in those years . the 2011 development represented an immaterial percentage of the december 31 , 2010 net carried reserves . excluding the impact of weather events , our insurance subsidiaries have noted stable amounts in the number of claims incurred and a slight downward trend in the number of claims outstanding at period ends relative to their premium base in recent years across most of their lines of business . however , the amount of the average claim outstanding has increased gradually over the past several years as the property and casualty insurance industry has experienced increased litigation trends and economic conditions that have extended the estimated length of disabilities and contributed to increased medical loss costs and a general slowing of settlement rates in litigated claims . our insurance subsidiaries could have to make further adjustments to their estimates in the future . however , on the basis of our insurance subsidiaries ' internal procedures , which analyze , among other things , their prior assumptions , their experience with similar cases and historical trends such as reserving patterns , loss payments , pending levels of unpaid claims and product mix , as well as court decisions , economic conditions and public attitudes , we believe that our insurance subsidiaries have made adequate provision for their liability for losses and loss expenses . atlantic states ' participation in the pool with donegal mutual exposes it to adverse loss development on the business of donegal mutual that is included in the pool . however , pooled business represents the predominant percentage of the net underwriting activity of both companies , and donegal mutual and atlantic states would proportionately share any adverse risk development of the pooled business . the business in the pool is homogeneous and each company has a pro-rata share of the entire pool . since substantially all of the business of atlantic states and donegal mutual is pooled and the results shared by each company according to its participation level under the terms of the pooling agreement , the intent of the underwriting pool is to produce a more uniform and stable underwriting result from year to year for each company than they would experience individually and to spread the risk of loss between the companies . -39- our insurance subsidiaries ' liability for losses and loss expenses by major line of business at december 31 , 2011 and 2010 consisted of the following : replace_table_token_14_th we have evaluated the effect on our insurance subsidiaries ' loss and loss expense reserves and our stockholders ' equity in the event of reasonably likely changes in the variables considered in establishing loss and loss expense reserves . we established the range of reasonably likely changes based on a review of changes in accident year development by line of business and applied it to our insurance subsidiaries ' loss reserves as a whole . the selected range does not necessarily indicate what could be the potential best or worst case or likely scenario . the following table sets forth the effect on our insurance subsidiaries ' loss and loss expense reserves and our stockholders ' equity in the event of reasonably likely changes in the variables considered in establishing loss and loss expense reserves : replace_table_token_15_th ( 1 ) net of income tax effect . our insurance subsidiaries base their reserves for unpaid losses and loss expenses on current trends in loss and loss expense development and reflect their best estimates for future amounts needed to pay losses and loss expenses with respect to incurred events currently known to them plus incurred but not reported ( ยibnrย ) claims . our insurance subsidiaries develop their reserve estimates based on an assessment of known facts and circumstances , review of historical loss settlement patterns , estimates of trends in claims severity , frequency , legal and regulatory changes and other assumptions . our insurance subsidiaries consistently apply actuarial loss reserving techniques and assumptions , which rely on historical information as adjusted to reflect current conditions , including consideration of recent case reserve activity . for the year ended december 31 , 2011 , our insurance subsidiaries used the most-likely number determined by our actuaries . based upon information provided by -40- our actuaries during the development of our insurance subsidiaries ' net reserves for losses and loss expenses for the year ended december 31 , 2011 , we developed a range from a low of $ 227.0 million to a high of $ 260.2 million and with a most-likely number of $ 243.0 million . the range of estimates for commercial lines in 2011 was $ 122.6 million to $ 140.4 million and we selected the actuaries ' most-likely number of $ 131.2 million . the range of estimates for personal lines in 2011 was $ 104.4 million to $ 119.8 million and we selected the actuaries ' most-likely number of $ 111.8 million . based upon information provided by our actuaries during the development of our insurance subsidiaries ' net reserves for losses and loss expenses for the year ended december 31 , 2010 , we developed a range from a low of $ 200.4 million to a high of $ 236.8 million and with a most-likely number of $ 217.9 million . the range of estimates for commercial lines in 2010 was $ 105.4 million to $ 124.4 million and we selected the actuaries ' most-likely number of $ 114.5 million .
| results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 net premiums written our insurance subsidiaries ' 2011 net premiums written increased 16.0 % to $ 454.1 million , compared to $ 391.5 million for 2010. we primarily attribute the increase to $ 42.8 million of net premiums written related to our acquisition of mico . commercial lines net premiums written increased $ 39.5 million , or 32.0 % , for 2011 compared to 2010. the increase included $ 22.5 million from mico , with the remainder attributable to increased writings of new accounts in the commercial automobile , commercial multi-peril and workers ' compensation lines of business . personal lines net premiums written increased $ 23.1 million , or 8.6 % , for 2011 compared to 2010. the increase included $ 20.3 million from mico , with the remainder primarily attributable to pricing increases in the personal automobile and homeowners lines of business . net premiums earned our insurance subsidiaries ' net premiums earned increased to $ 431.5 million for 2011 , an increase of $ 53.5 million , or 14.2 % , over 2010 , reflecting increases in net premiums written during 2010 and 2011. our insurance subsidiaries earn premiums and recognize them as income over the terms of the policies they issue . such terms are generally one year or less in duration . therefore , increases or decreases in net premiums earned will generally reflect increases or decreases in net premiums written in the preceding twelve-month period compared to the same period one year earlier .
| 7,004 |
stock options granted generally vest over three to four years for employee grants and one to two years for director grants , and have contractual terms of ten years . f-16 digimarc corporation notes to consolidated financial statementsย ( continued ) ( in thousands , except share and per share data ) expected volatility . the company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock based on historical prices over the most recent period commensurate with the expected life of the award . risk-free interest rate . the company determines the risk-free interest rate using current u.s. treasury yields for bonds with a maturity commensurate with the expected life of the award . expected dividend yield . the expected dividend yield is derived by the company 's expected annual dividend rate over the expected term divided by the fair value of the company 's common stock at the grant date . there were no stock options granted during the years ended december 31 , 2014 , 2013 and 2012. the company records stock-based compensation expense story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements relating to future events or the future financial performance of digimarc , which involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements . please see the discussion regarding forward-looking statements included at the end of this discussion , under the caption ยforward-looking statementsย and item 1a , ยrisk factorsย for a discussion of some of the uncertainties , risks and assumptions associated with these statements . the following discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this annual report on form 10-k. all dollar amounts are in thousands except per share amounts or unless otherwise noted . percentages within the following tables included in this section may not foot due to rounding . overview digimarc corporation enables governments and enterprises around the world to give digital identities to media and objects that computers and digital devices can sense and recognize and to which they can react . we 23 have developed an intuitive computing platform that is intended to optimize the identification of consumer brand impressions , facilitating modern mobile-centric shopping . the platform includes the means to infuse persistent digital information , ยdigimarc ids , ย perceptible only to computers and digital devices , into all forms of media content , including consumer products packaging . digimarc ids for packaging , often referred to as ยdigimarc barcodes , ย facilitate remarkably faster scanning of items at retail checkout as well as improved interaction with consumers . the unique digital identifier placed in media generally persists with it regardless of the distribution path and whether it is copied , manipulated or converted to a different format , and does not affect the quality of the content or the enjoyment or other traditional uses of it . our technology permits computers and digital devices to quickly identify relevant data from vast amounts of media content . our growth strategy encompasses both our government and commercial businesses . we plan to continue investing in research and development and sales and marketing to develop and market our products including digimarc discover , digimarc barcode and digimarc guardian and continue to expand our intellectual property portfolio . to protect our significant efforts in creating our technology , we have implemented an extensive intellectual property protection program that relies on a combination of patent , copyright , trademark and trade secret laws , and nondisclosure agreements and other contracts . as a result , we believe we have one of the world 's most extensive patent portfolios in the field of digital watermarking and related fields , with greater than 1,200 u.s. and foreign patents and pending patent applications as of december 31 , 2014. we continue to develop and broaden our portfolio of patented technology in the fields of media identification and management technology and related applications and systems . we devote significant resources to developing and protecting our inventions and continuously seek to identify and evaluate potential licensees for our patents . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the u.s. ( ยu.s . gaapย ) requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to bad debts , contingencies , goodwill , income taxes , intangible assets , marketable securities , property and equipment and revenue recognition . we base our estimates on historical experience and on other assumptions we believe to be reasonable in the circumstances . actual results may differ from these estimates under different assumptions or conditions . some of our accounting policies require higher degrees of judgment than others in their application . these include revenue recognition , goodwill , impairment of long-lived assets , contingencies and income taxes . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition : we account for customer arrangements that encompass multiple deliverables , such as patent licenses , professional services , software licenses , and maintenance and support fees , under asc 605-25 ย multiple-element arrangements . for arrangements that include multiple deliverables , we identify and divide the deliverables into separate units of accounting at inception if certain criteria are met . we apply asc 985 to software deliverables when relevant . the consideration for the arrangements under asc 605-25 is allocated to the separate units of accounting using the relative selling price method . story_separator_special_tag contingencies : we evaluate all pending or threatened contingencies or commitments , if any , that are reasonably likely to have a material adverse effect on our operations or financial position . we assess the probability of an adverse outcome and determine if it is remote , reasonably possible or probable as defined in accordance with the provisions of asc 450 ย contingencies .ย if information available prior to the issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of our financial statements , and the amount of the loss , or the range of probable loss can be reasonably estimated , then the loss is accrued and charged to operations . if no accrual is made for a loss contingency because one or both of the conditions pursuant to asc 450 are not met , but the probability of an adverse outcome is at least reasonably possible , we will disclose the nature of the contingency and provide an estimate of the possible loss or range of loss , or state that such an estimate can not be made . income taxes : we record valuation allowances on our deferred tax assets if , based on available evidence , it is more-likely-than-not that all or some portion of the assets will not be realized . the determination of whether our deferred tax assets are realizable requires management to identify and weight all available positive and negative evidence . management considers recent financial performance , projected future taxable income , scheduled reversals of deferred tax liabilities , tax planning strategies and other evidence in assessing the realizability of our deferred tax assets . we recorded a $ 6.8 million non-cash income tax charge during the fourth quarter of 2014 to record a full valuation allowance against our deferred tax assets largely due to the cumulative loss we have incurred over the last three years , which is considered a significant piece of negative evidence when assessing the realizability of deferred tax assets . we are subject to federal and state income taxes within the u.s. , and , in the ordinary course of business , there are transactions and calculations where the ultimate tax determination is uncertain . we report a liability ( or contra asset ) for unrecognized tax benefits resulting from uncertain tax positions taken ( or expected to be taken ) on a tax return . we recognize interest and penalties , if any , related to the unrecognized tax benefits in income tax expense . 26 results of operationsยthe years ended december 31 , 2014 and december 31 , 2013 the following tables present our consolidated statements of operations data for the periods indicated . replace_table_token_6_th 27 replace_table_token_7_th summary in 2013 , we increased the level of our investments in our product development and sales growth initiatives , primarily through hiring additional engineering and sales personnel . these initiatives included developing and marketing digimarc discover , digimarc barcode and other aspects of our intuitive computing platform as well as further developing our retained patent assets and exploring strategic opportunities in the mobile payments market . in 2014 , we continued these investments and made additional investments to expand our sales organization and expand the digimarc guardian product offering . total revenue decreased 27 % to $ 25.7 million in 2014 from $ 35.0 million in 2013 primarily due to the scheduled completion of the quarterly license fee payments from intellectual ventures ( ยivย ) in the second quarter of 2013 and from the nielsen company ( ยnielsenย ) in the first quarter of 2014. total operating expenses increased 11 % to $ 32.5 million from $ 29.2 million in 2013 primarily reflecting the full-year impact of the continued investments in our product development and sales growth initiatives . 28 revenue replace_table_token_8_th service . service revenue consists primarily of software development and consulting services . the majority of service revenue arrangements are structured as time and materials consulting agreements . most of our service revenue is derived from contracts with the central banks , iv and government agency contractors . the agreements range from several months to several years in length , and our longer term contracts are subject to work plans that are reviewed and agreed upon at least annually . these contracts generally provide for billing hours worked at predetermined rates and , to a lesser extent , reimbursement for third party costs and services . increases or decreases in the services provided under these contracts are generally subject to both volume and price changes . the volume of work is generally negotiated at least annually and can be modified as the customer 's needs change . we also have provisions in our longer term contracts that allow for specific hourly rate price increases on an annual basis to account for cost of living variables . contracts with government agency contractors are generally shorter term in nature , less linear in billings and less predictable than our longer term contracts because the contracts with government agency contractors are subject to government budgets and funding . the increase in service revenue was due primarily to higher billing rates under our contract with the central banks , partially offset by lower revenue due to timing of work with a government agency contractor . subscription . subscription revenue includes subscriptions for products and services , is generally recurring in nature , paid in advance and recognized over the term of the subscription . the increase in subscription revenue was due primarily to higher sales of our digimarc discover and guardian products . license . license revenue originates primarily from licensing our technology and patents where we receive fixed license fees and or royalties as our income stream . the majority of our 2014 license revenue was derived from contracts with verance corporation ( ยveranceย ) , civolution and nielsen . revenue from our licensed products have minimal associated direct costs , and thus are highly profitable .
| summary in 2013 , we increased the level of our investments in our product development and sales growth initiatives . these initiatives included developing and marketing digimarc discover , the digimarc barcode and other aspects of our intuitive computing platform as well as further developing our retained patent assets . we also continued research efforts to explore strategic opportunities in the mobile payments market . our revenue decreased 21 % to $ 35.0 million in 2013 from 2012 primarily as a result of the $ 8.0 million past due royalties payment received from verance in the first quarter of 2012 and the scheduled completion of the quarterly license fee payments from iv in the second quarter of 2013. the comparative decline was partially offset by increased subscription revenue due to a full year of attributor 's operations in 2013 and higher service revenue from the central banks . total operating expense increased primarily as a result of hiring additional engineering and sales personnel as we accelerated our product development and sales growth initiatives as well as the impact of a full year of attributor 's operations in 2013 and related acquisition and integration costs . 37 revenue replace_table_token_18_th the increase in service revenue was due primarily to higher billing rates under our new contract with the central banks , partially offset by suspension of operations in the joint ventures in the first quarter of 2012. the increase in subscription revenue was due primarily to a full year of attributor 's operations in 2013. the decrease in license revenue was due primarily to the $ 8.0 million past due royalties payment received from verance the first quarter of 2012 and the scheduled completion of the quarterly license fee payments from iv in the second quarter of 2013. revenue by geography replace_table_token_19_th the decrease in domestic revenue was primarily the result of the $ 8.0 million
| 7,005 |
the following is a summary of finance receivables evaluated for impairment for the periods indicated : replace_table_token_40_th replace_table_token_41_th average recorded investment in impaired finance receivables for the periods indicated are as follows : replace_table_token_42_th it is not practical story_separator_special_tag the following discussion and analysis should be read in conjunction with , and is qualified in its entirety by reference to , our audited consolidated financial statements and the related notes that appear elsewhere in this annual report on form 10-k. these discussions contain forward-looking statements that reflect our current expectations and that include , but are not limited to , statements concerning our strategy , future operations , future financial position , future revenues , projected costs , expectations regarding demand and acceptance for our financial products , growth opportunities and trends in the market in which we operate , prospects , and plans and objectives of management . the words ยanticipates , ย ยbelieves , ย ยestimates , ย ยexpects , ย ยintends , ย ยmay , ย ยplans , ย ยprojects , ย ยwill , ย ยwould , ย and similar expressions are intended to identify forward-looking statements , although not all forward-looking statements contain these identifying words . we may not actually achieve the plans , intentions , or expectations disclosed in our forward-looking statements , and you should not place undue reliance on our forward-looking statements . our forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from the plans , intentions , and expectations disclosed in the forward-looking statements . such risks and uncertainties include , without limitation , the risks set forth elsewhere in this annual report on form 10-k. the forward-looking information we have provided in this annual report on form 10-k pursuant to the safe harbor established under the private securities litigation reform act of 1995 should be evaluated in the context of these factors . forward-looking statements speak only as of the date they were made , and we undertake no obligation to update or revise such statements , except as required by the federal securities laws . overview we are a diversified consumer finance company providing a broad array of loan products primarily to customers with limited access to consumer credit from banks , thrifts , credit card companies , and other traditional lenders . we began operations in 1987 with four branches in south carolina and have expanded our branch network to 342 locations in the states of alabama , georgia , new mexico , north carolina , oklahoma , south carolina , tennessee , texas , and virginia as of december 31 , 2017. most of our loan products are secured , and each is structured on a fixed rate , fixed term basis with fully amortizing equal monthly installment payments , repayable at any time without penalty . our loans are sourced through our multiple channel platform , which includes our branches , direct mail campaigns , retailers , digital partners , and our consumer website . we operate an integrated branch model in which nearly all loans , regardless of origination channel , are serviced through our branch network , providing us with frequent in-person contact with our customers , which we believe improves our credit performance and customer loyalty . our goal is to consistently and soundly grow our finance receivables and manage our portfolio risk while providing our customers with attractive and easy-to-understand loan products that serve their varied financial needs . our diversified products include : small loans ( ยฃ $ 2,500 ) ย as of december 31 , 2017 , we had 260.8 thousand small installment loans outstanding , representing $ 375.8 million in finance receivables . this included 109.9 thousand small loan convenience checks , representing $ 138.1 million in finance receivables . large loans ( > $ 2,500 ) ย as of december 31 , 2017 , we had 80.9 thousand large installment loans outstanding , representing $ 347.2 million in finance receivables . this included 1.6 thousand large loan convenience checks , representing $ 4.4 million in finance receivables . automobile loans ย as of december 31 , 2017 , we had 7.3 thousand automobile purchase loans outstanding , representing $ 61.4 million in finance receivables . this included 4.1 thousand indirect automobile loans and 3.2 thousand direct automobile loans , representing $ 38.1 million and $ 23.3 million in finance receivables , respectively . retail loans ย as of december 31 , 2017 , we had 22.6 thousand retail purchase loans outstanding , representing $ 33.1 million in finance receivables . 49 optional insurance products ย we offer optional payment and collateral protection insurance to our direct loan customers . small and large installment loans are our core loan products and will be the drivers of our future growth . we ceased originating automobile loans in november 2017 to focus on growing our core loan portfolio , though we will continue to own and service our current automobile loans . our primary sources of revenue are interest and fee income from our loan products , of which interest and fees relating to small and large installment loans are the largest component . in addition to interest and fee income from loans , we derive revenue from optional insurance products purchased by customers of our direct loan products . factors affecting our results of operations our business is driven by several factors affecting our revenues , costs , and results of operations , including the following : quarterly information and seasonality . our loan volume and contractual delinquency follow seasonal trends . demand for our small and large loans is typically highest during the second , third , and fourth quarters , which we believe is largely due to customers borrowing money for vacation , back-to-school , and holiday spending . with the exception of retail loans , loan demand has generally been the lowest during the first quarter , which we believe is largely due to the timing of income tax refunds . story_separator_special_tag our insurance income , net consists of revenue , net of expenses , from the sale of various optional payment and collateral protection insurance products offered to customers who obtain loans directly from us . we do not sell insurance to non-borrowers . we offer optional credit life insurance , credit accident and health insurance , credit involuntary unemployment insurance , and personal property insurance . the type and terms of our optional insurance products vary from state to state based on applicable laws and regulations . we require property insurance on any personal property securing loans and offer customers the option of providing proof of such insurance purchased from a third party in lieu of purchasing property insurance from us . we also collect a fee for collateral protection and purchase non-filing insurance in lieu of recording and perfecting our security interest in the assets pledged on certain loans . we require proof of insurance for any vehicles securing loans . in addition , in select markets , we offer vehicle single interest insurance and we offered a guaranteed asset protection ( ย gap ย ) waiver product before we ceased originating automobile loans in november 2017. vehicle single interest insurance provides coverage on automobiles used as collateral on small and large loans . this insurance affords the borrower flexibility regarding the requirement to maintain full coverage on the vehicle while also protecting the collateral used to secure the loan . the gap waiver product forgives any loan balance remaining if the automobile is determined to be a total loss by the primary insurance carrier and insurance proceeds are not sufficient to pay off the customer 's loan . we issue insurance certificates as agents on behalf of an unaffiliated insurance company and then remit to the unaffiliated insurance company the premiums we collect ( net of refunds on prepaid loans and net of commission on new business ) . the unaffiliated insurance company cedes life insurance premiums to our wholly-owned insurance subsidiary , rmc reinsurance , ltd. , as written and non-life premiums as earned . we maintain cash reserves for life insurance claims in an amount determined by the unaffiliated insurance company . as of december 31 , 2017 , the restricted cash balance for these cash reserves was $ 6.1 million . the unaffiliated 51 insurance company maintains the reserves for non-life claims . insurance income , net includes all of the above-described insurance premiums , claims , and expenses . other income . our other income consists primarily of late charges assessed on customers who fail to make a payment within a specified number of days following the due date of the payment . in addition , fees for extending the due date of a loan , returned check charges , and commissions earned from the sale of an auto club product are included in other income . provision for credit losses . provisions for credit losses are charged to income in amounts that we estimate as sufficient to maintain an allowance for credit losses at an adequate level to provide for estimated losses on the related finance receivable portfolio . credit loss experience , delinquency of finance receivables , portfolio growth , the value of underlying collateral , and management 's judgment are factors used in assessing the overall adequacy of the allowance and the resulting provision for credit losses . our provision for credit losses fluctuates so that we maintain an adequate credit loss allowance that reflects forecasted future credit losses over the estimated loss emergence period ( the interval of time between the event which caused a borrower to default and our recording of the credit loss ) for each finance receivable type . changes in our delinquency and net credit loss rates may result in changes to our provision for credit losses . substantial adjustments to the allowance may be necessary if there are significant changes in economic conditions or portfolio performance . general and administrative expenses . our general and administrative expenses are comprised of four categories : personnel , occupancy , marketing , and other . we measure our general and administrative expenses as a percentage of average finance receivables , which we refer to as our receivable efficiency ratio . our personnel expenses are the largest component of our general and administrative expenses and consist primarily of the salaries and wages , overtime , contract labor , relocations costs , bonuses , benefits , and related payroll taxes associated with all of our operations and home office employees . our occupancy expenses consist primarily of the cost of renting our facilities , all of which are leased , as well as the utility , depreciation of leasehold improvements and furniture and fixtures , telecommunication , data processing , and other non-personnel costs associated with operating our business . our marketing expenses consist primarily of costs associated with our direct mail campaigns ( including postage and costs associated with selecting recipients ) , digital marketing , and maintaining our consumer website , as well as some local marketing by branches . these costs are expensed as incurred . other expenses consist primarily of legal , compliance , audit , consulting , non-employee director compensation , amortization of software licenses and implementation costs , electronic payment processing costs , bank service charges , office supplies , and credit bureau charges . we expect legal and compliance costs to remain elevated due to the regulatory environment in the consumer finance industry . for a discussion regarding how risks and uncertainties associated with legal proceedings and the current regulatory environment may impact our future expenses , net income , and overall financial condition , see item 1a , ยrisk factorsย and the filings referenced therein . interest expense . our interest expense consists primarily of paid and accrued interest for long-term debt , unused line fees , and amortization of debt issuance costs on long-term debt . interest expense also includes costs attributable to the interest rate caps that we use to manage our interest rate risk .
| results of operations the following table summarizes our results of operations , both in dollars and as a percentage of average receivables : replace_table_token_14_th information explaining the changes in our results of operations from year-to-year is provided in the following pages . comparison of december 31 , 2017 , versus december 31 , 2016 the following discussion and table describe the changes in finance receivables by product type : small loans ( ยฃ $ 2,500 ) ย small loans outstanding increased by $ 17.3 million , or 4.8 % , to $ 375.8 million at december 31 , 2017 , from $ 358.5 million at december 31 , 2016 , despite the up-sell of many small loan customers to large loans . the growth in receivables in branches opened in 2016 and 2017 contributed to the growth in small loans outstanding . large loans ( > $ 2,500 ) ย large loans outstanding increased by $ 111.9 million , or 47.5 % , to $ 347.2 million at december 31 , 2017 , from $ 235.3 million at december 31 , 2016. the increase was primarily due to increased marketing and the up-sell of small loan customers to large loans . automobile loans ย automobile loans outstanding decreased by $ 29.0 million , or 32.1 % , to $ 61.4 million at december 31 , 2017 , from $ 90.4 million at december 31 , 2016 , as we continued to restructure our automobile loan business to a centralized model during the first 10 months of 2017 and then determined to cease originating automobile loans in november 2017 to focus on growing our core loan portfolio . we expect the automobile loan portfolio to liquidate at a slightly faster rate in 2018 compared to 2017 .
| 7,006 |
4. cash , cash equivalents and investments the company 's cash , cash equivalents and investments as of december 31 , 2014 and 2013 consisted primarily of cash , u.s. government agency bonds , corporate bonds , commercial paper , certificates of deposits and money market funds . the company classifies investments as available-for-sale at the time of purchase and reevaluates such classification as of each balance sheet date . all investments are recorded at estimated fair value . unrealized gains and losses on available-for-sale investments are included in accumulated other comprehensive loss , a component of stockholders ' equity . the company story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. 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 elsewhere in this annual report on form 10-k , particularly in the section titled โ risk factors. โ overview we are a leading provider of secure , cloud-based virtual banking solutions . we enable regional and community financial institutions , or rcfis , to deliver a robust suite of integrated virtual banking services and engage more effectively with their retail and commercial account holders who expect to bank anytime , anywhere and on any device . our solutions are often the most frequent point of interaction between our rcfi customers and their account holders . as such , we purpose-built our solutions to deliver a compelling , consistent user experience across digital channels and drive the success of our customers by extending their local brands , enabling improved account holder retention and creating incremental sales opportunities . the effective delivery and management of secure and advanced virtual banking solutions in the complex and heavily-regulated financial services industry require significant resources , personnel and expertise . we provide virtual banking solutions that are designed to be highly configurable , scalable and adaptable to the specific needs of our rcfi customers . our solutions deliver to account holders a unified virtual banking experience across online , mobile , voice and tablet channels by leveraging a common platform that integrates our solutions with each other and with our customers ' other internal and third-party systems . in addition , we design our solutions and our data center infrastructure to comply with stringent security and technical regulations applicable to financial institutions and to safeguard our customers and their account holders through features such as real-time risk and fraud analytics . we deliver our solutions to the substantial majority of our customers using a software-as-a-service , or saas , model under which our customers pay subscription fees for the use of our solutions . a small portion of our customers host our solutions in their own data centers under term license and maintenance agreements . our customers have numerous account holders , and those account holders can represent one or more registered users on our solutions . we price our solutions based on the number of solutions purchased by our customers and the number of registered users utilizing our solutions . we earn additional revenues based on the number of bill-pay and certain other transactions that registered users perform on our virtual banking solutions in excess of the levels included in our standard subscription fee . as a result , our revenues grow as our customers buy more solutions from us and increase the number of registered users utilizing our solutions and as those users increase their number of transactions on our solutions . we have achieved significant growth since our inception . during each of the past three years , our average number of registered users per installed customer has grown , and we have been able to sell additional solutions to existing customers . our revenues per installed customer and per registered user vary period-to-period based on the length and timing of customer implementations , changes in the average number of registered users per customer , sales of additional solutions to existing customers , changes in the number of transactions on our solutions by registered users and variations among existing customers and new customers with respect to the mix of purchased solutions and related pricing . we believe we have a significant opportunity to continue to grow our business , and we intend to invest across our organization to increase our revenues and improve our operating efficiencies . these investments will increase our costs on an absolute dollar basis , but the timing and amount of these investments will vary based on the rate at which we expect to add new customers , the implementation and support needs of our customers , our software development plans , our technology infrastructure requirements and the internal needs of our organization . many of these investments will occur in advance of our realizing any resultant benefit which may make it difficult to determine if we are effectively allocating our resources . if we are successful in growing our revenues by increasing the number and scope of our customer relationships , we anticipate that greater economies of scale and increased operating leverage will improve our margins over the long term . we also anticipate that increases in the number of registered users for existing customers will improve our margins . however , we do not have any control or influence over whether account holders elect to become registered users of our customers ' virtual banking services . we sell our solutions primarily through our professional sales organization . our target market of approximately 13,000 rcfis is well-defined as a result of applicable governmental regulations . as a result , we are able to effectively concentrate our 40 sales and marketing efforts on these readily-identifiable financial institutions . story_separator_special_tag our revenue retention rate provides insight into the impact on current year revenues of the number of new customers implemented during the prior year , the timing of our implementation of those new customers in the prior year , growth in the number of registered users and changes in their usage of our solutions , sales of new products and services to our existing installed customers during the current year and customer attrition . the most significant drivers of changes in our revenue retention rate each year have historically been the number of new customers in the prior year and the timing of our implementation of those new customers . the timing of our implementation of new customers in the prior year is significant because we do not start recognizing revenues from new customers until they become installed customers . if implementations are weighted more heavily in the first or second half of the prior year , our revenue retention rate will be lower or higher , respectively . our revenue retention rate was 122 % , 128 % and 136 % for the years ended december 31 , 2014 , 2013 and 2012 , respectively . churn we utilize churn to monitor the satisfaction of our clients and evaluate the effectiveness of our business strategies . we define churn as the amount of any monthly recurring revenue losses due to customer cancellations and downgrades , net of upgrades and additions of new solutions , during a year , divided by our monthly recurring revenue at the beginning of the year . cancellations refer to customers that have either stopped using our services completely or remained a customer but terminated a particular service . downgrades are a result of customers taking less of a particular service or renewing their contract for identical services at a lower price . our annual churn has ranged from 5.4 % to 3.5 % over the last four years , and we had annual churn of 4.8 % , 3.5 % and 3.6 % for the years ended december 31 , 2014 , 2013 and 2012 , respectively . our use of churn has limitations as an analytical tool , and investors should not consider it in isolation . other companies in our industry may calculate churn differently , which reduces its usefulness as a comparative measure . adjusted ebitda we define adjusted ebitda as net loss before depreciation , amortization , loss from discontinued operations , stock-based compensation , provision for income taxes , total other expense , net , unoccupied lease charges and disposal of long-lived assets . we believe that adjusted ebitda provides useful information to investors and others in understanding and evaluating our operating results for the following reasons : adjusted ebitda is widely used by investors and securities analysts to measure a company 's operating performance without regard to items that can vary substantially from company to company depending upon their financing , capital structures and the method by which assets were acquired ; our management uses adjusted ebitda in conjunction with gaap financial measures for planning purposes , in the preparation of our annual operating budget , as a measure of our operating performance , to assess the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance ; 42 adjusted ebitda provides more consistency and comparability with our past financial performance , facilitates period-to-period comparisons of our operations and also facilitates comparisons with other companies , many of which use similar non-gaap financial measures to supplement their gaap results ; and our investor and analyst presentations include adjusted ebitda as a supplemental measure of our overall operating performance . adjusted ebitda should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with gaap . the use of adjusted ebitda as an analytical tool has limitations such as : depreciation and amortization are non-cash charges , and the assets being depreciated or amortized will often have to be replaced in the future and adjusted ebitda does not reflect cash requirements for such replacements ; adjusted ebitda may not reflect changes in , or cash requirements for , our working capital needs or contractual commitments ; adjusted ebitda does not reflect the potentially dilutive impact of stock-based compensation ; adjusted ebitda does not reflect interest or tax payments that could reduce cash available for use ; and other companies , including companies in our industry , might calculate adjusted ebitda or similarly titled measures differently , which reduces their usefulness as comparative measures . because of these and other limitations , you should consider adjusted ebitda together with our gaap financial measures including cash flow from operations and net loss . the following table presents a reconciliation of net loss to adjusted ebitda for each of the periods indicated ( in thousands ) : replace_table_token_8_th components of operating results revenues all of our revenue-generating activities directly relate to the sale , implementation and support of our solutions within a single operating segment . we derive the substantial majority of our revenues from subscription fees for the use of our solutions hosted in our data centers as well as revenues for implementation and customer support services related to our solutions . a small portion of our customers host our solutions in their own data centers under term license and maintenance agreements , and we recognize the corresponding revenues over the term of those customer agreements . subscription fees are based on the number of solutions purchased by our customers , the number of registered users and the number of bill-pay and certain other transactions those users conduct using our solutions in excess of the levels included in our standard subscription fee . subscription fees are billed and recognized monthly over the term of our customer agreements . the initial term of our customer agreements averages over five years , although it varies by customer .
| results of operations consolidated statements of operations data the following table sets forth our consolidated statements of operations data for each of the periods indicated ( in thousands ) : replace_table_token_9_th _ ( 1 ) includes reclassified costs of research and development personnel who performed certain implementation and customer support services as follows : replace_table_token_10_th 49 ( 2 ) includes stock-based compensation expenses as follows : replace_table_token_11_th ( 3 ) unoccupied lease charges include costs related to our early exit from our previous headquarters , partially offset by anticipated sublease income from that facility . ( 4 ) we previously had a subsidiary which we fully divested in march 2013. loss from discontinued operations , net of tax reflects the financial results of this divested subsidiary . the following table sets forth our consolidated statements of operations data as a percentage of revenues for each of the periods indicated : replace_table_token_12_th _ ( 1 ) includes reclassified costs of research and development personnel who performed certain implementation and customer support services as follows : replace_table_token_13_th 50 ( 2 ) includes stock-based compensation expenses as follows : replace_table_token_14_th ( 3 ) unoccupied lease charges include costs related to our early exit from our previous headquarters , partially offset by anticipated sublease income from that facility . ( 4 ) we previously had a subsidiary which we fully divested in march 2013. loss from discontinued operations , net of tax reflects the financial results of this divested subsidiary .
| 7,007 |
these risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends . overview jazz pharmaceuticals plc is an innovative global biopharmaceutical company dedicated to developing and commercializing life-changing medicines that transform the lives of patients with serious diseases โ often with limited or no options . we have a diverse portfolio of marketed medicines and novel product candidates , in early- to late-stage development , across key therapeutic areas . our focus is in neuroscience , including sleep and movement disorders , and in oncology , including hematologic malignancies and solid tumors . we actively explore new options for patients including novel compounds , small molecule advancements , biologics and innovative delivery technologies . our lead marketed products are : xyrem ยฎ ( sodium oxybate ) oral solution , a product approved by the u.s. food and drug administration , or fda , and marketed in the u.s. for the treatment of both cataplexy and excessive daytime sleepiness , or eds , in narcolepsy patients seven years of age and older ; xywav ( calcium , magnesium , potassium , and sodium oxybates ) oral solution , a product that contains 92 % less sodium than xyrem , approved by fda and launched in the u.s. in november 2020 for the treatment of cataplexy or eds in narcolepsy patients seven years of age and older ; sunosi ยฎ ( solriamfetol ) , a product approved by fda and the european commission and marketed in the u.s. and in europe to improve wakefulness in adult patients with eds associated with narcolepsy or obstructive sleep apnea , or osa ; defitelio ยฎ ( defibrotide sodium ) , a product approved in the u.s. for the treatment of adult and pediatric patients with hepatic veno-occlusive disease , or vod , also known as sinusoidal obstruction syndrome , with renal or pulmonary dysfunction following hematopoietic stem cell transplantation , or hsct , and in europe ( where it is marketed as defitelio ยฎ ( defibrotide ) ) for the treatment of severe vod in adults and children undergoing hsct therapy ; erwinaze ยฎ ( asparaginase erwinia chrysanthemi ) , a product approved in the u.s. and in certain markets in europe ( where it is marketed as erwinase ยฎ ) for patients with acute lymphoblastic leukemia , or all , who have developed hypersensitivity to e. coli -derived asparaginase ; vyxeos ยฎ ( daunorubicin and cytarabine ) liposome for injection , a product approved in the u.s. and in europe ( where it is marketed as vyxeos ยฎ liposomal 44 mg/100 mg powder for concentrate for solution for infusion ) for the treatment of adults with newly-diagnosed therapy-related acute myeloid leukemia , or aml , or aml with myelodysplasia-related changes ; and zepzelca ( lurbinectedin ) , a product approved by fda and launched in july 2020 in the u.s. for the treatment of adult patients with metastatic small cell lung cancer , or sclc , with disease progression on or after platinum-based chemotherapy . our strategy to create sustainable shareholder value is focused on : strong commercial execution to drive diversified revenue growth and address unmet medical needs of our patients across our product portfolio including with rapid adoption of xywav in the u.s. , sunosi growth globally and establishing zepzelca as a treatment of choice for second line sclc patients ; expanding and advancing our pipeline with internal and external patient-centric innovation to achieve a valuable product portfolio of durable , highly differentiated programs ; continuing to build a flexible , efficient , and productive development engine for targeted therapeutic conditions to identify and progress early- and mid-stage assets ; and investing in an efficient , scalable operating model and differentiated capabilities to enable growth and unlock further value through indication expansion and global markets . 68 in 2020 , consistent with our strategy , we continued to focus on research and development activities within our neuroscience and oncology therapeutic areas , such as our expansion into movement disorders and solid tumors , and exploring and investing in adjacent therapeutic areas that could further diversify our portfolio , such as post-traumatic stress disorders through our acquisition of springworks therapeutics , inc. 's , or springworks ' , fatty acid amide hydrolase , or faah , inhibitor program . for a summary of our ongoing research and development activities , see โ businessโresearch and development โ in this part i , item 1. our development activities encompass all stages of development and currently include clinical testing of new product candidates and activities related to clinical improvements of , or additional indications or new clinical data for , our existing marketed products . we have also expanded into preclinical exploration of novel therapies , including precision medicines in hematology and oncology . we are increasingly leveraging our growing internal research and development function , and we have also entered into collaborations with third parties for the research and development of innovative early-stage product candidates and have supported additional investigator-sponsored trials that will generate additional data related to our products . we also seek out investment opportunities in support of development of early- and mid-stage technologies in our therapeutic areas and adjacencies . we have a number of licensing and collaboration agreements with third parties , including biotechnology companies , academic institutions and research-based companies and institutions , related to preclinical and clinical research and development activities in hematology and in precision oncology , as well as in neuroscience . a summary of our ongoing development activities is provided under โ businessโresearch and development โ in part i , item 1 of this annual report on form 10โk . for 2021 and beyond , we expect that our research and development expenses will continue to increase from previous levels , particularly as we prepare for anticipated regulatory submissions and data read-outs from clinical trials , initiate and undertake additional clinical trials and related development work and potentially acquire rights to additional product candidates . story_separator_special_tag this research collaboration follows our previously announced purchase of redx 's preclinical pan-raf inhibitor program for the potential treatment of raf and ras mutant tumors in july 2019. under the terms of the 2020 research collaboration agreement , we made an upfront payment to redx of $ 10.0 million , which will be followed by another $ 10.0 million in 2021 , provided research work is continuing . following delivery of an investigational new drug , or ind , -ready molecule , redx will be eligible to receive up to a further $ 200.0 million from us in development , regulatory and commercial milestone payments for each program . the first milestone is payable upon successful ind submission . in addition , redx is eligible to receive tiered royalties in mid-single digit percentages of any future net sales . following a successful submission of an ind application , we will be responsible for further development , manufacturing , regulatory activities and commercialization . in october 2020 , we entered into an asset purchase and exclusive license agreement with springworks under which we acquired springworks ' faah inhibitor program . under the terms of the agreement , springworks has assigned or exclusively licensed all assets relating to its faah inhibitor program to us , including assignment of springworks ' proprietary faah inhibitor pf-04457845 , or pf-'845 , now named jzp-150 , and its license agreement with pfizer , inc. , or pfizer , under which pfizer exclusively licensed pf-'845 to springworks in 2017. we will initially focus on developing jzp-150 for the potential treatment of post-traumatic stress disorder and associated symptoms . in addition to assuming all milestone and royalty obligations owed by springworks to pfizer , we made an upfront payment of $ 35.0 million to springworks , which was recorded as acquired in-process research and development , or ipr & d expense in our consolidated statement of income for the year ended december 31 , 2020 , and may make potential milestone payments to springworks of up to $ 375.0 million upon the achievement of certain clinical , regulatory and commercial milestones , and pay incremental tiered royalties to springworks on future net sales of jzp-150 in the mid- to high-single digit percentages . 70 in october 2020 , we entered into an amendment and restatement of our license agreement , or the amended license agreement , with pharmamar , s.a. , or pharmamar , which expanded our exclusive license to include rights to develop and commercialize zepzelca in canada . in february 2021 , we entered into a definitive transaction agreement , or the transaction agreement , with gw pharmaceuticals plc , or gw . the gw transaction agreement provides , among other things , that , subject to the satisfaction or waiver of the conditions set forth in the gw transaction agreement , we will acquire the entire issued share capital of gw . under the gw transaction agreement , the consideration to be paid by us in the gw acquisition consists of $ 220.00 per american depositary share in gw , to be paid in the form of $ 200 in cash and $ 20 in our ordinary shares , for total consideration of approximately $ 7.2 billion . the gw acquisition is expected to close in the second quarter of 2021 , subject to the satisfaction or waiver of the conditions set forth in the gw transaction agreement , including applicable regulatory approvals and the approval of gw shareholders . on february 3 , 2021 , in connection with the execution of the gw transaction agreement , we entered into a commitment letter with bofa securities , inc. , bank of america , n.a . and jpmorgan chase bank , n.a . pursuant to which these commitment parties have committed to provide us with a senior secured revolving credit facility in an aggregate principal amount of up to $ 500.0 million , a senior secured term loan b facility in an aggregate principal amount of up to $ 3,150.0 million and a senior secured bridge loan facility in an aggregate principal amount of up to $ 2,200.0 million to , among other things , finance our obligations in respect of the gw acquisition . the effectiveness of such credit facilities is subject to the occurrence of customary closing conditions , including the consummation of the gw acquisition . we expect that product sales , operating expenses and interest expense , will be higher in 2021 than in 2020 due to the continued growth of the organization and , upon closing , the impact of the inclusion of the results of operations from gw and the higher debt balance . operational excellence in addition , we remain focused on continuing to build excellence in areas that we believe will give us a competitive advantage , including building an increasingly agile and adaptable commercialization engine and strengthening our customer-focused market expertise across patients , providers and payors . we are refining our approach to engaging our customers by strengthening alignment and integration across functions and across regions . this includes a more integrated approach to brand planning , a heightened focus on launch and operational excellence and multichannel customer engagement . we have fully adapted to virtual scientific congresses designed to ensure we can continue to provide promotional and non-promotional interactions and have supported our field-based teams with virtual customer interaction tools , training and content . these initiatives mark a significant operational evolution that is directly linked to our corporate strategy and are designed to better enable our teams to work collaboratively on an aligned and shared agenda . we are leveraging our differentiated operational capabilities this year in achieving three product approvals and executing our ongoing launches . covid-19 business update with the global impact of the covid-19 pandemic , we have developed a comprehensive response strategy including establishing cross-functional response teams and implementing business continuity plans to manage the impact of the covid-19 pandemic on our employees , patients and our business .
| results of operations the following table presents revenues and expenses for the years ended december 31 , 2020 , 2019 and 2018 ( in thousands except percentages ) : replace_table_token_2_th _ ( 1 ) comparison to prior period is not meaningful . 75 revenues the following table presents product sales , royalties and contract revenues , and total revenues for the years ended december 31 , 2020 , 2019 and 2018 ( in thousands except percentages ) : replace_table_token_3_th _ ( 1 ) comparison to prior period is not meaningful . product sales , net xyrem product sales increased in 2020 compared to 2019 primarily due to a higher average selling price and , to a lesser extent , an increase in sales volume , partially offset by higher gross to net deductions driven by managed care plans and commercial payor contracts . price increases were instituted in january 2020 , january and july 2019 and in january 2018. xyrem product sales volume increased by 3 % in 2020 compared to 2019 primarily driven by persistence and compliance among existing patients . in 2020 new patient diagnoses and enrollments were negatively impacted by covid-19 . xywav product sales were $ 15.3 million in 2020 , following its u.s. launch in november 2020. total oxybate product sales increased in 2020 compared to 2019 primarily due to a higher average selling price and , to a lesser extent , an increase in sales volume , partially offset by higher gross to net deductions . total oxybate product sales volume increased by 4 % in 2020 compared to 2019. xyrem product sales increased in 2019 compared to 2018 primarily due to a higher average net selling price and , to a lesser extent , an increase in sales volume . xyrem product sales volume increased by 6 % in 2019 compared to 2018 primarily driven by an increase in the average number of patients on xyrem . sunosi product sales were $ 28.3
| 7,008 |
you should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and related notes appearing elsewhere in this annual report . 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 โ looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in โ part i , item 1a . risk factors , โ our actual results could differ materially from the results described in , or implied by , the forward โ looking statements contained in the following discussion and analysis . please see โ forward-looking statements . โ overview we are a large scale , low cost u.s.-based producer and exporter of premium met coal operating two highly productive underground mines in alabama . as of december 31 , 2017 ( successor ) , mine no . 4 and mine no . 7 , our two operating mines , had approximately 110.0 million metric tons of recoverable reserves and our undeveloped blue creek energy mine contained 103.0 million metric tons of recoverable reserves . as a result of our high quality coal , our realized price has historically been in line with , or at a slight discount to , the australian lv index . our hcc , mined from the southern appalachian portion of the blue creek coal seam , is characterized by low sulfur , low-to-medium ash , and lv to mv . these qualities make our coal ideally suited as a coking coal for the manufacture of steel . we sell substantially all of our met coal production to steel producers . met coal , which is converted to coke , is a critical input in the steel production process . met coal is both consumed domestically in the countries where it is produced and exported by several of the largest producing countries , such as china , australia , the united states , canada and russia . therefore , demand for our coal will be highly correlated to conditions in the global steelmaking industry . the steelmaking industry 's demand for met coal is affected by a number of factors , including the cyclical nature of that industry 's business , technological developments in the steelmaking process and the availability of substitutes for steel such as aluminum , composites and plastics . a significant reduction in the demand for steel products would reduce the demand for met coal , which would have a material adverse effect upon our business . similarly , if alternative ingredients are used in substitution for met coal in the integrated steel mill process , the demand for met coal would materially decrease , which could also materially adversely affect demand for our met coal . basis of presentation our results on a โ predecessor โ basis relate to the assets acquired and liabilities assumed by warrior met coal , llc from walter energy in the asset acquisition and the related periods ending on or prior to march 31 , 2016. our results on a โ successor โ basis relate to warrior met coal , llc and its subsidiaries for periods beginning as of april 1 , 2016 and warrior met coal , inc. after giving effect to our corporate conversion on april 12 , 2017 from a delaware limited liability company into a delaware corporation . our results for the predecessor and successor periods have been separated by a vertical line to identify these different bases of accounting . the historical costs and expenses reflected in the predecessor combined results of operations include an allocation for certain corporate functions historically provided by walter energy . substantially all of the predecessor 's senior management were employed by walter energy and certain functions critical to the predecessor 's operations were centralized and managed by walter energy . historically , the centralized functions have included executive senior management , financial reporting , financial planning and analysis , accounting , shared services , information technology , tax , risk management , treasury , legal , human resources , and strategy and development . the costs of each of these services have been allocated to the predecessor on the basis of the predecessor 's relative headcount , revenue and total assets to that of walter energy . the combined financial statements of our predecessor included elsewhere in this annual report and the other historical predecessor combined financial information presented and discussed in this management 's discussion and analysis may not be indicative of what our financial condition , results of operations and cash flows would actually have been had we been a separate stand-alone entity , nor are they indicative of what our financial position , results of operations and cash flows may be in the future . 60 factors affecting the comparability of our financial statements asset acquisition on march 31 , 2016 , we consummated the acquisition of the predecessor on a debt free basis with minimum legacy liabilities . the asset acquisition included mine no . 4 and mine no . 7 , which management believes to be two of the highest quality and lowest cost met coal mines in the united states . prior to the asset acquisition , the company had no operations and nominal assets . we acquired the predecessor for an aggregate cash consideration of $ 50.8 million and the release of claims associated with the 2011 credit agreement and walter energy 's 9.50 % senior secured notes due 2019. in connection with the closing of the asset acquisition and in exchange for a portion of the outstanding first lien debt , walter energy 's first lien lenders were entitled to receive , on a pro rata basis , a distribution of our class a units . we accounted for the asset acquisition as a business combination under accounting standard codification ( โ asc โ ) topic 805 , business combinations . story_separator_special_tag segment adjusted ebitda is used as a supplemental financial measure by management and by external users of our financial statements , such as investors , industry analysts , lenders and ratings agencies , to assess : our operating performance as compared to the operating performance of other companies in the coal industry , without regard to financing methods , historical cost basis or capital structure ; the ability of our assets to generate sufficient cash flow to pay distributions ; our ability to incur and service debt and fund capital expenditures ; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities . 62 sales volumes , gross price realization and average net selling price we evaluate our operations based on the volume of coal we can safely produce and sell in compliance with regulatory standards , and the prices we receive for our coal . our sales volume and sales prices are largely dependent upon the terms of our annual coal sales contracts , for which prices generally are set on daily index averages or a quarterly basis . the volume of coal we sell is also a function of the pricing environment in the international met coal markets and the amounts of lv and mv coal that we sell . we evaluate the price we receive for our coal on two primary metrics : first , our gross price realization and second , our average net selling price per metric ton . our gross price realization represents the blended gross sales of our lv and mv coal , excluding demurrage and quality specification adjustments , divided by tons sold as a percentage of the quarterly australian lv index , which is a lv index price . our historical gross price realizations reflect the premiums and discounts we achieve on our lv and mv coal versus the quarterly lv australian lv index average price because of the high quality premium products we sell into the export markets . in addition , the premiums and discounts in a quarter or year can be impacted by a rising or falling price environment . on a quarterly basis , our blended gross selling price per metric ton may differ from the quarterly australian lv index average price per metric ton , primarily due to ( a ) tons that were priced at a previous quarter 's industry index price , but for which revenue was recognized in a subsequent quarter and ( b ) due to our gross sales price per ton being based on a blended average of gross sales price on our lv and mv coals as compared to the quarterly australian lv index average price . the gross price realization for the year ended december 31 , 2017 ( successor ) and for the nine months ended december 31 , 2016 ( successor ) is based on a volume weighted average australian lv index average price as the australian lv index average price is only set quarterly . as discussed in โ -overview , โ beginning in the second quarter of 2017 , the quarterly australian hcc benchmark pricing methodology was replaced by an average index-based pricing methodology . many of our met coal supply agreements that were priced on a quarterly australian hcc benchmark basis are now priced based on either the new industry average index-based quarterly price or a variety of indices . our average net selling price per metric ton represents our coal net sales revenue divided by total metric tons of coal sold . in addition , our average net selling price per metric ton is net of the previously mentioned demurrage and quality specification adjustments . cash cost of sales we evaluate our cash cost of sales on a cost per metric ton basis . cash cost of sales is based on reported cost of sales and includes items such as freight , royalties , manpower , fuel and other similar production and sales cost items , and may be adjusted for other items that , pursuant to gaap , are classified in the statements of operations as costs other than cost of sales , but relate directly to the costs incurred to produce met coal and sell it free-on-board at the port of mobile . our cash cost of sales per metric ton is calculated as cash cost of sales divided by the metric tons sold . cash cost of sales is used as a supplemental financial measure by management and by external users of our financial statements , such as investors , industry analysts , lenders and ratings agencies , to assess : our operating performance as compared to the operating performance of other companies in the coal industry , without regard to financing methods , historical cost basis or capital structure ; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities . we believe that this non-gaap financial measure provides additional insight into our operating performance , and reflects how management analyzes our operating performance and compares that performance against other companies on a consistent basis for purposes of business decision making by excluding the impact of certain items that management does not believe are indicative of our core operating performance . we believe that cash costs of sales presents a useful measure of our controllable costs and our operational results by including all costs incurred to produce met coal and sell it free-on-board at the port of mobile . period-to-period comparisons of cash cost of sales are intended to help management identify and assess additional trends potentially impacting our company that may not be shown solely by period-to-period comparisons of cost of sales . cash cost of sales should not be considered an alternative to cost of sales or any other measure of financial performance or liquidity presented in accordance with gaap . cash cost of sales excludes some , but not all , items that affect cost of sales , and our presentation may vary from the presentations of other companies .
| results of operations the results of operations , cash flows and financial condition for the predecessor and successor periods reflect different bases of accounting due to the impact of the asset acquisition on the financial statements . to aid the reader in understanding the results of operations of each of these distinctive periods , we have provided the following discussion of our historical results for the year ended december 31 , 2017 ( successor ) , the nine months ended december 31 , 2016 ( successor ) , the three months ended march 31 , 2016 ( predecessor ) , and the year ended december 31 , 2015 ( predecessor ) . due to these periods not being comparable , each period is discussed below on a standalone basis . 65 year ended december 31 , 2017 ( successor ) the following table summarizes certain financial information relating to our operating results that have been derived from our audited financial statements for the year ended december 31 , 2017 ( successor ) . replace_table_token_10_th sales , production and cost of sales components on a per unit basis for the year ended december 31 , 2017 ( successor ) were as follows : successor for the year ended december 31 , 2017 met coal ( metric tons in thousands ) metric tons sold 5,921 metric tons produced 6,091 gross price realization ( 1 ) 96 % average net selling price per metric ton $ 189.94 cash cost of sales per metric ton $ 99.86 ( 1 ) gross price realization represents gross sales , excluding demurrage and other charges , divided by tons sold as a percentage of the australian lv index . the gross price realization for the year ended december 31 , 2017 is based on a volume weighted average australian lv index . our gross price realization for the last nine months of 2017 , which represents the period for the new index methodology , was 100 % .
| 7,009 |
although the company is building a diversified loan portfolio , a substantial portion of its clients ' story_separator_special_tag the following discussion is intended to assist readers in understanding and evaluating the financial condition , changes in financial condition and the results of operations of the company , consisting of the parent company and its wholly-owned subsidiary , the bank . this discussion should be read in conjunction with the consolidated financial statements and other financial information contained elsewhere in this report . caution about forward-looking statements in addition to historical information , this report may contain forward-looking statements . for this purpose , any statement , that is not a statement of historical fact may be deemed to be a forward-looking statement . these forward-looking statements may include statements regarding profitability , liquidity , allowance for loan losses , interest rate sensitivity , market risk , growth strategy and financial and other goals . forward-looking statements often use words such as โ believes , โ โ expects , โ โ plans , โ โ may , โ โ will , โ โ should , โ โ projects , โ โ contemplates , โ โ anticipates , โ โ forecasts , โ โ intends โ or other words of similar meaning . you can also identify them by the fact that they do not relate strictly to historical or current facts . forward-looking statements are subject to numerous assumptions , risks and uncertainties , and actual results could differ materially from historical results or those anticipated by such statements . there are many factors that could have a material adverse effect on the operations and future prospects of the company including , but not limited to : ยท the inability of the company and the bank to comply with the requirements of agreements with its regulators ; ยท the inability to reduce nonperforming assets consisting of nonaccrual loans and foreclosed real estate ; ยท our inability to improve our regulatory capital position ; ยท the risks of changes in interest rates on levels , composition and costs of deposits , loan demand , and the values and liquidity of loan collateral , securities , and interest sensitive assets and liabilities ; ยท changes in assumptions underlying the establishment of allowances for loan losses , and other estimates ; ยท changes in market conditions , specifically declines in the residential and commercial real estate market , volatility and disruption of the capital and credit markets , soundness of other financial institutions we do business with ; ยท risks inherent in making loans such as repayment risks and fluctuating collateral values ; ยท changes in operations of village bank mortgage corporation as a result of the activity in the residential real estate market ; ยท legislative and regulatory changes , including the dodd-frank wall street reform and consumer protection act and other changes in banking , securities , and tax laws and regulations and their application by our regulators , and changes in scope and cost of fdic insurance and other coverages ; ยท exposure to repurchase loans sold to investors for which borrowers failed to provide full and accurate information on or related to their loan application or for which appraisals have not been acceptable or when the loan was not underwritten in accordance with the loan program specified by the loan investor ; ยท the effects of future economic , business and market conditions ; ยท governmental monetary and fiscal policies ; ยท changes in accounting policies , rules and practices ; ยท maintaining capital levels adequate to remain adequately capitalized ; ยท reliance on our management team , including our ability to attract and retain key personnel ; 19 ยท competition with other banks and financial institutions , and companies outside of the banking industry , including those companies that have substantially greater access to capital and other resources ; ยท demand , development and acceptance of new products and services ; ยท problems with technology utilized by us ; ยท changing trends in customer profiles and behavior ; and ยท other factors described from time to time in our reports filed with the sec . these risks and uncertainties should be considered in evaluating the forward-looking statements contained herein , and readers are cautioned not to place undue reliance on such statements . any forward-looking statement speaks only as of the date on which it is made , and the company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made . in addition , past results of operations are not necessarily indicative of future results . general the company 's primary source of earnings is net interest income , and its principal market risk exposure is interest rate risk . the company is not able to predict market interest rate fluctuations and its asset/liability management strategy may not prevent interest rate changes from having a material adverse effect on the company 's results of operations and financial condition . because the company has intentionally decreased assets over the last three years as it has been resolving problem assets and attempting to improve capital ratios , net interest income has declined from $ 19,635,000 in 2011 to $ 17,702,000 in 2012 and to $ 15,189,000 in 2013. although we endeavor to minimize the credit risk inherent in the company 's loan portfolio , we must necessarily make various assumptions and judgments about the collectability of the loan portfolio based on our experience and evaluation of economic conditions . if such assumptions or judgments prove to be incorrect , the current allowance for loan losses may not be sufficient to cover loan losses and additions to the allowance may be necessary , which would have a negative impact on net income . in 2013 , the provision for loan losses declined substantially from the four previous years as we resolved nonperforming loans and real estate values have recovered somewhat . story_separator_special_tag noninterest expense increased from $ 23,961,000 in 2011 , to $ 28,291,000 in 2012 and to $ 30,278,000 in 2013. the increase in noninterest expense of $ 1,987,000 in 2013 resulted primarily from an increase in expenses related to foreclosed real estate of $ 2,381,000. the increase in noninterest expense of $ 4,330,000 in 2012 resulted primarily from increases in expenses related to foreclosed real estate of $ 3,287,000 as well as salaries and benefits of $ 662,000. income taxes certain items of income and expense are reported in different periods for financial reporting and tax return purposes . the tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit . deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate we did not recognize any income tax in 2013 based on our valuation allowance while applicable income tax expense on the 2012 loss amounted to $ 4,055,000 , compared to a tax benefit on the 2011 loss of $ 426,000 , resulting in an effective tax rate of 3.49 % . the income tax expense in 2012 is primarily a result of the increase in the valuation allowance related to the deferred tax asset . 26 the net deferred tax asset is included in other assets on the balance sheet . accounting standards codification topic 740 , income taxes , requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a โ more likely than not โ standard . management considers both positive and negative evidence and analyzes changes in near-term market conditions as well as other factors which may impact future operating results . in making such judgments , significant weight is given to evidence that can be objectively verified . the deferred tax assets are analyzed quarterly for changes affecting realization . management determined that as of december 31 , 2013 , the objective negative evidence represented by the company 's recent losses outweighed the more subjective positive evidence and , as a result , recognized a valuation allowance for all of the net deferred tax asset that is dependent on future earnings of the company of approximately $ 11,940,000. the net operating losses available to offset future taxable income amounted to approximately $ 15,634,000 at december 31 , 2013 and expire through 2033. commercial banking organizations conducting business in virginia are not subject to virginia income taxes . instead , they are subject to a franchise tax based on bank capital . the bank recorded franchise tax expense of $ 163,000 and $ 328,000 for 2012 and 2011 , respectively . due to the company 's adjusted capital level we were not subject to franchise tax expense for the year ended december 31 , 2013. balance sheet analysis investment securities at december 31 , 2013 and 2012 , all of our investment securities were classified as available-for-sale . investment securities classified as available for sale may be sold in the future , prior to maturity . these securities are carried at fair value . net aggregate unrealized gains or losses on these securities are included , net of taxes , as a component of shareholders ' equity . given the generally high credit quality of the portfolio , management expects to realize all of its investment upon market recovery or , the maturity of such instruments , and thus believes that any impairment in value is interest rate related and therefore temporary . available for sale securities included net unrealized losses of $ 5,685,000 and $ 109,000 at december 31 , 2013 and 2012 , respectively . as of december 31 , 2013 , management does not have the intent to sell any of the securities classified as available for sale and which have unrealized losses and believes that it is more likely than not that the company will not have to sell any such securities before a recovery of cost . 27 the following table presents the composition of our investment portfolio at the dates indicated ( dollars in thousands ) . replace_table_token_7_th loans a management objective is to improve the quality of the loan portfolio . the company seeks to achieve this objective by maintaining rigorous underwriting standards coupled with regular evaluation of the creditworthiness of and the designation of lending limits for each borrower . the portfolio strategies include seeking industry and loan size diversification in order to minimize credit exposure and originating loans in markets with which the company is familiar . additionally , as a significant amount of the loan losses we have experienced over the last four years is attributable to construction and land development loans , our strategy has been to reduce this type of lending . the company 's real estate loan portfolios , which represent approximately 90 % of all loans , are secured by mortgages on real property located principally in the commonwealth of virginia . sources of repayment are from the borrower 's operating profits , cash flows and liquidation of pledged collateral . the company 's commercial loan portfolio represents approximately 9 % of all loans . loans in this category are typically made to individuals , small and medium-sized businesses . based on underwriting standards , commercial and industrial loans may be secured in whole or in part by collateral such as liquid assets , accounts receivable , equipment , inventory , and real property . the collateral securing any loan may depend on the type of loan and may vary in value based on market conditions . the remainder of our loan portfolio is in consumer loans which represent 1 % of the total . 28 the following tables present the composition of our loan portfolio at the dates indicated and maturities of selected loans at december 31 , 2013 ( in thousands ) . replace_table_token_8_th 29 replace_table_token_9_th the company assigns risk rating classifications to its loans .
| summary we recorded a net loss of $ 4,007,000 and a net loss available to common shareholders of $ 4,893,000 , or $ 1.13 per fully diluted share in 2013 , compared to a net loss of $ 10,399,000 and a net loss available to common shareholders of $ 11,278,000 , or $ 2.65 per fully diluted share , in 2012 , and net loss of $ 11,820,000 and net income available to common shareholders of $ 12,703,000 , or $ 2.99 per fully diluted share , in 2011. the most significant factor affecting earnings in the last three years has been costs associated with loan defaults โ the provision for loan losses and expenses related to foreclosed real estate . the impact these costs have had on our operations is illustrated in the following table which adjusts pretax earnings for gains and losses on sales of assets other than loan sales by the mortgage company as well as the effect of problem assets . such adjusted earnings is not a measurement under accounting principles generally accepted in the united states ( โ gaap โ ) and is not intended to be a substitute for our income statement prepared in accordance with gaap . 21 replace_table_token_3_th the decline of $ 2,410,000 in pretax income as adjusted in 2013 was primarily attributable to a decline in net interest income of $ 2,513,000 which resulted from a decline in average loans outstanding of $ 79,038,000. the decline of $ 273,000 in pretax income as adjusted in 2012 was not significant , however some of the changes in income and expense are worthy of note .
| 7,010 |
in this form 10-k , as such risk factors may be updated from time to time in our periodic filings with the sec . actual results may differ materially from those contained in any forward-looking statements . you should carefully read โ special note regarding forward-looking statements โ in this form 10-k. we conduct substantially all of our activities through our direct wholly-owned subsidiary , nvi , and its subsidiaries . we operate on a retail fiscal calendar that results in a given fiscal year consisting of a 52- or 53-week period ending on the saturday closest to december 31. in a 52-week fiscal year , each quarter contains 13 weeks of operations ; in a 53-week fiscal year , each of the first , second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations . references herein to โ fiscal year 2017 โ relate to the 52 weeks ended december 30 , 2017 , references herein โ fiscal year 2016 โ relate to the 52 weeks ended december 31 , 2016 and references herein to โ fiscal year 2015 โ relate to the 52 weeks ended january 2 , 2016. overview we are one of the largest and fastest growing optical retailers in the united states and a leader in the attractive value segment of the u.s. optical retail industry . we believe that vision is central to quality of life and that people deserve to see their best to live their best , no matter what their budget . our mission is to make quality eye care and eyewear affordable and accessible to all americans . we achieve this by providing eye exams , eyeglasses and contact lenses to cost-conscious and low-income consumers . we deliver exceptional value and convenience to our customers , with an opening price point that strives to be among the lowest in the industry , enabled by our low-cost operating platform . we reach our customers through a diverse portfolio of 1,013 retail stores across five brands and 18 consumer websites as of fiscal year end 2017. our operations consist of two reportable segments : owned & host โ as of fiscal year end 2017 , our owned brands consisted of 594 america 's best contacts and eyeglasses ( โ america 's best โ ) retail stores and 107 eyeglass world retail stores . in america 's best stores , vision care services are provided by optometrists employed by us or by independent professional corporations . america 's best stores are primarily located in high-traffic strip centers next to similar nationally-known discount retailers . eyeglass world locations primarily feature independent optometrists who perform eye exams and on-site optical laboratories that enable stores to quickly fulfill many customer orders and make repairs on site . eyeglass world stores are primarily located in freestanding or in-suite locations near high-foot-traffic shopping centers . our two host brands consisted of 56 vista optical locations on military bases and 29 vista optical locations within fred meyer stores as of fiscal year end 2017. we have strong , long-standing relationships with our host partners and have maintained each partnership for over 18 years . both host brands compete within the value segment of the u.s. optical retail industry . these brands provide eye exams principally by independent optometrists in nearly all locations . all brands utilize our centralized laboratories . this segment also includes sales from our four store brand websites , three of which are omni-channel . legacy โ we manage the operations of , and supply inventory and laboratory processing services to , 227 vision centers in walmart retail locations as of fiscal year 2017. under our management & services agreement with walmart , our responsibilities include ordering and maintaining merchandise inventory , arranging the provision of optometry services , providing managers and staff at each location , training personnel , providing sales receipts to customers , maintaining necessary insurance , obtaining and holding required licenses , permits and accreditations , owning and maintaining store furniture , fixtures and equipment , and developing annual operating budgets and reporting . we earn management fees as a result of providing such services and we record revenue related to sales of products and product protection plans on a net basis . our management & services agreement also allows our legacy partner to collect penalties if the vision centers do not generate a requisite amount of revenues . we also sell to our legacy partner merchandise that is stocked in retail locations we manage pursuant to a separate supplier agreement , and provide to our legacy partner centralized laboratory services for the finished eyeglasses for our legacy partner 's customers in stores that we manage . we lease space from walmart within or adjacent to each of the locations we manage and use this space for the provision of optometric examination services . during the fiscal year 2017 , sales associated with our legacy partner arrangement represented 11.2 % of consolidated net revenue . this exposes us to concentration of customer 48 risk . our agreements with our legacy partner expire on august 23 , 2020 , and will automatically renew for a three-year period unless a party elects not to renew . our consolidated results also include other non-reportable segment activity recorded in our corporate/other category : our wholly-owned subsidiary , ac lens , manages our e-commerce platform , which consists of 14 dedicated websites . our e-commerce business consists of six proprietary branded websites , including aclens.com and discountcontactlenses.com , and eight third-party websites with established retailers , such as walmart , sam 's club and giant eagle , and mid-sized vision insurance providers . ac lens handles site management , customer relationship management and order fulfillment and also sells a wide variety of contact lenses , eyeglasses and eye care accessories . ac lens also distributes contact lenses to walmart and sam 's club under fee for service arrangements . story_separator_special_tag managed care and insurance our managed care business relates to vision care programs and associated benefits ( i ) sponsored by employers or other groups , ( ii ) provided by insurers and managed care entities , such as health maintenance organizations to individuals , and ( iii ) delivered , typically on a fee-for-service or capitated basis , by health care providers , such as ophthalmologists , optometrists and opticians . managed care has become increasingly important to the optical retail industry . an increasing percentage of our customers receive vision insurance coverage through managed care payors . these payors represent an increasingly significant portion of our overall revenues and our revenue growth . while we have relationships with almost all vision care insurers in the united states and with all of the major carriers , currently , a relatively small number of payors comprise the majority of our managed care revenues , subjecting us to concentration risk . our future operational success could depend on our ability to negotiate contracts with managed vision care companies , vision insurance providers and other third-party payors , several of whom have significant market share . vision care professional recruitment and coverage our ability to operate our stores is largely dependent upon our ability to attract and retain qualified vision care professionals , and to maintain our relationships with independent optometrists and professional corporations owned by eye care practitioners that provide vision care services in our stores . overall economic trends macroeconomic factors that may affect customer spending patterns , and thereby our results of operations , include employment rates , business conditions , changes in the housing market , the availability of credit , interest rates , tax rates and fuel and energy costs . however , eye care purchases are predominantly a medical necessity and are considered non-discretionary in nature . therefore , the overall economic environment and related changes in consumer behavior have less of an impact on our business than for retailers in other industries . we also benefit from our low prices during periods of economic downturn and uncertainty . consumer preferences and demand our ability to maintain our appeal to existing customers and attract new customers depends on our ability to originate , develop and offer a compelling product assortment responsive to customer preferences and design trends . we estimate that optical consumers typically replace their eyeglasses every two to three years , while contact lens customers typically order new lenses every six to twelve months , reflecting the predictability of these recurring purchase behaviors . 50 infrastructure investment our historical results of operations reflect the impact of our ongoing investments in infrastructure to support our growth . we have made significant investments in information technology systems , supply chain systems and marketing . these investments include significant additions to our personnel , including experienced industry executives , and management and merchandising teams to support our long-term growth objectives . we intend to continue making targeted investments in our infrastructure as necessary to support our growth . pricing strategy we are committed to providing our products to our customers at low prices . we generally employ a simple low price/high value strategy that consistently delivers savings to our customers without the need for extensive promotions . our ability to source and distribute products effectively our revenue and operating income are affected by our ability to purchase our products in sufficient quantities at competitive prices . while we believe our vendors have adequate capacity to meet our current and anticipated demand , our level of revenue could be adversely affected in the event we face constraints in our supply chain , including the inability of our vendors to produce sufficient quantities of merchandise in a manner that is able to match market demand from our customers , leading to lost revenue . we rely on a limited number of vendors to supply the majority of our eyeglass frames , eyeglass lenses and contact lenses , and are thus exposed to concentration of supplier risk . in particular , we have agreed to exclusively purchase almost all of our spectacle lenses from one supplier . during fiscal year 2017 , four vendors supplied 56 % of frames , two vendors provided 91 % of lenses and three vendors supplied 94 % of contact lenses . inflation our financial results can be expected to be directly impacted by substantial increases in product costs due to materials cost increases or general inflation which could lead to greater profitability pressure as costs may not be able to be passed on to consumers . to date , changes in materials prices and general inflation have not materially impacted our business . interim results and seasonality historically , our business has realized a higher portion of net revenue , operating income , and cash flows from operations in the first fiscal quarter , and a lower portion of net revenue , operating income , and cash flows from operations in the fourth fiscal quarter . the seasonally larger first quarter is attributable primarily to the timing of our customers ' income tax refunds and annual health insurance program start/reset periods . because our target market consists of cost-conscious and low-income consumers , a delay in the issuance of tax refunds can have a negative impact on our financial results . consumers could also alter how they utilize tax refund proceeds . with respect to our fourth quarter results , compared to other retailers , our products and services are less likely to be included in consumer 's holiday spending budgets , therefore reducing spending on personal vision correction during the weeks preceding december 25 of each year . additionally , although the period between december 25 and the end of our fiscal year is typically a high-volume period , the net revenue associated with substantially all orders of prescription eyeglasses during that period is deferred until january due to our policy of recognizing revenue only after the product has been accepted by the customer , further contributing to higher first quarter results .
| results of operations the following table summarizes key components of our results of operations for the periods indicated , both in dollars and as a percentage of our net revenue . replace_table_token_4_th 54 fiscal year 2017 compared to fiscal year 2016 net revenue the following presents , by segment and by brand , comparable store sales growth , stores open at the end of the period and net revenue for fiscal year 2017 compared to fiscal year 2016 . replace_table_token_5_th _ ( 1 ) we calculate total comparable store sales based on consolidated net revenue excluding the impact of ( i ) corporate/other segment net revenue , ( ii ) sales from stores opened less than 12 months , ( iii ) stores closed in the periods presented , ( iv ) sales from partial months of operation when stores do not open or close on the first day of the month and ( v ) if applicable , the impact of a 53rd week in a fiscal year . brand-level comparable store sales growth is calculated based on cash basis revenues consistent with what the codm reviews , and consistent with reportable segment revenues presented in note 14 . `` segment reporting '' in our consolidated financial statements included in part ii . item 8. of this form 10-k , with the exception of the legacy segment , which is adjusted as noted in clause ( ii ) of footnote ( 3 ) below . ( 2 ) percentages reflect line item as a percentage of net revenue .
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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 under ยrisk factorsย and elsewhere in this annual report on form 10-k. our actual results may differ materially from those contained in or implied by any forward-looking statements . overview we are a leading provider of data and information management software applications and related services in terms of product breadth and functionality and market penetration . we develop , market and sell a unified suite of data and information management software applications under the simpana ยฎ brand . simpana software is built from the ground up on a single platform and unified code base for integrated data and information management . the simpana platform contains licensable modules that work together seamlessly , sharing a single code and common function set to deliver backup and recovery , archive , replication , search and analytic capabilities across physical , virtual and cloud environments . with a single platform approach , simpana software is specifically designed to protect , manage and access data throughout its lifecycle in less time , at lower cost and with fewer resources than alternative solutions . our product features and capabilities enable our customers to deploy solutions for data protection , business continuance , corporate compliance and centralized management and reporting . we also provide our customers with a broad range of professional services that are delivered by our worldwide support and field operations . as of march 31 , 2013 , we had licensed our software applications to approximately 18,200 registered customers . history and background in early 2000 , we launched commvault galaxy for backup and recovery , a storage industry award winner . in the years since , commvault has forged numerous alliances with top software application and hardware vendors , such as dell , hp , hitachi data systems , microsoft , network appliance , fujitsu , novell and oracle , to enhance capabilities and to create a premiere suite of data and information management solutions . in 2002 , we launched our single-platform technology that provides the foundation of our information management approach to storing , managing , and accessing data . our simpana software suite is one product that contains the following licensable modules , all built on a single unified code base and platform to protect , manage and access data and information : backup and recovery , archive , replication , search , and analyze . in addition to backup and recovery , the subsequent release of our other software application modules has substantially increased our addressable market . each application module can be used individually or in combination with other application modules from our single platform suite . in january 2009 , commvault simpana 8.0 ( ยsimpana 8ย ) was made available for public release . simpana 8 included advances in recovery management , data reduction , virtual server protection and content organization . in addition , we believe that simpana 8 met a broad spectrum of customer 's discovery and recovery management requirements and eliminated the need for a myriad of point level products . in august 2010 , our commvault simpana 9.0 software suite ( ยsimpana 9ย ) was made available for public release . we believe that simpana 9 , which built on and significantly expanded simpana 8 , allows customers to deploy a modern data management solution to achieve gains in efficiency , cost optimization and scale . we believe that simpana 9 solves real-world it challenges with major technology advancements , including increased virtualization scalability and performance , integrated source and target data deduplication , automatic and transparent integration with hardware array-based snapshots , as well as new tools that ease migration to our next generation simpana 9 platform . 38 in january 2012 , we released enhancements to our existing simpana 9 software suite . these enhancements included new capabilities that converges backup , archive and reporting processes ; additional snapprotect technology that delivers hardware snapshot integration ; enhancements to virtual server protection ; new innovations to protect data on laptops and desktops with embedded source deduplication for optimized efficiency ; and new integration with microsoft sharepoint . in february 2013 , our commvault simpana 10.0 software suite ( ยsimpana 10ย ) was made available for public release . we believe simpana 10 extends our data protection and archiving leadership to deliver secure , self-service access from mobile devices , speed the adoption of cloud computing and extract value from big data . simpana 10 includes major technology advancements such as enhanced intellisnapย snapshot management ; simpana onepassย with exchange ; tighter integration with microsoft hyper-v , vmware vsphere 5.1 and vcloud director 5.1 ; workflow automation ; fourth-generation parallel deduplication ; and customizable web-based reporting , dashboards and cloud-based analytics . our simpana 10 architecture efficiently stores all protected data in a virtual repository , called contentstore , and opens access to simplify the way end users search , analyze and repurpose data across an enterprise . our software licenses typically provide for a perpetual right to use our software and are sold on a capacity basis , on a per-copy basis or as site licenses . during the fiscal year ended march 31 , 2013 , approximately 69 % of software license revenue was sold on a capacity basis . capacity based software licenses provide our customers with unlimited licenses of specified software products based on a defined level of terabytes of data under management . as a result , when we sell our platform through a capacity license , many of the various simpana functionalities are bundled into one capacity based price . we anticipate that capacity based licenses will continue to account for the majority of our software license revenue for the foreseeable future . the industry in which we currently operate continues to go through accelerating changes as the result of compounding data growth and the introduction of new technologies . story_separator_special_tag our reseller agreement with dell provides them the right to market , resell and distribute certain of our products to their customers . our original equipment manufacturer agreement with dell is discussed more fully below . sales through our agreements with dell accounted for 20 % of our total revenues for fiscal 2013 , 22 % of our total revenues for fiscal 2012 and 23 % of our total revenues in fiscal 2011. in recent fiscal quarters , we have begun to shift most of our small and medium business segment transactions to non-dell distribution partners as dell is now focused on this segment of the market with their own intellectual property . as a result , the majority of the revenue that is still transacted through dell comes from add-on purchases from our existing install base and from new enterprise software transactions where our sales force is directly involved . we have also recently begun to take proactive steps to broaden our distribution related to enterprise software transactions . over time , we believe it is likely that these actions will result in a decline in the percentage of our total revenues transacted through dell . due to the timing of enterprise software transactions that are currently in our sales and marketing pipeline , there will likely be some fluctuations in the amount of revenue transacted through dell from quarter to quarter . 40 in may 2011 , we entered into a global oem agreement with netapp under which netapp will integrate elements of our simpana software suite with netapp snapshotย and replication technology , under the netapp snapprotect ยฎ brand . during the fiscal years ended march 31 , 2013 and march 31 , 2012 , we did not recognize a material amount of revenue under our oem agreement with netapp . overall , we have original equipment manufacturer agreements primarily with dell , hitachi data systems and netapp for them to market , sell and support our software applications and services on a stand-alone basis and or incorporate our software applications into their own hardware products . dell , hitachi data systems and netapp have no obligation to recommend or offer our software applications exclusively or at all , and they have no minimum sales requirements and can terminate our relationship at any time . a material portion of our software revenue is sometimes generated through our original equipment manufacturer agreements . sales through our original equipment manufacturer agreements accounted for 15 % of our total revenues for fiscal 2013 , 12 % of our total revenues for fiscal 2012 and 10 % of our total revenues for fiscal 2011. we also have non-exclusive distribution agreements covering our north american commercial markets and our u.s. federal government market with arrow enterprise computing solutions , inc. ( ยarrowย ) , a subsidiary of arrow electronics , inc. , and avnet technology solutions ( ยavnetย ) , a subsidiary of avnet , inc. pursuant to these distribution agreements , these distributors ' primary role is to enable a more efficient and effective distribution channel for our products and services by managing our reseller partners and leveraging their own industry experience . we generated approximately 29 % of our total revenues through arrow in fiscal 2013 , approximately 26 % of our total revenues in fiscal 2012 and approximately 25 % of our total revenues in fiscal 2011. avnet 's total revenue contribution was not material in fiscal 2013 , 2012 or 2011. if arrow or avnet were to discontinue or reduce the sales of our products or if our agreement with arrow or avnet was terminated , and if we were unable to take back the management of our reseller channel or find another north american distributor to replace arrow or avnet , then it could have a material adverse effect on our future revenues . we also derive a significant portion of our total revenues from services revenue . our services revenue is made up of fees from the delivery of customer support and other professional services , which are typically sold in connection with the sale of our software applications . customer support agreements provide technical support and unspecified software updates on a when-and-if-available basis for an annual fee based on licenses purchased and the level of service subscribed . other professional services include consulting , assessment and design services , implementation and post-deployment services and training , all of which to date have predominantly been sold in connection with the sale of software applications . our services revenue was 49 % of our total revenues for fiscal 2013 , 50 % for fiscal 2012 and 52 % for fiscal 2011. the gross margin of our services revenue was 74.6 % for fiscal 2013 , 75.3 % for fiscal 2012 and 76.6 % for fiscal 2011. the decrease in the gross margin of our services revenue in the fiscal year ended march 31 , 2013 compared to the fiscal year ended march 31 , 2012 was primarily due to higher costs of services associated with the expansion of our worldwide customer support operations . overall , our services revenue has lower gross margins than our software revenue . the gross margin of our software revenue was 98.9 % for fiscal 2013 , 98.6 % for fiscal 2012 and 98.4 % for fiscal 2011. an increase in the percentage of total revenues represented by services revenue may adversely affect our overall gross margins . description of costs and expenses our cost of revenues is as follows : cost of software revenue , consists primarily of third-party royalties and other costs such as media , manuals , translation and distribution costs ; and cost of services revenue , consists primarily of salary and employee benefit costs in providing customer support and other professional services .
| results of operations the following table sets forth each of our sources of revenues and costs of revenues for the specified periods as a percentage of our total revenues for those periods ( due to rounding numbers in column may not sum to totals ) : replace_table_token_6_th fiscal year ended march 31 , 2013 compared to fiscal year ended march 31 , 2012 revenues total revenues increased $ 89.2 million , or 22 % , from $ 406.6 million in fiscal 2012 to $ 495.9 million in fiscal 2013. software revenue . software revenue increased $ 49.7 million , or 25 % , from $ 201.8 million in fiscal 2012 to $ 251.5 million in fiscal 2013. software revenue represented 51 % of our total revenues in fiscal 2013 compared to 50 % in fiscal 2012. the overall increase in software revenue was primarily driven by higher enterprise software transactions ( transactions greater than $ 0.1 million ) , which increased by $ 37.0 million , or 35 % in fiscal 2013 compared to fiscal 2012. as a result , enterprise software transactions represented approximately 57 % of our software revenue in fiscal 2013 and approximately 52 % of our software revenue in fiscal 2012. the increase in enterprise software transactions is due to both a 23 % increase in the number of transactions of this type and a 10 % increase in the average dollar amount of such transactions .
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to facilitate customer collection and credit monitoring efforts , financing receivable amounts are invoiced and reclassified to trade accounts receivable when they become due , with all invoiced amounts placed on nonaccrual status . as a result , all past due amounts related to the company 's financing receivables are included in trade accounts receivable in the accompanying consolidated balance sheets . the following is an analysis of the age of financing receivables amounts ( excluding short-term payment plans ) that have been reclassified to trade accounts receivable and were past due as of december 31 , 2014 and december 31 , 2013 : replace_table_token_35_th from time to time , the company may agree to alternative payment terms outside of the terms of the original financing receivable agreement due to customer difficulties in achieving the original terms . in general , such alternative payment arrangements do not result in a re-aging of the related receivables . story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the `` selected financial data '' and our financial statements and the related notes included elsewhere in this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those set forth under `` risk factors '' and elsewhere in this annual report . background cpsi was founded in 1979 and specializes in delivering comprehensive healthcare information systems and related services to rural and community hospitals . our systems and services are designed to support the primary functional areas of a hospital and to enhance access to necessary financial and clinical information . our comprehensive system enables healthcare providers to improve clinical , financial and administrative processes and outcomes . our products and services provide solutions in key areas , including patient management , financial accounting , clinical , patient care and enterprise applications . in addition to servicing small to medium-sized hospitals , we provide information technology services to other related entities in the healthcare industry , such as nursing homes , home health agencies and physician clinics . we sell a fully integrated , enterprise-wide financial and clinical hospital information system comprised of all necessary software , hardware , peripherals , forms and office supplies , together with comprehensive customer service and support . we also offer business management , consulting and managed information technology ( `` it '' ) services , including electronic billing submissions , patient statement processing and accounts receivable management , as part of our overall information system solution . our system currently is installed and operating in over 650 hospitals in 46 states and the district of columbia . during 2014 , we entered the international healthcare information technology marketplace by completing a new system installation in the caribbean nation of st. maarten . our customers primarily consist of rural and community hospitals with 300 or fewer acute care beds , with hospitals having 100 or fewer acute care beds comprising approximately 94 % of our customers . inclusive of other entities in the healthcare industry , such as nursing homes , home health agencies and physician clinics , our products and services are utilized by over 12,000 healthcare providers in over 1,000 facilities in 49 states and the district of columbia . management overview historically we have primarily sought revenue growth through sales of healthcare information technology systems and related services to existing and new customers within our target market . our strategy has produced consistent revenue growth over the long term , as reflected in five- and ten-year compounded annual growth rates in revenues of approximately 9.9 % and 9.5 % , respectively . selling new and additional products and services to our existing customer base is an important part of cpsi 's future revenue growth . we believe that as our customer base grows , the demand for additional products and services , including business management , consulting and managed it services , will also continue to grow , supporting further increases in recurring revenues . we also expect to drive revenue growth from new product development that we may generate from our research and development activities . in january 2013 , we announced the formation of trubridge , llc ( `` trubridge '' ) , a wholly-owned subsidiary of cpsi . trubridge provides the business management , consulting and managed it services that historically had been provided by cpsi , with the expectation of expanding both our service offerings and our footprint in this particular marketplace in the future . we expect this strategic initiative to allow us to more fully take advantage of the market opportunities in providing such services by facilitating the expansion of our target market to include the entire rural and community hospital market , no longer limiting the market for our services to hospitals where cpsi already serves as the primary it vendor . in addition to revenue growth , our business model is focused on earnings growth . once a hospital has installed our system , we continue to provide support and maintenance services to the customer on an ongoing basis . these services are typically provided by the same personnel who perform our system installations , resulting in an increased gross margin as the substantial majority of the related costs are relatively fixed . we also look to increase margins through cost containment measures where appropriate . turbulence in the u.s. and worldwide economies and financial markets impacts almost all industries . while the healthcare industry is not immune to economic cycles , we believe it is more significantly affected by u.s. regulatory and national health projects than the economic cycles of our economy . story_separator_special_tag 33 index to financial statements the accelerated adoption of ehrs resulting from the arra 's ehr incentive program has resulted in an ever narrowing market for new system installations and has accelerated the purchases of incremental applications by our existing customer base to satisfy the current meaningful use rules , thereby narrowing the market for add-on sales to existing customers for stage 2-related incremental applications . despite these narrowing markets , we expect to continue to benefit from the arra 's ehr incentive program in the medium-to-long term as the expanded requirements for continued eligibility for incentive payments and related payment adjustments for those healthcare providers not in compliance with meaningful use rules are expected to result in both an expanded replacement market for ehrs and additional orders from our existing customer base to purchase incremental applications necessary to satisfy such expanded requirements , particularly as the stage 3 rules become effective . however , as the replacement market is not likely to develop rapidly and the market for add-on sales to existing customers for incremental stage 3-related applications is not likely to significantly expand until the related stage 3 rules become effective , our system sales revenues and profitability are expected to be materially and adversely impacted during the short term . although we are pursuing other strategic initiatives designed to result in system sales revenue growth in the future in the form of selective expansion into english-speaking international markets , selective expansion within the 100 to 300 bed hospital market and targeted expansion for our ambulatory solutions , there can be no guarantee that such initiatives will prove successful or will benefit the company in a sufficiently timely fashion to offset the short-term effects of the afore-mentioned narrowing markets . health care reform in march 2010 , president obama signed into law the patient protection and affordable care act and the health care and education reconciliation act of 2010 , collectively referred to as the `` health reform laws . '' this sweeping legislation implements changes to the healthcare and health insurance industries from 2010 through 2015 , with the ultimate goal of requiring substantially all u.s. citizens and legal residents to have qualifying health insurance coverage by 2014 and providing the means by which it will be made available to them . we anticipate that the health reform laws will have little direct impact on our internal operation but may have a significant impact on the businesses of our hospital customers once fully in effect . we have not been able to determine at this point whether the impact will be positive , negative or neutral ; however , it is likely that the health reform laws will affect hospitals differently depending upon the populations they service . rural and community hospitals typically service higher uninsured populations than larger urban hospitals and rely more heavily on medicare and medicaid for reimbursement . it remains to be seen whether the increase in the insured populations for rural and community hospitals , as well as the increase in medicare and medicaid reimbursements under the arra for hospitals that implement ehr technology , will be enough to offset cuts in medicare and medicaid reimbursements contained in the health reform laws or as a result of sequestration or other federal legislation . we believe healthcare initiatives will continue during the foreseeable future . if adopted , some aspects of previously proposed reforms , such as further reductions in medicare and medicaid payments , could adversely affect the businesses of our customers and thereby harm our business . sequestration automatic across-the-board budget cuts to federal discretionary programs under the budget control act of 2011 and the american taxpayer relief act of 2012 , known as `` sequestration , '' commenced in march 2013 , including a reduction in medicare payments to healthcare providers beginning april 1 , 2013. the percentage reduction to medicare reimbursement rates may not be more than 2 % , on a non-cumulative basis . under current law , as amended by subsequent legislation , medicare sequestration is scheduled to last through federal fiscal year 2024 , although legislation could be enacted at any time to end or modify the terms of sequestration . as our hospital customers rely heavily on reimbursements from medicare to fund their operations , this reduction in reimbursement rates , although capped at 2 % , could negatively affect the businesses of our customers and our business . as of the date of this filing , we have not experienced significant adverse effects on our business or results from operations from this reduction in reimbursement rates . as the federal government seeks to further limit deficit spending in the future due to fiscal restraints , it will likely continue to cut entitlement spending programs such as medicare and medicaid matching grants which will place further cost pressures on hospitals and other healthcare providers . furthermore , federal and state budget shortfalls could lead to potential reductions in funding for medicare and medicaid . reductions in reimbursements from medicare and medicaid could lead to hospitals postponing expenditures on information technology . 2014 financial overview 2014 represented a record year for the company in terms of both the top and bottom lines , as our gross revenues increased 1.9 % , while our net income increased 0.5 % . our cash flow from operations also reached record levels , increasing 34.1 % over 2013. our successful facilitation of our hospital customers ' achievement of meaningful use of ehr and thereby 34 index to financial statements qualifying for related ehr incentive payments resulted in the collection of over $ 20.0 million of amounts due under second generation meaningful use installment plans ( see below ) during 2014 , allowing us to more than double our available balances of cash and cash equivalents from december 31 , 2013 to december 31 , 2014 despite an 11.8 % increase in our quarterly dividend rate during the same period .
| results of operations the following table sets forth certain items included in our results of operations for each of the three years in the period ended december 31 , 2014 , expressed as a percentage of our total revenues for these periods ( dollar amounts in thousands ) : replace_table_token_4_th 2014 compared to 2013 revenues . total revenues increased 1.9 % , or $ 3.9 million . this was largely attributable to a combined $ 8.6 million increase in support and maintenance revenues and business management , consulting and managed it services revenues due to a larger customer base and increased applications within that customer base requiring support and maintenance services , as well as increased demand for and market acceptance of our business management , consulting and managed it services . the combined increase in support and maintenance revenues and business management , consulting and managed it services revenues was partially offset by a $ 4.7 million decrease in system sales revenues as increased add-on sales to existing customers were not sufficient to fully offset a decrease in new system installation activity , compounded by a decrease in revenue recognized under first generation meaningful use installment plans . system sales revenues decreased by 5.9 % , or $ 4.7 million . the accelerated adoption of ehrs resulting from the arra 's ehr incentive program has resulted in an ever narrowing market for new system installations . consequently , we experienced a significant decrease in new system installations during 2014 , as we completed financial and patient accounting system installations at 24 new hospital clients during 2014 ( two of which were under saas arrangements ) compared to 30 during 2013 ( one of which was under a saas arrangement ) . this decrease in the number of new system installations , coupled with a 30.5 % decrease in average installation size , resulted in decreased new customer installation revenues of 42.3 % , or $ 12.7 million .
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49 this annual report on form 10-k contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. forward-looking statements are statements that do not represent historical facts or the assumptions underlying such statements . we use words such as `` anticipate , '' `` believe , '' `` continue , '' `` could , '' `` estimate , '' `` expect , '' `` intend , '' `` may , '' `` plan , '' `` predict , '' `` project , '' `` potential , '' `` seek , '' `` should , '' `` will , '' `` would , '' and similar expressions to identify forward-looking statements . forward-looking statements in this annual report on form 10-k include , but are not limited to , our plans and expectations regarding future financial results , expected operating results , business strategies , the sufficiency of our cash and our liquidity , projected costs and cost reduction measures , development of new products and improvements to our existing products , the impact of recently adopted accounting pronouncements , our manufacturing capacity and manufacturing costs , the adequacy of our agreements with our suppliers , our ability to monetize our solar projects , legislative actions and regulatory compliance , competitive positions , management 's plans and objectives for future operations , our ability to obtain financing , our ability to comply with debt covenants or cure any defaults , our ability to repay our obligations as they come due , our ability to continue as a going concern , trends in average selling prices , the success of our joint ventures and acquisitions , warranty matters , outcomes of litigation , our exposure to foreign exchange , interest and credit risk , general business and economic conditions in our markets , industry trends , the impact of changes in government incentives , expected restructuring charges , risks related to privacy and data security , statements regarding the anticipated impact on our business of the covid-19 pandemic and related public health measures , macroeconomic trends and uncertainties , and the likelihood of any impairment of project assets , long-lived assets , and investments these forward-looking statements are based on information available to us as of the date of this annual report on form 10-k and current expectations , forecasts and assumptions and involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements . such risks and uncertainties include a variety of factors , some of which are beyond our control . factors that could cause or contribute to such differences include , but are not limited to , those identified above , those discussed in the section titled โ risk factors โ included in this annual report on form 10-k for the fiscal year ended january 3 , 2021 , and our other filings with the sec . these forward-looking statements should not be relied upon as representing our views as of any subsequent date , and we are under no obligation to , and expressly disclaim any responsibility to , update or alter our forward-looking statements , whether as a result of new information , future events or otherwise . our fiscal year ends on the sunday closest to the end of the applicable calendar year . all references to fiscal periods apply to our fiscal quarter or year , which end on the sunday closest to the calendar month end . unless the context otherwise requires , all references to โ sunpower , '' `` we , '' `` us , '' or `` our '' refer to sunpower corporation and its subsidiaries . overview sunpower corporation ( together with its subsidiaries , `` sunpower , '' `` '' the company , '' we , '' `` us , '' or `` our '' ) is a leading solar energy company that delivers complete solar solutions to customers primarily in united states and canada through an array of hardware , software , and financing options and `` smart energy '' solutions . our smart energy initiative is designed to add layers of intelligent control to homes , buildings , and gridsโall personalized through easy-to-use customer interfaces . we are a leader in the u.s. downstream distributed generation ( โ dg โ ) market , providing an affordable and sustainable source of electricity compared to traditional utility energy to residential homeowners and commercial customers through multiple financing options . our sales channels include a strong network of dealers and resellers that operate in both , residential and commercial markets , as well a group of talented and driven in-house sales team within each segment engaged in direct sales to end customers . for more information about our business , please refer to the section titled `` part i. item 1. business '' in this annual report on form 10-k for the fiscal year ended january 3 , 2021. recent developments key transactions during the fiscal year ended january 3 , 2021 include the following : maxeon solar spin-off transaction on august 26 , 2020 , we completed the spin-off ( the โ spin-off โ ) of maxeon solar technologies , ltd. , a singapore public company limited by shares ( โ maxeon solar โ ) , consisting of certain non-u.s. operations and assets of our former sunpower technologies business unit . the spin-off was completed by way of a pro rata distribution of all of the then-issued and outstanding ordinary shares , no par value , of maxeon solar to holders of record of our common stock ( the โ distribution โ ) as of the close of business on august 17 , 2020 . story_separator_special_tag gross margin for the segment decreased by 2 percentage points during fiscal 2019 as compared to fiscal 2018 , primarily as a result of higher cost incurred related to solar power solutions deals . 56 other gross margin for the segment was a loss of 37 % during fiscal 2020 as compared to a 25 % profit during fiscal 2019 , primarily due to the sale of a substantial majority of our o & m contracts and related assets and liabilities to novasource during fiscal 2020. also , gross margin in fiscal 2019 was significantly higher due to the sale of development projects in chile and japan , as well as the gain on sale and leaseback of our oregon manufacturing facility , that were recorded as revenue and reduction in cost of goods sold , respectively , and were non-recurring in nature . gross margin for the segment increased by 32 percentage points during fiscal 2019 as compared to fiscal 2018 , primarily due to revenue from sale of development projects in japan , chile and mexico , contributing 100 % to gross margin as well as a lower cost of goods sold due to gain on sale and leaseback of our oregon manufacturing facility , in 2019. research and development ( `` r & d '' ) replace_table_token_6_th r & d expense decreased by $ 11.8 million during the fiscal 2020 as compared to fiscal 2019 , primarily due to the reimbursement of $ 12.5 million by maxeon solar during fiscal 2020 , under the product collaboration agreement entered into with maxeon solar in connection with the spin-off . r & d expense decreased by $ 15.0 million during the fiscal 2019 as compared to fiscal 2018 , primarily due to a decrease in labor and facility costs as a result of reductions in headcount driven by our february 2018 restructuring plan . sales , general , and administrative ( `` sg & a '' ) replace_table_token_7_th sg & a expense decreased by $ 7.4 million during fiscal 2020 as compared to fiscal 2019 primarily due to a decrease in labor costs due to our december 2019 restructuring plan , as well as lower travel expenses and office-related expenses given that the majority of our workforce worked remotely due to covid-19 . during fiscal 2019 , we adopted a restructuring plan ( `` december 2019 restructuring plan '' ) to realign and optimize workforce requirements in light of recent changes to its business , including the previously announced planned spin-off of maxeon solar . sg & a expense decreased by $ 28.0 million during fiscal 2019 as compared to fiscal 2018 primarily due to reductions in headcount and salary expenses driven by our february 2018 restructuring plan and cost reduction efforts . restructuring charges replace_table_token_8_th restructuring charges decreased by $ 12.0 million during fiscal 2020 as compared to fiscal 2019 , primarily due to lower severance charges incurred in fiscal 2020 in connection with the december 2019 restructuring plan , since a substantial portion of such charges had been incurred during fiscal 2019. restructuring charges increased by $ 4.9 million during fiscal 2019 as compared to fiscal 2018 , primarily due to higher severance charges in fiscal 2019 in connection with the december 2019 restructuring plan compared to the february 2018 restructuring plan . 57 loss on sale and impairment of residential lease assets replace_table_token_9_th during fiscal 2020 , we recorded an immaterial impairment of residential lease assets since a substantial majority of such assets were sold in prior years . during fiscal 2019 , we recorded loss on sale and non-cash impairment charges of $ 25.4 million on the remaining portfolio of residential lease assets that we owned , before it was sold towards the end of the year to sunstrong capital holdings , llc . loss on sale and impairment of residential lease assets was $ 252.0 million in fiscal 2018 and was higher by $ 226.6 million compared to fiscal 2019 , primarily due to the sale of a majority of our residential lease assets portfolio in the fourth quarter of fiscal 2018. during fiscal 2019 , we also sold the remaining portion of the portfolio of residential lease assets to sunstrong capital holdings , llc . gain on business divestiture replace_table_token_10_th during fiscal 2020 , we recorded a gain on sale of our o & m business of $ 10.3 million . during fiscal 2019 , we recorded a gain of $ 143.4 million on sale of the commercial sale-leaseback portfolio . gain on business divestiture increased by $ 84.1 million during the fiscal 2019 as compared to fiscal 2018 , primarily due to the gain on the sale of our commercial sale-leaseback portfolio of $ 143.4 million , compared to the gain on sale of $ 59.3 million for the sale of our microinverter business recorded during fiscal 2018. income from transition services agreement , net fiscal year ( in thousands , except percentages ) 2020 2019 2018 income from transition services agreement $ ( 6,260 ) $ โ $ โ as a percentage of revenue ( 1 ) % โ % โ % in connection with the spin-off , we and maxeon solar entered into a transition services agreement , under which , we are providing certain labor and non-labor services to maxeon solar , and also receiving certain limited services with respect to certain shared processes post spin-off . the term of the transition services agreement is 12 months , extendable for up to an additional 180 days , and the services are billed at cost plus a standard mark-up . during the fiscal year ended january 3 , 2021 , we recorded $ 6.6 million of income for services provided under the agreement . this was offset by $ 0.3 million of services provided by maxeon solar to us , resulting in a net reduction of $ 6.3 million to operating expenses on the consolidated statement of operations .
| results of operations results of operations in dollars and as a percentage of net revenue were as follows : 52 replace_table_token_2_th 53 total revenue : our total revenue increased by 3 % during fiscal 2020 as compared to 2019 , primarily due to increases in revenue of our commercial and industrial solutions segment . our commercial backlog in commercial and industrial solutions segment is less susceptible to the adverse impact as a result of the covid-19 pandemic since the commercial backlog is booked months in advance . our total revenue decreased by 9 % during fiscal 2019 as compared to 2018 , primarily due to decreases in revenue of our commercial and industrial solutions segment . increase and decrease by segments is further discussed below . one customer accounted for approximately 18 % and 10 % of total revenue primarily in our residential , light commercial segment for the year ended january 3 , 2021 and december 29 , 2019 , respectively . we did not have customers that accounted for greater than 10 % of our total revenue in the year ended december 30 , 2018. revenue - by segment : a description of our segments along with other required information can be found in note 18 , `` segment and geographical information '' of the consolidated financial statements in item 8 of part ii , which is incorporated herein by reference . below , we have further discussed increase and decrease in revenue for each segment . replace_table_token_3_th 1 represents intersegment eliminations and adjustments to segment revenue to determine consolidated gaap revenue . refer details of reconciling items in note 18. segment and geographical information .
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as of december 31 , 2018 , the company 's tier 1 leverage capital ratio was 11.80 % , our common equity tier 1 ratio was 15.28 % , our tier 1 risk-based capital ratio totaled 15.74 % , and our total risk-based capital ratio was 21.71 % . 66 analysis of the results of operations financial performance replace_table_token_5_th ( 1 ) earnings per share are calculated utilizing the two-class method . basic earnings per share are calculated by dividing earnings to common shareholders by the weighted average number of common shares outstanding . diluted earnings per share are calculated by dividing earnings by the weighted average number of shares adjusted for the dilutive effect of outstanding stock options using the treasury stock method . ( 2 ) efficiency ratio represents noninterest expenses , as adjusted , divided by the sum of fully taxable equivalent net interest income plus noninterest income , as adjusted . noninterest expense adjustments exclude integration and acquisition related expenses . noninterest income adjustments exclude bargain purchase gains , realized gains or losses from the sale of investment securities , gains or losses on sale of other assets and cdfi fund grant . ( 3 ) tangible book value per share , adjusted return on average assets , adjusted return on average tangible common equity , return on average tangible common equity and tangible common equity to tangible assets are non-gaap financial measures . see `` non-gaap financial measures '' for a reconciliation of these measures to their most comparable gaap measures . results of operationsโcomparison of results of operations for the years ended december 31 , 2018 to december 31 , 2017 net interest income/average balance sheet in 2018 , we generated net interest income of $ 78.5 million , an increase of $ 18.3 million , or 30.4 % , from the net interest income produced in 2017. this increase was largely due to a 31.9 % increase in the average balance of interest-earning assets , plus a 23 basis point increase in the average yield on interest-earning assets . the increase in the average balance of interest-earning assets was primarily due to growth in loans ( both held for investment and held for sale ) and securities during 2018. the increase in the average yield on interest-earning assets was primarily due to the increase in accretion income associated with purchase accounting discounts established on loans acquired 67 in the faic acquisition . for the years ended december 31 , 2018 and 2017 our reported net interest margin was 4.12 % and 4.16 % , respectively . our net interest margin benefits from discount accretion on our purchased loan portfolios . the impact of accretion income on our net interest margin for the years ended december 31 , 2018 and 2017 was to increase our reported net interest margin by 0.13 % , and 0.37 % , respectively . interest income . total interest income was $ 102.1 million in 2018 compared to $ 74.1 million in 2017. the $ 28.0 million , or 37.8 % , increase in total interest income was mainly due to increases in average loan balances of $ 304.5 million , creating $ 16.8 million in interest income ; average mortgage loans held for sale increase of $ 203.5 million , creating $ 9.3 million in interest income ; and increases in rates creating $ 3.4 million . these increases were offset by lower federal funds balances resulting in $ 2.4 million in interest income . interest and fees on loans was $ 97.5 million in 2018 compared to $ 70.3 million in 2017. the $ 27.2 million , or 38.7 % , increase in interest income on loans was primarily due to a 40.9 % increase in the average balance of held for investment and held for sale loans outstanding partially offset by a 9 basis point decrease in the average yield on loans . the increase in the average balance of loans outstanding was primarily due to the faic acquisition plus organic growth in c & i , and sfr mortgage loans during 2018. the yield on the loan portfolio benefited from accretion income associated with purchase accounting discounts established on loans acquired in the faic and tomatobank acquisitions . for the years ended december 31 , 2018 and 2017 , the reported yield on total loans was 5.78 % and 5.74 % , respectively . the impact of accretion income on our yield on total loans for the years ended december 31 , 2018 and 2017 was to increase our reported yield on total loans by 0.13 % and 0.37 % , respectively . a substantial portion of our acquired loan portfolio that is subject to discount accretion consists of cre loans and sfr mortgages . the table below illustrates by loan type the accretion income for december 31 , 2018 , and 2017 : replace_table_token_6_th interest income from our securities portfolio increased $ 945,000 , or 66.5 % , to $ 2.4 million in 2018. the increase in interest income on securities was primarily due to an increased average balance of $ 31.5 million , or 60.4 % , and by an 11 basis point increase in the average yield on securities . interest income on our federal funds sold , cash equivalents and other investments decreased $ 124,000 , or 5.1 % , to $ 2.3 million in 2018. the decrease in interest income on these earning assets was primarily due to a decrease in the average balance of $ 78.6 million partially offset by a 151 basis point increase in average yield of cash equivalents . the decrease in the average balance reflected utilization of these funds to higher yielding loans and securities . 68 interest expense . interest expense on interest-bearing liabilities increased $ 9.7 million , or 69.7 % , to $ 23.6 million in 2018 due to increases in interest expense on both deposits and borrowings . story_separator_special_tag ) commercial ( 4 ) 252 3,555 3,807 1,963 1,795 3,758 total loans held for investment 16,837 1,196 18,033 4,071 ( 701 ) 3,370 total earning assets $ 24,578 $ 3,441 $ 28,019 $ 6,546 $ ( 633 ) $ 5,913 interest-bearing liabilities now and money market deposits $ 903 $ 1,111 $ 2,014 $ 311 $ 96 $ 407 savings deposits 43 ( 31 ) 12 4 ( 4 ) โ time deposits 1,419 3,238 4,657 181 741 922 total interest-bearing deposits 2,365 4,318 6,683 496 833 1,329 fhlb short-term advances 2,498 72 2,570 ( 15 ) 17 2 long-term debt 343 ( 24 ) 319 847 1 848 subordinated debentures 118 17 135 39 13 52 total interest-bearing liabilities 5,324 4,383 9,707 1,367 864 2,231 changes in net interest income $ 19,254 $ ( 942 ) $ 18,312 $ 5,179 $ ( 1,497 ) $ 3,682 ( 1 ) includes income and average balances for fhlb stock , term federal funds , interest-bearing time deposits and other miscellaneous interest-bearing assets . ( 2 ) interest income and average rates for tax-exempt securities are presented on a tax-equivalent basis as of december 31 , 2018 , 2017 and 2016 . ( 3 ) average loan balances include nonaccrual loans and loans held for sale . interest income on loans includes - amortization of deferred loan fees , net of deferred loan costs . ( 4 ) includes purchased receivables , which are short term loans made to investment grade companies and are used for cash - management purposes by the company . 71 provision for credit losses the provision for credit loss expense in 2018 was $ 4.5 million compared to a $ 1.1 million recapture of credit loss expense in 2018. the 2018 provision expense was primarily attributable to the growth in average loans during the year , both from the faic acquisition and organic loan growth . the 2017 recapture reflects both the receipt of a guaranteed payment on a sba 7a guaranteed loan of $ 629,000 in may 2017 that was previously charged-off and the receipt of $ 3.6 million in july 2017 pursuant to a sba loan guaranty that we previously fully reserved for in the alll . noninterest income noninterest income decreased $ 359,000 , or 2.7 % , to $ 12.8 million in 2018 from $ 13.2 million in 2017. the following table sets forth the major components of noninterest income for the years ended december 31 , 2018 and 2017 : replace_table_token_8_th service charges , fees and others . the increase in noninterest income from service charges , fees and other income was primarily from service charges on the additional transactional deposit accounts acquired in the faic acquisition . gain on sale of loans . the gain on sales of loans decreased $ 2.2 million due primarily to a decreased amount of sba loans sold , decreases in premiums on sba loans and decreases in premiums on mortgage loans sold . the lower premiums on sba loans sold is a result of higher pre-payments on sba loans . the lower premiums on mortgage loans is due to increased 10-year treasury rates in the third quarter of 2018 and changes in market conditions . the amounts of loans sold and gains on loans sold during 2018 and 2017 are set forth below . the decline in sba loans sold in 2018 reflected lower sba originations and lower premiums , causing us to defer selling some loans . replace_table_token_9_th 72 loan servicing income , net of amortization . servicing income increased due to an increase in the volume of loans we are servicing . sba loan servicing income decreased due to the pre-payment of sba loans sold . the increase in the respective servicing portfolios reflects the growth in sfr loans in 2018. replace_table_token_10_th recoveries on loans acquired in business combination . recoveries on loans acquired in business combinations increased by $ 1.3 million to $ 1.4 million in 2018 compared to $ 84,000 in 2017. the increase was from the recovery on one loan . cash surrender value income of bank owned life insurance . cash surrender value income of bank owned life insurance ( โ boli โ ) decreased $ 27,000 due to slightly lower rates . in 2017 , the company purchased $ 10.8 million in boli . gain on sales of securities , net . gain on sales of securities , net was $ 5,000 during 2018. the company sold $ 44.6 million in securities mainly from the faic investment portfolio , which were sold immediately after the purchase of faic to limit any gains or losses . during 2017 , we sold no securities . gain on sale of oreo . gain on sale of oreo was zero in 2018 and $ 142,000 in 2017. in 2017 , the company sold $ 540,000 in oreo property . noninterest expense noninterest expense increased $ 13.0 million , or 47.1 % , to $ 40.6 million in 2018 from $ 27.6 million in 2017. the following table sets forth the major components of our noninterest expense for the years ended december 31 , 2018 and 2017 : replace_table_token_11_th 73 salaries and employee benefits . salaries and employee benefits expense increased $ 6.4 million . the number of full-time equivalent employees averaged 256 during 2018 compared to 186 in 2017. this increase was primarily due to $ 1.4 million of additional expenses from the faic acquisition , plus annual salary increases and increased benefit costs of $ 5.0 million . occupancy and equipment . occupancy and equipment expense increased $ 1.6 million . these expenses were $ 629,000 higher in 2018 as a result of the faic acquisition , including the depreciation , real estate taxes , utilities , ongoing maintenance and lease obligations associated with the branch and office facilities we added as a result . the acquisition of faic added eight branch locations and two administrative offices . during 2018 , we recognized additional rent of $ 280,000 due to building out our new headquarters location .
| financial condition and results of operations . critical accounting policies the discussion and analysis of the company 's audited consolidated financial statements are based upon its audited consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these audited consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities at the date of our financial statements . actual results may differ from these estimates under different assumptions or conditions . the following is a summary of the more judgmental and complex accounting estimates and principles . in each area , we have identified the variables we believe are most important in our estimation process . we utilize information available to us to make the necessary estimates to value the related assets and liabilities . actual performance that differs from our estimates and future changes in the key variables and information could change future valuations and impact the results of operations . loans held for investment loans available for sale securities allowance for loan losses ( alll ) goodwill and other intangible assets deferred income taxes servicing rights income taxes stock-based compensation our significant accounting policies are described in greater detail in our 2018 audited financial statements included in item 8. financial statements and supplementary dara of this annual report on form 10-k , specifically in โ note 2 โ summary of significant accounting policies โ which are essential to understanding management 's discussion and analysis of financial condition and results of operations . overview for the year 2018 , we reported net earnings of $ 36.1 million , compared with $ 25.5 million for the year 2017. this represented an increase of $ 10.6 million over the prior year .
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however , the employment agreements for certain executives provide for additional story_separator_special_tag the following discussion and analysis of our financial condition and results of operations is intended to clarify the results of our operations , certain changes in our financial position , liquidity , capital structure and business developments for the periods covered by the consolidated financial statements included in this annual report on form 10-k. this discussion should be read in conjunction with , and is qualified by reference to , the other related information including , but not limited to , the audited consolidated financial statements ( including the notes thereto and the independent registered public accounting firm 's reports thereon ) , and the description of our business , all as set forth in this annual report on form 10-k , as well as the risk factors discussed below and in `` item 1aโrisk factors '' . certain statements in this `` item 7-management 's discussion and analysis of financial condition and results of operations '' are forward-looking statements . see โ forward-looking statements โ and `` item 1aโrisk factors '' . key operational and financial metrics , including non-gaap we utilize a variety of operational and financial metrics which are defined below to evaluate our performance and financial condition . we use certain non-gaap measures , such as ebitda , adjusted ebitda , net per diems , net yields , and net cruise costs to enable us analyze our performance and financial condition . we utilize these financial measures to manage our business on a day-to-day basis and believe that they are the most relevant measures of our performance . some of these measures are commonly used in the cruise industry to measure performance . we believe these non-gaap measures provide expanded insight to measure revenue and cost performance , in addition to the standard united states gaap based financial measures . there are no specific rules or regulations for determining non-gaap measures , and as such , there exists the possibility that they may not be comparable to other companies within our industry . the presentation of non-gaap financial information is not intended to be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . ebitda is net income ( loss ) excluding depreciation and amortization , net interest expense , and income tax benefit ( expense ) . adjusted ebitda is net income ( loss ) excluding depreciation and amortization , interest income , interest expense , other income ( expense ) , and income tax benefit ( expense ) , and other supplemental adjustments in connection with the calculation of certain financial ratios in accordance with our debt agreements . management believes adjusted ebitda , when considered along with other performance measures , is a useful measure as it reflects certain operating drivers of our business , such as sales growth , operating costs , selling and administrative expense , and other operating income and expense . management believes adjusted ebitda can provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of our financial performance and prospects for the future . while adjusted ebitda is not a recognized measure under gaap , management uses this financial measure to evaluate and forecast our business performance . adjusted ebitda is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements such as capital expenditures and related depreciation , principal and interest payments , and tax payments , and it is subject to certain additional adjustments as permitted under our debt agreement . our use of adjusted ebitda may not be comparable to other companies within our industry . management compensates for these limitations by using adjusted ebitda as only one of several measures for evaluating our business performance . in addition , capital expenditures , which impact depreciation and amortization , interest expense , and income tax benefit ( expense ) , are reviewed separately by management . available passenger cruise days ( โ apcd โ ) is our measurement of capacity and represents double occupancy per cabin multiplied by the number of cruise days for the period . we use this measure to perform capacity and rate analysis to identify our main non-capacity drivers which cause our cruise revenue and expense to vary . gross cruise cost represents the sum of total cruise operating expense plus selling and administrative expense . gross yield represents total revenue per apcd . 33 net cruise cost represents gross cruise cost excluding commissions , transportation and other expense , and onboard and other expense ( each of which is described below under description of certain line items ) . net cruise cost , excluding fuel and other represents gross cruise cost excluding commissions , transportation and other expense , onboard and other expense , fuel expense and other expense ( each of which is described below under description of certain line items ) . net per diem represents net revenue divided by passenger days sold . we utilize net per diem to manage our business on a day-to-day basis as we believe that it is the most relevant measure of our pricing performance as it reflects the revenues earned by us , net of our most significant variable costs . other cruise lines use net yield to analyze business which is a similar measurement that divides net revenue by apcd instead of passenger days sold . the distinction is significant as other cruise companies focus more on potential onboard sales resulting in a bias to fill each bed to maximize onboard revenue , at the expense of passenger ticket revenue . conversely , as our product is substantially all-inclusive , we derive nearly all of our revenue from passenger ticket revenue . story_separator_special_tag if the estimated fair value of the reporting unit exceeds the carrying value , no further analysis or write-down of goodwill is required . if the estimated fair value of the reporting unit is less than the carrying value of its net assets , the implied fair value of the reporting unit is allocated to all of its underlying assets and liabilities , including both recognized and unrecognized tangible and intangible assets , based on their estimated fair value . if necessary , goodwill is then written down to its implied fair value . 35 our annual impairment test date is september 30 , which coincides with our annual budget/forecasting cycle and the end of our seasonally highest quarter . as of september 30 , 2013 , we did not have any impairment on goodwill , indefinite-lived intangible assets or other long-lived assets . the principal assumptions used in our discounted cash flow model related to forecasting future operating results , including discount rate , net revenue yields , net cruise costs including fuel prices , capacity changes , weighted-average cost of capital for comparable publicly-traded companies and terminal values , which are all considered level 3 inputs . cash flows were calculated using our 2013 projected operating results as a base . to that base we added projected future years ' cash flows , considering the macro-economic factors and internal occupancy level projections , cost structure and other variables . we discounted the projected future years ' cash flows using a rate equivalent to the weighted-average cost of capital for comparable publicly-traded companies . based on the discounted cash flow model , we determined that the estimated fair value of goodwill exceeded the carrying value and is therefore not impaired . the estimated fair value exceeded its carrying value by 62 % as of september 30 , 2013. the estimation of fair value utilizing discounted expected future cash flows includes numerous uncertainties which require significant judgments when making assumptions of expected revenues , operating costs , selling and administrative expenses , capital expenditures , as well as assumptions regarding the cruise vacation industry competition and business conditions , among other factors . it is reasonably possible that changes in our assumptions and projected operating results above could lead to impairment of our goodwill . identifiable intangible assets specific to the regent seven seas transaction in 2008 , we recorded identifiable intangible assets consisting of trade names , customer relationships , non-competition agreements , backlog and customer database . the trade names acquired in this transaction , โ seven seas cruises โ and โ luxury goes exploring โ were determined to have indefinite lives . during 2011 , we amended our agreement with regent hospitality worldwide , which granted us exclusive and perpetual licensing rights to use the โ regent โ trade name and trademarks ( regent licensing rights ) in conjunction with cruises , subject to the terms and conditions stated in the agreement . the amended and restated trademark license agreement allows us to use the regent trade name and trademark rights ( โ regent licensing rights โ ) , in conjunction with cruises , in perpetuity , subject to the terms and conditions stated in the agreement . the regent licensing rights are being amortized over an estimated useful life of 40 years . our identifiable intangible assets , except the trade names acquired in the 2008 regent seven seas transaction noted above , are subject to amortization over their estimated lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable based on market factors and operational considerations . identifiable intangible assets not subject to amortization , such as trade names , are reviewed for impairment whenever events or circumstances indicate , but at least annually , by comparing the estimated fair value of the intangible asset with its carrying value . we performed our annual impairment review of our trade names as of september 30 , 2013 using the relief-from-royalty method . the royalty rate used is based on comparable royalty agreements in the tourism and hospitality industry . the discount rate used was the same rate used in our goodwill impairment test . based on the discounted cash flow model , we determined the fair value of our trade names exceeded their carrying value and are therefore not impaired . the fair value exceeded its carrying value by 86 % as of september 30 , 2013. the estimation of fair value using discounted expected future cash flows includes numerous uncertainties that require significant judgments when developing assumptions of expected revenues , operating costs , selling and administrative expenses , capital expenditures and future impact of competitive forces . it is reasonably possible that changes in our assumptions and projected operating results used in our cash flow model could lead to an impairment of goodwill and or tradename . 36 ship accounting in connection with the regent seven seas transaction , we recorded our ships at their estimated fair values , which was calculated based on a market approach that took into consideration recent transactions of similar ships , conditions of the cruise market at the date of valuation and the price a willing third party would pay for a ship with similar characteristics . our ships represent our most significant asset and are stated at cost less accumulated depreciation . depreciation of the ships is computed net of projected residual values using the straight-line method over their original estimated service lives of 30 years . service life is based on when the assets were originally placed in service and we did not extend this life at the time of the regent seven seas transaction . our service life and residual value estimates take into consideration the impact of anticipated technological changes , long-term cruise and vacation market conditions , and historical useful lives of similarly built ships . as of january 1 , 2013 , we changed our estimate for all our ships ' projected residual values .
| results of operations operating results for the year ended december 31 , 2013 compared to the same periods in 2012 and 2011 are shown in the following table : replace_table_token_5_th 39 the following table sets forth selected statistical information . passenger days sold refers to the number of revenue passengers carried for the period multiplied by the number of days within the period in their respective cruises . available passenger cruise days refers to a measurement of capacity that represents double occupancy per suite multiplied by the number of cruise days for the period . replace_table_token_6_th adjusted ebitda was calculated as follows : replace_table_token_7_th ( a ) equity-based compensation/transactions represent stock compensation expense in each period . ( b ) fuel hedge gain represents the realized gain on fuel hedges triggered by the settlement of the hedge instrument and is included in other income ( expense ) . ( c ) loss on disposal primarily represents asset write-offs during vessel drydock periods . ( d ) other addback expenses per credit agreement represents the net impact of time out of service as a result of unplanned repairs to vessels ; certain expenses associated with personnel changes and lease termination ; and other corporate reorganizations to improve efficiencies . in february 2011 , we amended the regent license agreement to perpetually license the โ regent โ name ; as such it will not incur any future license fees .
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this analysis should be read in its entirety and in conjunction with the consolidated financial statements , notes and tables included elsewhere in this annual report on form 10-k. update to the interim condensed consolidated financial statements included in earnings press release dated february 11 , 2014 for the fourth quarter and year ended december 31 , 2013 on february 11 , 2014 , the company filed a current report on form 8-k including the earnings press release announcing the company 's consolidated financial results for its fiscal fourth quarter and year ended december 31 , 2013. the consolidated financial statements included in this annual report on form 10-k differ from those included in our earnings press release , primarily reflecting the effect of the refinement of the managed care segment 's risk scores estimate based upon evidence obtained subsequent to the filing of our earnings press release , as well as other adjustments increasing the segment 's incurred claims and operating expenses . as a result , the company 's consolidated net income for the year ended december 31 , 2013 included in this annual report on form 10-k increased $ 1.6 million to $ 55.9 million , or $ 2.01 per diluted share , as compared to net income of $ 54.3 million or $ 1.95 per diluted share , as reported on february 11 , 2014. the consolidated and managed care premiums , claims incurred and operating expenses are $ 5.4 million , $ 1.9 million and $ 0.8 million , respectively , higher than as reported in our earnings press release . the structure of our md & a is as follows : i. overview 61 ii . membership 65 iii . results of operations 66 consolidated operating results 66 managed care operating results 69 life insurance operating results 72 property and casualty insurance operating results 73 iv . liquidity and capital resources 75 v. critical accounting estimates 81 vi . recently issued accounting standards 89 i. overview we are one of the most significant players in the managed care industry in puerto rico and have over 50 years of experience in this industry . we offer a broad portfolio of managed care and related products in the commercial and the medicare ( including medicare advantage and the part d stand-alone prescription drug plans ( โ pdp โ ) ) markets . in the commercial market we offer products to corporate accounts , u.s. federal government employees , local government employees , individual accounts and medicare supplement . we also participate in the government of puerto rico health reform ( a government of puerto rico-funded managed care program for the medically indigent that is similar to the medicaid program in the u.s. ) ( โ medicaid โ ) , by administering the provision of the physical health component in designated service regions in puerto rico . we have the exclusive right to use the bcbs name and mark throughout puerto rico , the u.s. virgin islands , costa rica , the british virgin islands and anguilla . as of december 31 , 2013 we serve approximately 2,188,000 members across all regions of puerto rico . for the years ended december 31 , 2013 and 2012 respectively , our managed care segment represented approximately 89.5 % and 90.2 % of our total consolidated premiums earned , net , and approximately 73.4 % and 67.6 % of our operating income . we also have significant positions in the life insurance and property and casualty insurance markets . our life insurance segment had a market share of approximately 13.9 % ( in terms of premiums written ) for 2012. our property and casualty segment had a market share of approximately 8.5 % ( in terms of direct premiums ) during the nine-month period ended september 30 , 2013. page 60 we participate in the managed care market through our subsidiaries , tss and ah . tss and ah are bcbsa licensees , which provides us with exclusive use of the blue cross and blue shield name and mark throughout puerto rico , the u.s. virgin islands , costa rica , the british virgin islands and anguilla . we participate in the life insurance market through our subsidiary , tsv , and in the property and casualty insurance market through our subsidiary , tsp . tsv and tsp represented approximately 5.9 % and 4.6 % , respectively , of our consolidated premiums earned , net for the year ended december 31 , 2013 and 32.9 % and 4.5 % , respectively , of our operating income for that period . on november 7 , 2013 , our subsidiary tsv completed the acquisition of 100 % of the outstanding capital stock of atlantic southern insurance company ( โ asico โ ) , a life insurance company authorized to do business in puerto rico , costa rica , anguilla and the british virgin islands . the cost of this acquisition was approximately $ 9.4 million and was funded with unrestricted cash . our consolidated results of operations and financial condition included in this annual report on form 10-k reflect asico 's acquisition in periods subsequent to the effective date of the transaction and were included within the life insurance segment . in january 2012 , we acquired a controlling interest in a health clinic in puerto rico , which we expect will provide additional opportunities to our managed care segment . the commissioner of insurance of the commonwealth of puerto rico ( โ commissioner of insurance of puerto rico โ ) recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company , for determining its solvency under the puerto rico insurance laws and for determining whether its financial condition warrants the payment of a dividend to its stockholders . no consideration is given by the commissioner of insurance of puerto rico to financial statements prepared in accordance with u.s. generally accepted accounting principles ( โ gaap โ ) in making such determinations . see note 25 to our audited consolidated financial statements . story_separator_special_tag we generally pay our providers on one of three bases : ( 1 ) fee-for-service contracts based on negotiated fee schedules ; ( 2 ) capitation arrangements , generally on a fixed pmpm payment basis , whereby the provider generally assumes some of the medical expense risk ; and ( 3 ) risk-sharing arrangements , whereby we advance a pmpm payment and share the risk of certain medical costs of our members with the provider based on actual experience as measured against pre-determined sharing ratios . claims incurred also include claims incurred in our life insurance and property and casualty insurance businesses . each segment 's results of operations depend to a significant extent on our ability to accurately predict and effectively manage claims and losses . a portion of the claims incurred for each period consists of claims reported but not paid during the period , as well as a management and actuarial estimate of claims incurred but not reported during the period . the medical loss ratio ( โ mlr โ ) , which is calculated by dividing managed care claims incurred by managed care premiums earned , net is one of our primary management tools for measuring these costs and their impact on our profitability . the mlr is affected by the cost and utilization of services . the cost of services is affected by many factors , in particular our ability to negotiate competitive rates with our providers . the cost of services is also influenced by inflation and new medical discoveries , including new prescription drugs , therapies and diagnostic procedures . utilization rates , which reflect the extent to which beneficiaries utilize healthcare services , significantly influence our medical costs . the level of utilization of services depends in large part on the age , health and lifestyle of our members , among other factors . as the mlr is the ratio of claims incurred to premiums earned , net it is affected not only by our ability to contain cost trends but also by our ability to increase premium rates to levels consistent with or above medical cost trends . we use mlrs both to monitor our management of healthcare costs and to make various business decisions , including what plans or benefits to offer and our selection of healthcare providers . operating expenses . operating expenses include commissions to external brokers , general and administrative expenses , cost containment expenses such as case and disease management programs , and depreciation and amortization . the operating expense ratio is calculated by dividing operating expenses by premiums earned , net and administrative service fees . a significant portion of our operating expenses are fixed costs . accordingly , it is important that we maintain or increase our volume of business in order to distribute our fixed costs over a larger membership base . significant changes in our volume of business will affect our operating expense ratio and results of operations . we also have variable costs , which vary in proportion to changes in volume of business . page 63 ii . membership our results of operations depend in large part on our ability to maintain or grow our membership . in addition to driving revenues , membership growth is necessary to successfully introduce new products , maintain an extensive network of providers and achieve economies of scale . our ability to maintain or grow our membership is affected principally by the competitive environment and general market conditions . tss has a contract with the government of puerto rico to administer the provision of the physical health component of the medicaid program ( similar to medicaid ) in designated service regions in puerto rico . on july 1 , 2013 , tss extended this contract for a 12-month period . this amendment also transferred the administration of the three remaining service regions to tss upon completion of a transition period , which ended on october 1 , 2013. the following table sets forth selected membership data as of the dates set forth below : replace_table_token_6_th ( 1 ) commercial membership includes corporate accounts , self-funded employers , individual accounts , medicare supplement , federal government employees and local government employees . ( 2 ) includes medicare advantage as well as stand-alone pdp plan membership . ( 3 ) all are self-funded members . page 64 iii . results of operations consolidated operating results the following table sets forth our consolidated operating results for the years ended december 31 , 2013 , 2012 and 2011. further details of the results of operations of each reportable segment are included in the analysis of operating results for the respective segments . replace_table_token_7_th year ended december 31 , 2013 compared with the year ended december 31 , 2012 operating revenues consolidated premiums earned , net decreased by $ 50.4 million , or 2.2 % , to $ 2.2 billion during the year ended december 31 , 2013 compared to the year ended december 31 , 2012. the decrease was mostly the result of lower member month enrollment in the medicare and commercial businesses and the receipt of lower risk score adjustments from cms in 2013 as compared to 2012. the consolidated administrative service fees decreased by $ 1.4 million , or 1.3 % , to $ 108.7 million for the year ended december 31 , 2013 when compared with the year ended december 31 , 2012. this fluctuation primarily reflects the effect of the amended medicaid contract , which includes lower per-member per-month fees , offset in part by the increased enrollment after the addition of the three new regions effective october 1 , 2013. the new rate per-member per-month fees were effective july 1 , 2013. net realized investment gains consolidated net realized investment gains of $ 2.6 million during the year ended december 31 , 2013 are the result of net realized gains from the sale of debt and equity securities classified as available for sale , following our asset/liability management and tax planning strategies .
| life insurance operating results replace_table_token_9_th year ended december 31 , 2013 compared with the year ended december 31 , 2012 operating revenues premiums earned , net for the segment increased by $ 5.9 million , or 4.7 % , to $ 130.6 million during the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 , primarily as the result of new sales in the cancer and individual life businesses during the period . of the increase experienced year over year , $ 1.4 million is related to premiums earned by asico , the insurance company acquired by tsv in november 2013. policy benefits and claims incurred policy benefits and claims incurred increased by $ 4.4 million , or 6.6 % , to $ 70.8 million during the year ended december 31 , 2013. this increase is the result of claims received in the 2013 period , reflecting the growth of the segment 's inforce portfolio and the addition $ 0.8 million of claims related to the asico acquisition . the loss ratio for the period increased from 53.2 % in 2012 to 54.2 % in 2013 , or 100 basis points . underwriting and other expenses underwriting and other expenses for the segment increased by $ 3.4 million , or 5.4 % , to $ 65.8 million during the year ended december 31 , 2013 , mostly related to a lower amount of expenses capitalized as deferred policy acquisition costs , primarily resulting from lower commission expenses , premium taxes and approximately $ 0.9 million of expenses related to the asico acquisition .
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the company estimated the revenue projections and profit margin projections based on various market clusters signal coverage of the markets and industry information for an story_separator_special_tag the following discussion of our consolidated results of operations and cash flows for the years ended december 31 , 2012 , 2011 and 2010 and consolidated financial condition as of december 31 , 2012 and 2011 should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this document . overview we are a diversified spanish-language media company utilizing a combination of television and radio operations , together with mobile , digital and other interactive media platforms , to reach hispanic consumers across the united states , as well as the border markets of mexico . we operate in two reportable segments : television broadcasting and radio broadcasting . our net revenue for the year ended december 31 , 2012 was $ 223.3 million . of that amount , revenue generated by our television segment accounted for 70 % and revenue generated by our radio segment accounted for 30 % . as of the date of filing this report , we own and or operate 56 primary television stations located primarily in california , colorado , connecticut , florida , massachusetts , nevada , new mexico , texas and washington , d.c. we own and operate 49 radio stations ( 38 fm and 11 am ) located primarily in arizona , california , colorado , florida , nevada , new mexico and texas and a national sales representation firm . our television and radio stations typically have local websites and other digital and interactive media platforms that provide users with news and information as well as a variety of other products and services . we generate revenue primarily from sales of national and local advertising time on television and radio stations , and from retransmission consent agreements . advertising rates are , in large part , based on each medium 's ability to attract audiences in demographic groups targeted by advertisers . we recognize advertising revenue when commercials are broadcast . we do not obtain long-term commitments from our advertisers and , consequently , they may cancel , reduce or postpone orders without penalties . we pay commissions to agencies for local , regional and national advertising . for contracts directly with agencies , we record net revenue from these agencies . seasonal revenue fluctuations are common in the broadcasting industry and are due primarily to variations in advertising expenditures by both local and national advertisers . in addition , advertising revenue is generally higher during even-numbered years resulting from political advertising and every four years resulting from advertising aired during the world cup ( 2010 and 2014 ) . we also generate revenue from retransmission consent agreements that are entered into with mvpds . we refer to such revenue as retransmission consent revenue , which represents payments from mvpds for access to our television station signals so that they may rebroadcast our signals and charge their subscribers for this programming . we recognize retransmission consent revenue when it is accrued pursuant to the agreements we have entered into with respect to such revenue . our primary expenses are employee compensation , including commissions paid to our sales staff and amounts paid to our national representative firms , as well as expenses for marketing , promotion and selling , technical , local programming , engineering , and general and administrative . our local programming costs for television consist primarily of costs related to producing a local newscast in most of our markets . story_separator_special_tag style= '' margin-top:0px ; margin-bottom:0px ; text-indent:4 % '' > the company 's class u common stock held by univision has limited voting rights and does not include the right to elect directors . however , as the holder of all of the company 's issued and outstanding class u common stock , univision currently has the right to approve any merger , consolidation or other business combination involving the company , any dissolution of the company and any assignment of the federal communications commission , or fcc , licenses for any of the company 's univision-affiliated television stations . each share of class u common stock is automatically convertible into one share of the company 's class a common stock ( subject to adjustment for stock splits , dividends or combinations ) in connection with any transfer to a third party that is not an affiliate of univision . 45 results of operations separate financial data for each of the company 's operating segments is provided below . segment operating profit ( loss ) is defined as operating profit ( loss ) before corporate expenses , loss ( gain ) on sale of assets and impairment charge . the company evaluates the performance of its operating segments based on the following ( in thousands ) : replace_table_token_8_th * percentage not meaningful . ( 1 ) consolidated adjusted ebitda means net income ( loss ) plus gain ( loss ) on sale of assets , depreciation and amortization , non-cash impairment charge , non-cash stock-based compensation included in operating and corporate expenses , net interest expense , other income ( loss ) , gain ( loss ) on debt extinguishment , income tax 46 ( expense ) benefit , equity in net income ( loss ) of nonconsolidated affiliate , non-cash losses and syndication programming amortization less syndication programming payments . we use the term consolidated adjusted ebitda because that measure is defined in our 2012 credit facility and does not include gain ( loss ) on sale of assets , depreciation and amortization , non-cash impairment charge , non-cash stock-based compensation , net interest expense , other income ( loss ) , gain ( loss ) on debt extinguishment , income tax ( expense ) benefit , equity in net income ( loss ) of nonconsolidated affiliate , non-cash losses and syndication programming amortization and does include syndication programming payments . story_separator_special_tag as a percentage of net revenue , corporate expenses remained constant at 8 % for each of the year ends december 31 , 2012 and 2011. we believe that corporate expenses will continue to increase during 2013 primarily as a result of employee salary increases and interactive media-related expenses . depreciation and amortization . depreciation and amortization decreased to $ 16.4 million for the year ended december 31 , 2012 from $ 18.7 million for the year ended december 31 , 2011 , a decrease of $ 2.3 million . the decrease was primarily due to a decrease in depreciation as certain assets are now fully depreciated . 49 operating income . as a result of the above factors , operating income was $ 58.8 million for the year ended december 31 , 2012 , compared to $ 35.0 million for the year ended december 31 , 2011. interest expense . interest expense decreased to $ 35.4 million for the year ended december 31 , 2012 from $ 37.7 million for the year ended december 31 , 2011 , a decrease of $ 2.3 million . on december 31 , 2012 and may 30 , 2012 , we repurchased $ 40.0 million and $ 20.0 million , respectively , of our notes . during the fourth quarter of 2011 , we repurchased $ 16.2 million of our notes . the decrease in interest expense was primarily attributable to the decrease in our outstanding debt . other income . we recorded other income of $ 0.7 million related to the remeasurement of our previously-held 50 % interest in ler to fair value in connection with our acquisition of the remaining 50 % interest of ler during the year ended december 31 , 2011. loss on debt extinguishment . we recorded a loss on debt extinguishment of $ 3.7 million related to the premium paid , unamortized finance costs and unamortized bond discount associated with the repurchases of notes during the year ended december 31 , 2012. we recorded a loss on debt extinguishment of $ 0.4 million related to unamortized finance costs and bond discount associated with the repurchase of notes during the year ended december 31 , 2011. income tax expense . income tax expense for the year ended december 31 , 2012 was $ 6.1 million . the effective income tax rate was lower than our statutory rate of 34 % due to changes in the valuation allowance and deductions attributable to indefinite-lived intangible assets . income tax expense for the year ended december 31 , 2011 was $ 5.8 million . the effective income tax rate was lower than our statutory rate of 34 % due to changes in the valuation allowance and deductions attributable to indefinite-lived intangible assets . as of december 31 , 2012 , we believe that our deferred tax assets will not be fully realized in the future and we are providing a full valuation allowance against those deferred tax assets . in determining our deferred tax assets subject to a valuation allowance , we reduced our deferred tax assets by deferred tax liabilities except for the deferred tax liabilities attributable to indefinite-lived intangibles . we do not have any feasible tax planning strategies that would recover our deferred tax assets . segment operations television net revenue . net revenue in our television segment increased to $ 156.8 million for the year ended december 31 , 2012 from $ 131.5 million for the year ended december 31 , 2011 , an increase of $ 25.3 million . the increase was primarily attributable to increases in political advertising revenue , which was not material in 2011 , core advertising revenue and retransmission consent revenue . we generated a total of $ 20.2 million and $ 17.1 million in retransmission consent revenue for the years ended december 31 , 2012 and 2011 , respectively . we anticipate that retransmission consent revenue for the full year 2013 will be greater than it was for the full year 2012 and will continue to be a growing source of net revenues in future periods . direct operating expenses . direct operating expenses in our television segment increased to $ 56.7 million for the year ended december 31 , 2012 from $ 53.8 million for the year ended december 31 , 2011 , an increase of $ 2.9 million . the increase was primarily attributable to an increase in expenses associated with the increase in net revenue and an increase in salary expense . selling , general and administrative expenses . selling , general and administrative expenses in our television segment increased to $ 20.6 million for the year ended december 31 , 2012 from $ 19.6 million for the year ended december 31 , 2011 , an increase of $ 1.0 million . the increase was primarily attributable to an increase in salary expense and an increase in bad debt expense . 50 radio net revenue . net revenue in our radio segment increased to $ 66.4 million for the year ended december 31 , 2012 from $ 62.9 million for the year ended december 31 , 2011 , an increase of $ 3.5 million . the increase was primarily attributable to increases in political advertising revenue , which was not material in 2011 , and core advertising revenue . direct operating expenses . direct operating expenses in our radio segment increased to $ 35.6 million for the year ended december 31 , 2012 from $ 34.8 million for the year ended december 31 , 2011 , an increase of $ 0.8 million . the increase was primarily attributable to an increase in salary expense . selling , general and administrative expenses . selling , general and administrative expenses in our radio segment increased to $ 17.2 million for the year ended december 31 , 2012 from $ 16.9 million for the year ended december 31 , 2011 , an increase of $ 0.3 million . the increase was primarily attributable to an increase in salary expense .
| highlights during 2012 , we achieved revenue growth primarily driven by increases in political advertising , core advertising and retransmission consent revenue . the increase in our political advertising revenue reflects the importance of our television and radio platforms in reaching latino voters . net revenue increased to 43 $ 223.3 million , an increase of $ 28.9 million , or 15 % , from $ 194.4 million for 2011. our audience shares remain strong in the nation 's most densely populated hispanic markets , and we believe we are well positioned to benefit as the u.s. hispanic market continues to expand and advertisers increasingly recognize the importance of reaching our target audience . net revenue for our television segment increased to $ 156.8 million in 2012 , from $ 131.5 million in 2011. this increase of $ 25.3 million , or 19 % , was primarily due to increases in political advertising revenue , which was not material in 2011 , core advertising revenue and retransmission consent revenue . we generated a total of $ 20.2 million in retransmission consent revenue in 2012. we anticipate that retransmission consent revenue for the full year 2013 will be greater than it was for the full year 2012 and will continue to be a growing source of net revenues in future periods . net revenue for our radio segment increased to $ 66.4 million in 2012 , from $ 62.9 million in 2011. this increase of $ 3.5 million , or 6 % , was primarily due to increases in political advertising revenue , which was not material in 2011 , and core advertising revenue . acquisitions and dispositions on january 3 , 2011 , we completed the acquisition of ler , a representation firm that sells national spots and digital advertising to advertising agencies on our behalf and other clients . we previously owned 50 % of ler , which was accounted for under the equity method .
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leases with an initial term of 12 months or less are not recorded on the balance sheet , and the expenses for these short-term leases and operating leases are recognized on a straight-line basis over the lease term f-13 comprehensive income ( loss ) comprehensive income ( loss ) is defined as the change in equity of a business enterprise during a period from transactions , and other events and circumstances from non-owner sources and includes all components of net income ( loss ) and other comprehensive income ( loss ) . the other comprehensive income ( loss ) for the years ended december 31 , 2019 , 2018 , and 2017 were immaterial . recent accounting pronouncements adopted in february 2016 , the financial accounting standards board ( fasb ) issued topic 842 , amended by asu 2018-11 , leases ( topic 842 ) : targeted improvements . the new guidance requires a lessee to recognize assets and liabilities for all leases with lease terms of more than 12 months and provide additional disclosures . topic 842 requires adoption using a modified retrospective transition approach with either 1 ) transition provisions at the beginning of the earliest comparative period records its cumulative adjustment to retained earnings at the beginning of the earliest period presented or 2 ) a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption . we adopted this standard on january 1 , 2019 using the cumulative-effect adjustment approach . we elected the package of practical expedients in transition for leases that commenced prior to january 1 , 2019 whereby these contracts were not reassessed or reclassified from their previous assessment as of december 31 , 2018. as a result of implementing topic 842 , the company recognized an operating lease right-of-use asset of story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and other financial information appearing in this annual report . 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 , operations , and product candidates , includes forward-looking statements that involve risks and uncertainties . you should review the sections of this annual report on form 10-k captioned โ risk factors โ and โ cautionary note regarding forward-looking statements โ for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical-stage biopharmaceutical company focused on identifying , developing , and commercializing innovative therapies that change patients ' lives for the better . we concentrate on small-molecule therapeutics with novel mechanisms of action for the treatment of severe , life-threatening diseases with few or no approved therapies . our lead programs are in rare forms of ckd and a rare neurological disease . we recently announced positive topline data from registrational studies for both of our lead product candidates , bardoxolone in patients with ckd caused by alport syndrome , and omaveloxolone in patients with a neurological disorder called fa . both bardoxolone and omaveloxolone activate the transcription factor nrf2 to normalize mitochondrial function , restore redox balance , and resolve inflammation . because mitochondrial dysfunction , oxidative stress , and inflammation are features of many diseases , we believe bardoxolone and omaveloxolone have many potential clinical applications . we possess exclusive , worldwide rights to develop , manufacture and commercialize bardoxolone , omaveloxolone , and our next-generation nrf2 activators , excluding certain asian markets for bardoxolone in certain indications which are licensed to kkc . programs in chronic kidney disease we are developing bardoxolone for the treatment of patients with ckd caused by alport syndrome , adpkd , and other rare forms of ckd that , in the aggregate , affect more than 700,000 patients in the united states . alport syndrome is a rare , genetic form of ckd caused by mutations in the genes encoding type iv collagen , which is a major structural component of the gbm in the kidney . alport syndrome patients experience a progressive worsening of the kidney 's capacity to filter waste products out of the blood that can lead to eskd and the need for chronic dialysis treatment or a kidney transplant . alport syndrome affects both children and adults and , in patients with the most severe forms of the disease , approximately 50 % progress to dialysis by age 25 , 90 % by age 40 , and nearly 100 % by age 60. according to the alport syndrome foundation , alport syndrome affects approximately 30,000 to 60,000 people in the united states . there are currently no approved therapies to treat ckd caused by alport syndrome . in november 2019 , we announced that the phase 3 portion of the cardinal study of bardoxolone in patients with ckd caused by alport syndrome met its primary and key secondary year 1 endpoints . after 48 weeks of treatment , patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean egfr of 9.50 ml/min/1.73 m 2 ( p < 0.0001 ) . after 48 weeks of treatment and a four-week withdrawal period , patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean retained egfr of 5.14 ml/min/1.73 m 2 ( p=0.0012 ) . after 52 weeks , patients in the placebo arm of cardinal lost an average of 6.1 ml/min/1.73 m 2 . based on these positive results , and subject to discussions with regulatory authorities , we plan to proceed with the submission of regulatory filings this year for marketing approval in the united states . adpkd is a rare and serious hereditary form of ckd caused by a genetic defect in pkd1 or pkd2 genes leading to the formation of fluid-filled cysts in the kidneys and other organs . story_separator_special_tag catalyst is an international , multi-center , randomized , double-blind , placebo-controlled trial studying the safety and efficacy of bardoxolone in ctd-pah patients randomized one-to-one to active drug or placebo . we completed the enrollment of catalyst and expect to have top-line data in mid-2020 . based on discussions with the fda , the primary endpoint of catalyst is the change from baseline in 6mwd compared to placebo after 24 weeks of treatment . if positive , we believe that the results of catalyst , together with other data from our development program , may be sufficient to form the basis of an nda submission to the fda seeking approval of bardoxolone for the treatment of ctd-pah . the fda has granted orphan drug designation to bardoxolone for the treatment of pah . in addition , we are developing rta 1701 , the lead product candidate from our proprietary series of rorฮณt inhibitors , for the potential treatment of a broad range of autoimmune , inflammatory , and fibrotic diseases . we have completed a phase 1 trial to evaluate the safety , tolerability , and pharmacokinetic profile of rta 1701 in healthy adult volunteers . no safety or tolerability concerns were reported , and we observed an acceptable pharmacokinetic profile . we plan to continue development for rta 1701 in autoimmune , inflammatory , or fibrotic diseases . we retain all rights to our rorฮณt inhibitors , which are not subject to any existing commercial collaborations . collaborations update in october 2019 , we and abbvie entered into the reacquisition agreement , under which we reacquired the development , manufacturing , and commercialization rights provided in the abbvie license agreement and the collaboration agreement . under the reacquisition agreement , the abbvie license agreement and the collaboration agreement were amended , resulting in abbvie granting its exclusive sublicenses back to us , such that we reacquired the worldwide rights to bardoxolone , excluding certain asian countries previously licensed to kkc , and the worldwide rights to omaveloxolone and certain next-generation nrf2 activators . by reacquiring our rights , we were relieved from our obligations under the abbvie license agreement and the collaboration agreement . in exchange for such rights , we agreed to pay abbvie $ 330.0 million , of which $ 100.0 million was paid as of december 31 , 2019 , $ 150.0 million will be payable on june 30 , 2020 , and $ 80.0 million will be payable on november 30 , 2021. additionally , we will pay abbvie an escalating , low single-digit royalty on worldwide net sales , on a product-by-product basis , of omaveloxolone and certain next-generation nrf2 activators . after the $ 330.0 million has been paid to abbvie , the licenses granted to abbvie and the sublicenses granted to us with respect to omaveloxolone and certain next-generation nrf2 activators will terminate , with all rights reverting to us , and , if ( or when ) 18 months has elapsed since the execution of the reacquisition agreement , the licenses granted to abbvie and the sublicenses granted to us with respect to bardoxolone will also terminate , with all rights reverting to us . corporate overview to date , we have focused most of our efforts and resources on developing our product candidates and conducting preclinical studies and clinical trials . we have historically financed our operations primarily through revenue generated from our collaborations with abbvie and kkc , from sales of our securities , and with secured loans . we have not received any payments or revenue from collaborations other than nonrefundable upfront , milestone , and cost sharing payments from our collaborations with abbvie and kkc and reimbursements of expenses under the terms of our agreement with kkc . we have incurred losses in each year since our inception , other than in 2014. as of december 31 , 2019 , we had $ 664.3 million of cash and cash equivalents and an 95 accumulated deficit of $ 710.5 million . we continue to incur significant research and development and other expenses related to our ongoing operations . despite contractual product development commitments and the potential to receive future payments from kkc , we anticipate that we will continue to incur losses for the foreseeable future , and we anticipate that our losses will increase as we continue our development of , seek regulatory approval for , and potential commercialization of our product candidates . if we do not successfully develop and obtain regulatory approval of our existing product candidates or any future product candidates and effectively manufacture , market , and sell any products that are approved , we may never generate revenue from product sales . furthermore , even if we do generate revenue from product sales , we may never again achieve or sustain profitability on a quarterly or annual basis . our prior losses , combined with expected future losses , have had and will continue to have an adverse effect on our stockholders ' equity and working capital . our failure to become and remain profitable could depress the market price of our class a common stock and could impair our ability to raise capital , expand our business , diversify our product offerings , or continue our operations . in november 2019 , we closed a follow-on underwritten public offering of 2,760,000 shares of our class a common stock for gross proceeds of $ 505.1 million . we received net proceeds from the offering of $ 491.9 million , after deducting underwriting discounts and commissions and offering expenses . we intend to use the net proceeds for working capital and general corporate purposes , which include , but are not limited to , advancing the development of bardoxolone and omaveloxolone through clinical trials , preparing to file one or more ndas , and planning for commercialization of our potential products .
| results of operations comparison of the years ended december 31 , 2019 , 2018 , and 2017 the following table sets forth our results of operations for the years ended december 31 : replace_table_token_10_th revenue license and milestone revenue represented approximately 95 % , 98 % , and 98 % of total revenue for the years ended december 31 , 2019 , 2018 , and 2017 , respectively , and consisted primarily of the recognition of deferred revenue . license and milestone revenue decreased by 52 % during 2019 compared to 2018 , primarily due to additional revenue related to variable consideration that was included in the transaction price under the kkc agreement and recognized in the prior year period . since we did not have a similar event in the current period , the revenue decreased by comparison . additionally , revenue decreased due to the reacquisition agreement in october 2019 , which ended our performance obligations under the collaboration agreement and resulted in the writing off of the related remaining deferred revenue balance as reacquired license rights expense , after which no further revenue was recognized . total revenue expected to be recognized from deferred revenue in 2020 is $ 4.7 million from the kkc agreement . license and milestone revenue increased by 11 % during 2018 compared to 2017. the increase was primarily due to additional revenue of $ 22.5 million related to the kkc agreement , offset by the full recognition of deferred revenue for the abbvie license agreement in november 2017 .
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on november 20 , 2013 , the court consolidated the actions as in re vocera communications 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 related notes included in item 8 , โ financial statements and supplementary data โ included in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions , such as statements of our plans , objectives , expectations and intentions . the cautionary statements made in this annual report on form 10-k should be read as applying to all related forward-looking statements wherever they appear in this annual report on form 10-k. our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those set forth under item 1a , โ risk factors โ and elsewhere in this annual report on form 10-k. business overview we are a provider of secure , integrated , intelligent communication solutions , focused on empowering mobile workers in healthcare , hospitality , energy , and other mission-critical mobile work environments , in the united states and internationally . today , the significant majority of our business is generated from sales of our solutions in the healthcare market to help our customers improve patient safety and experience , and increase operational efficiency . as of december 31 , 2015 , our solutions have been selected by more than 1,400 facilities worldwide . we outsource the manufacturing of our hardware products . our outsourced manufacturing model allows us to scale our business without the significant capital investment and on-going expenses required to establish and maintain manufacturing operations . we work closely with our contract manufacturer , smtc corporation , and key suppliers to manage the procurement , quality and cost of components . we seek to maintain an optimal level of finished goods inventory to meet our forecast sales and unanticipated shifts in sales volume and mix . we primarily sell products , software maintenance and professional services directly to end users . total revenue increased 9.1 % to $ 104.1 million in 2015 from $ 95.4 million in 2014 , and our 2014 revenue decreased 6.9 % from $ 102.5 million in 2013 . for the year ended december 31 , 2015 , we recorded a net loss of $ 17.1 million compared to a net loss of $ 28.3 million for the year ended december 31 , 2014 . our diverse customer base ranges from large hospital systems to small local hospitals , as well as other healthcare facilities and customers in non-healthcare markets . we do not rely on any one customer for a substantial portion of our revenue . while we have international customers in other english speaking countries such as canada , the united kingdom , australia , singapore and parts of the middle east , most of our customers are located in the united states . international customers represented 8.8 % and 9.9 % of our revenue in 2015 and in 2014 , respectively . we are developing plans to expand our presence in other english-speaking markets and enter non-english speaking markets . in recent years , u.s. hospital spending on information technology has been predominantly directed toward further investment in electronic health records and preparation for utilizing new icd-10 diagnosis coding , which are both driven by regulatory requirements and reimbursement earn-back incentives from federal healthcare reform . in addition , as patient volumes and reimbursement levels continued to fluctuate for many healthcare providers , hospitals exercised strong expense limits and reductions , also impacting capital purchases and departmental operating budgets through which our solutions are purchased . however , we believe that healthcare providers are placing increased emphasis on and investment in solutions for communication and care coordination , a trend that we believe is favorable for vocera . we believe certain international markets represent attractive opportunities for growth . we currently sell our solutions in canada , the united kingdom as well as multiple english speaking countries in the asia-pacific and middle east regions where we see significant investment in healthcare systems to improve capacity and quality . components of operating results revenue . we generate revenue from the sale of products and services . as discussed further in the section titled โ critical accounting policies and estimatesโrevenue recognition and deferred revenue โ below , revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred , the price is fixed or determinable and collection is reasonably assured . revenue is comprised of the following : product . our solutions include both hardware and software . we refer to hardware revenue as device revenue , which includes revenue from sales of our communication badges and badge accessories , which include batteries , battery chargers , lanyards , clips and other ancillary badge components . software revenue is derived primarily from the sale of perpetual licenses to our vocera communication system . we derive additional software revenue from the sale of term licenses and hosted software 32 subscriptions , which can be renewed on a subscription basis . product revenue is generally recognized upon shipment of hardware and perpetual licenses and , in the case of term licenses or subscription services , ratably over the applicable term . service . we receive service revenue from sales of software maintenance , extended hardware warranties and professional services . software maintenance is typically invoiced annually in advance , recorded as deferred revenue , and recognized as revenue ratably over the service period . our professional services revenue is based on both time and materials , and fixed price contracts , and is recognized as the services are provided . extended warranties are invoiced in advance , recorded as deferred revenue , and recognized ratably over the extended warranty period . cost of revenue . cost of revenue is comprised of the following : cost of product . story_separator_special_tag sales and marketing expense increased $ 4.7 million , or 10.4 % , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. this increase was primarily due to a $ 2.7 million in increased employee wages , commissions and personnel costs and $ 1.2 million in increased stock-based compensation . general and administrative expense . general and administrative expense increased $ 3.2 million , or 21.2 % , from the year ended december 31 , 2014 compared to the year ended december 31 , 2013. this increase was due primarily to an increase of $ 1.2 million in personnel costs , an increase of $ 0.8 million in stock-based compensation , an increase of $ 0.4 million in legal expenses primarily related to litigation , an increase of $ 0.3 million in depreciation associated with the sap erp deployment , an increase of $ 0.2 million in facilities-related expenses and an increase of $ 0.1 million in business insurance . restructuring expense . restructuring expense increased $ 0.6 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. during the fourth quarter of 2014 , we initiated a restructuring plan that resulted in $ 0.7 million of severance charges , of which $ 0.1 million was recorded to cost of revenue and $ 0.6 million was recorded to operating expenses . see note 6 , consolidated balance sheet components , in the notes to the consolidated financial statements in item 8 of this report , for further discussion of our restructuring activities . replace_table_token_15_th interest income . interest income increased $ 0.1 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 due to the shift in these periods from cash equivalents to higher interest-bearing short-term investments . other expense , net . other expense , net increased $ 0.2 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 , primarily due to foreign exchange fluctuations . provision for income taxes . the $ 0.3 million provision on $ 28.0 million of loss before income taxes in 2014 represented a negative effective tax rate of 1.2 % . the negative effective tax rate for 2014 was due primarily to the impact of pre-tax losses in the u.s. operations , offset by income taxes from foreign operations . the negative effective tax rate of 1.1 % in 2013 is due primarily to the impact of pre-tax losses in the u.s. operations , offset by income taxes from foreign operations . 38 liquidity and capital resources replace_table_token_16_th as of december 31 , 2015 , we had cash and cash equivalents and short-term investments of $ 116.8 million and no debt . during 2015 , 2014 and 2013 , our purchases of property and equipment were $ 1.2 million , $ 2.0 million and $ 3.8 million , respectively . the expenditures in 2015 primarily relate to leasehold improvements and computer equipment . the expenditures in 2014 primarily relate to leasehold improvements and computer equipment . the expenditures in 2013 included completion of the first phase of our erp implementation in august 2013 and build out of additional leased space available in april 2013. we believe that our existing sources of liquidity will satisfy our anticipated working capital and capital requirements for at least the next twelve months . our future liquidity and capital requirements will depend upon numerous factors , including our rate of growth , the rate at which we add personnel to generate and support future growth , and potential future acquisitions . in the future , we may seek to sell additional equity securities or borrow funds . the sale of additional equity or convertible securities may result in additional dilution to our stockholders . if we raise additional funds through the issuance of debt securities or other borrowings , these securities or borrowings could have rights senior to those of our common stock and could contain covenants that could restrict our operations . any required additional capital may not be available on reasonable terms , if at all . operating activities cash used by operating activities was $ 0.1 million in 2015 , due in part to the 2015 net loss of $ 17.1 million , partially offset by non-cash items such as depreciation and amortization of $ 3.3 million for property and equipment and acquired intangible assets and stock-based compensation of $ 11.0 million . with respect to changes in assets and liabilities , cash was provided through a decrease of $ 0.6 million in inventory , a $ 1.1 million increase in accounts payable , a $ 2.8 million increase in accrued liabilities and a $ 4.1 million increase in deferred revenue . these factors were offset by certain cash outflows , including an increase in accounts receivable of $ 5.1 million , which is attributable to current period 's billings exceeding collection on prior periods ' invoices , and $ 0.3 million increase in prepaid expenses . cash used by operating activities was $ 4.7 million in 2014 , due in part to the 2014 net loss of $ 28.3 million , partially offset by non-cash items such as depreciation and amortization of $ 3.0 million for property and equipment and acquired intangible assets and stock-based compensation of $ 11.1 million . with respect to changes in assets and liabilities , cash was provided by a decrease in accounts receivable of $ 5.7 million , which is attributable to collection on prior periods ' invoices exceeding the current period 's billings , a decrease of $ 1.9 million in inventory , a $ 1.1 million increase in accrued liabilities and a $ 2.8 million increase in deferred revenue . these factors were offset by certain cash outflows , including a $ 1.7 million decrease in accounts payable and $ 0.3 million increase in prepaid expenses .
| results of operations the following table is a summary of our consolidated statements of operations for the years ended december 31 , 2015 , 2014 and 2013 . replace_table_token_7_th year ended december 31 , 2015 compared to year ended december 31 , 2014 revenue : replace_table_token_8_th 34 total revenue increased $ 8.7 million , or 9.1 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the increase in total revenue was a result of increases in both product and services revenue . product revenue increased $ 4.6 million , or 9.0 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. device revenue increased $ 3.1 million , or 8.3 % , and software revenue increased $ 1.5 million , or 11.2 % , for the year ended december 31 , 2015 , compared to the year ended december 31 , 2014. the increase in device revenue , which related entirely to our communication solution , was driven primarily by an increase in unit sales of badges and related accessories to new customers making initial purchases and existing customers expanding deployments within their facilities to departments and users . the increase in software revenue was mainly a result of an increase in unit sales of licenses of our communication software . service revenue increased $ 4.0 million , or 9.1 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. software maintenance and support revenue increased $ 3.1 million , or 8.7 % , and professional services and training revenue increased $ 1.0 million , or 10.6 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the increase in software maintenance and support revenue was primarily a result of having a larger customer base .
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also , when we use words such as โ anticipate , โ โ believe , โ โ estimate , โ โ expect , โ โ intend , โ โ plan , โ โ probably , โ or similar expressions , we are making forward-looking statements . numerous risks and uncertainties may impact the matters addressed by our forward-looking statements , any of which could negatively and materially affect our future financial results and performance . although we believe that the assumptions underlying our forward-looking statements are reasonable , any of these assumptions , and , therefore , the forward-looking statements based on these assumptions , could themselves prove to be inaccurate . in light of the significant uncertainties inherent in the forward-looking statements that are included in this report , our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved . in light of these risks , uncertainties and assumptions , any forward-looking event discussed in this report may not occur . our forward-looking statements speak only as of the date made , and we undertake no obligation to update or review any forward-looking statement , whether as a result of new information , future events or other developments , unless the securities laws require us to do so . overview utg , inc. , a delaware corporation , is a life insurance holding company . the company 's dominant business is individual life insurance , which includes the servicing of existing insurance policies in-force , the acquisition of other companies in the life insurance business , the acquisition of blocks of business and the administration and processing of life insurance business for other entities . utg has a strong philanthropic program . the company generally allocates a portion of its earnings to be used for its philanthropic efforts primarily targeted to christ-centered organizations or organizations that help the weak or poor . the company also encourages its staff to be involved on a personal level through monetary giving , volunteerism and use of their talents to assist those less fortunate than themselves . through these efforts , the company hopes to make a positive difference in the local community , state , nation and world . critical accounting policies we have identified the accounting policies below as critical to the understanding of our results of operations and our financial condition . the application of these critical accounting policies in preparing our consolidated financial statements requires management to use significant judgments and estimates concerning future results or other developments including the likelihood , timing or amount of one or more future transactions or amounts . actual results may differ from these estimates under different assumptions or conditions . on an on-going basis , we evaluate our estimates , assumptions and judgments based upon historical experience and various other information that we believe to be reasonable under the circumstances . for a detailed discussion of other significant accounting policies , see note 1 โ summary of significant accounting policies in the notes to the consolidated financial statements . future policy benefits โ because of the long-term nature of insurance contracts , the insurance company is liable for policy benefit payments that will be made in the future . the liability for future policy benefits is determined by standard actuarial procedures common to the life insurance industry . the accounting policies for determining this liability are disclosed in note 1 โ summary of significant accounting policies in the notes to the consolidated financial statements . cost of insurance acquired โ the costs of acquiring blocks of insurance form other companies or through the acquisition of other companies are deferred and recorded as deferred acquisition costs . the deferred amounts are recorded as an asset and amortized to expense in a systematic manner as indicated in note 1 โ summary of significant accounting policies in the notes to the consolidated financial statements . valuation of securities โ the company 's investment portfolio consists of fixed maturities , equity securities , trading securities , mortgage loans and real estate to provide funding of future policy contractual obligations . the company 's fixed maturities and equity securities are classified as available-for-sale . available-for-sale investments are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income ( loss ) in the consolidated balance sheets . the company 's trading securities are carried at fair value with unrealized gains and losses reported in income in the consolidated statements of operations . fair value is the price that the company would expect to receive upon sale of the asset in an orderly transaction . mortgage loans on real estate are carried at their unpaid principal balances , adjusted for amortization of premium or discount and valuation allowances . valuation allowances are established for impaired loans when it is probable that contractual principal and interest will not be collected . a portion of the mortgage loan balance consists of discounted mortgage loans that were purchased at deep discounts through an auction process led by the federal government . in general , the discounted mortgage loans are non-performing and there is a significant amount of uncertainty surrounding the timing and amount of cash flows to be received by the company . accordingly , the company records its investment in the discounted mortgage loans at its original purchase price adjusted for any principal receipts received . investment real estate held for sale is reported at the lower of cost or fair value less cost to sell . expenses to maintain the property are expensed as incurred . notes receivable are reported at their unpaid principal balances , adjusted for valuation allowances . valuation allowances are established for impaired loans when it is probable that contractual principal and interest will not be collected . story_separator_special_tag the short-term impact of policy surrenders is negligible since a reserve for future policy benefits payable is held which is , at a minimum , equal to and generally greater than the cash surrender value of a policy . the benefit of fewer policy surrenders is primarily received over a longer time period through the retention of the company 's asset base . operating expenses decreased approximately 18 % in 2016 compared to 2015 . when analyzing 2016 and 2015 operating expenses , expenses were down slightly in the majority of the categories . the salaries and charitable contribution expense categories recognized the largest decrease when comparing current and prior year activity . the decrease in salary expense is the result of changes in staffing . charitable contributions are a function of the company 's earnings . as mentioned above in the overview section of the management discussion and analysis , utg has a strong philanthropic program . the company generally allocates a portion of its earnings to be used for its philanthropic efforts primarily targeted to christ-centered organizations or organizations that help the weak or poor . charitable contributions made by the company are expected to vary from year to year depending on the earnings of the company . net amortization of cost of insurance acquired decreased approximately 4 % when comparing current and prior year activity . cost of insurance acquired is established when an insurance company is acquired or when the company acquires a block of in-force business . the company assigns a portion of its cost to the right to receive future profits from insurance contracts existing at the date of the acquisition . cost of insurance acquired is amortized with interest in relation to expected future profits , including direct charge-offs for any excess of the unamortized asset over the projected future profits . the interest rates may vary due to risk analysis performed at the time of acquisition on the business acquired . the company utilizes a 12 % discount rate on the remaining unamortized business . the amortization is adjusted retrospectively when estimates of current or future gross profits to be realized from a group of products are revised . amortization of cost of insurance acquired is particularly sensitive to changes in interest rate spreads and persistency of certain blocks of insurance in-force . this expense is expected to decrease , unless the company acquires a new block of business . during 2015 , management determined it was in the company 's best long term interest to relocate its main operations from springfield , illinois to stanford , kentucky . the company 's majority shareholder , jess correll , headquarters his other operating entities in stanford , kentucky . management believes this move will provide the company with significant synergies , improve efficiencies and reduce overall operating expenses . the relocation was substantially complete as of december 31 , 2016. effective january 1 , 2017 , the company and fsnb began sharing certain services . the shared services focuses on departments commonly utilized by both organizations such as financial accounting , human resources and information technology . management continues to place significant emphasis on expense monitoring and cost containment . maintaining administrative efficiencies directly impacts net income . financial condition investment information investments are the largest asset group of the company . the company 's insurance subsidiary is regulated by insurance statutes and regulations as to the type of investments they are permitted to make , and the amount of funds that may be used for any one type of investment . the following table reflects , by investment category , the investments held by the company as of december 31 : replace_table_token_6_th replace_table_token_7_th the company 's investments are generally managed to match related insurance and policyholder liabilities . the comparison of investment return with insurance or investment product crediting rates establishes an interest spread . interest crediting rates on adjustable rate policies have been reduced to their guaranteed minimum rates , and as such , can not be lowered any further . policy interest crediting rate changes and expense load changes become effective on an individual policy basis on the next policy anniversary . therefore , it takes a full year from the time the change was determined for the full impact of such change to be realized . if interest rates decline in the future , the company will not be able to lower rates and both net investment income and net income will be impacted negatively . the company 's total investments represented 86 % and 85 % of the company 's total assets as of december 31 , 2016 and 2015 , respectively . fixed maturities consistently represented a substantial portion , 55 % and 58 % , respectively , of the total investments during 2016 and 2015 . the overall investment mix , as a percentage of total investments , remained fairly consistent when comparing the investments held as of december 31 , 2016 and 2015 . as of december 31 , 2016 , the carrying value of fixed maturity securities in default as to principal or interest was immaterial in the context of consolidated assets , shareholders ' equity or results from operations . to provide additional flexibility and liquidity , the company has identified all fixed maturity securities as `` investments available for sale '' . investments available for sale are carried at market value , with changes in market value charged directly to the other comprehensive component of shareholders ' equity . changes in the market value of available for sale securities resulted in net unrealized gains of approximately $ 22.4 million during 2016 and net unrealized losses of approximately $ ( 7.2 ) million during 2015 .
| results of operations on a consolidated basis , the company had net income attributable to common shareholders of $ 1.2 million and $ 917,000 in 2016 and 2015 , respectively . in 2016 , income before income taxes was $ 2.1 million compared to $ 273,000 in 2015 . total revenue was $ 27.8 million in 2016 and $ 28.8 million in 2015 . one-time events , primarily reflected in realized gains , comprise a substantial portion of the net income and revenue reported by the company during 2016 and 2015 . the magnitude of realized investment gains and losses in a given year is a function of the timing of trades of investments relative to the markets themselves as well as the recognition of any impairments on investments . future earnings will be significantly negatively impacted should earnings from these one-time items not be realizable in a future period . while management believes there remain additional investments with such one-time earnings , when or if realized remains uncertain . total benefits and other expenses paid in 2016 were $ 25.7 million compared to $ 28.5 million in 2015 . revenues premiums and policy fee revenues , net of reinsurance premiums and policy fees , decreased approximately 15 % when comparing 2016 to 2015 . the company writes very little new business . unless the company acquires a new company or a block of in-force business , management expects premium revenue to continue to decline on the existing block of business at a rate consistent with prior experience . the company 's average persistency rate for all policies in-force for 2016 and 2015 was approximately 96.6 % and 96.2 % , respectively . persistency is a measure of insurance in-force retained in relation to the previous year .
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2016-02 , leases ( topic 842 ) , and the related amendments . basis for opinion these financial statements are the responsibility of the partnership 's management . our responsibility is to express an opinion on the partnership 's financial statements based on our audits . we are a public accounting firm registered with the pcaob and are required to be independent with story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto that are included in this annual report on form 10-k. capitalized terms not defined in this item 7 shall have the definitions ascribed to those terms in items 1-6 of this annual report on form 10-k. overviewโbasis of presentation wpg inc. is an indiana corporation that operates as a selfโadministered and selfโmanaged reit , under the code . wpg inc. will generally qualify as a reit for u.s. federal income tax purposes as long as it continues to distribute at least 90 % of its reit taxable income , exclusive of net capital gains , and satisfy certain other requirements . wpg inc. will generally be allowed a deduction against its u.s. federal income tax liability for dividends paid by it to reit shareholders , thereby reducing or eliminating any corporate level taxation to wpg inc. wpg l.p. is wpg inc. 's majorityโowned limited partnership subsidiary that owns , develops and manages , through its affiliates , all of wpg inc. 's real estate properties and other assets . wpg inc. is the sole general partner of wpg l.p. as of december 31 , 2019 , our assets consisted of material interests in 104 shopping centers in the united states , consisting of open air properties and enclosed retail properties , comprised of approximately 56 million square feet of managed gla . the consolidated financial statements are prepared in accordance with u.s. gaap . the consolidated balance sheets as of december 31 , 2019 and december 31 , 2018 include the accounts of wpg inc. and wpg l.p. , as well as their wholly-owned subsidiaries . the consolidated statements of operations include the consolidated accounts of the company . all intercompany transactions have been eliminated in consolidation . leadership changes and severance impacting financial results 2019 activity on february 5 , 2019 , the company 's executive vice president , head of open air centers , was terminated without cause from his position and received severance payments and other benefits pursuant to the terms and conditions of his employment agreement . in addition , the company terminated , without cause , additional non-executive personnel in the property management department as part of an effort to reduce overhead costs . in connection with and as part of the aforementioned management changes , the company recorded aggregate severance charges of approximately $ 1.9 million , including $ 0.1 million of non-cash stock compensation in the form of accelerated vesting of equity incentive awards , which costs are included in general and administrative expense in the consolidated statements of operations and comprehensive ( loss ) income for the year ended december 31 , 2019 . 2018 activity on may 7 , 2018 , the company 's executive vice president , property management was terminated without cause from his position and received severance payments and other benefits pursuant to the terms and conditions of his employment agreement . in addition , the company terminated without cause additional non-executive personnel in the property management department . in connection with and as part of the aforementioned management and personnel changes , the company recorded aggregate severance charges of $ 2.0 million , including $ 0.5 million of non-cash stock compensation in the form of accelerated vesting of equity incentive awards , which costs are included in general and administrative expense in the consolidated statements of operations and comprehensive ( loss ) income for the year ended december 31 , 2018. southgate mall on april 24 , 2018 , the company closed on the acquisition of southgate mall , located in missoula , montana , for $ 58.0 million . the enclosed retail property contains approximately 631,000 square feet of gla and is anchored by a recently constructed amc theater , a new lucky 's market grocer that replaced a portion of a former sears , j.c. penney ( acquired in january 2020 ) and dillard 's ( non-owned ) buildings and is the dominant retail center in this secondary market , with no competitive destination retail property located within 130 miles . on september 27 , 2018 , an affiliate of wpg inc. closed on a $ 35.0 million full-recourse mortgage note payable with a three-year term and a fixed interest rate of 4.48 % per annum secured by southgate mall . the mortgage note payable requires interest only payments and will initially mature on september 27 , 2021 , subject to two one-year extensions available at our option subject to compliance with the terms of the underlying loan agreement and payment of customary extension fees . the proceeds were used to reduce corporate debt and for ongoing redevelopment efforts . 42 sears parcel acquisitions on april 11 , 2018 , we acquired , through a sale-leaseback transaction , four sears department stores and adjacent sears auto centers at longview mall , located in longview , texas ; polaris fashion placeยฎ , located in columbus , ohio ; southern hills mall , located in sioux city , iowa ; and town center at auroraยฎ , located in aurora , colorado . the purchase price was approximately $ 28.5 million and was funded by a combination of $ 13.4 million from our facility , $ 9.7 million from the four corners transaction , as discussed in `` overview - basis of presentation - outparcel sales , '' and $ 5.4 million from our joint venture partner related to their pro-rata share of the joint venture that owns polaris fashion placeยฎ . we have control of these stores for future redevelopment and in some instances , have commenced redevelopment activities ( see `` development activity '' for additional details ) . story_separator_special_tag the fair value of the property was based on the respective discounted estimated future cash flows , using a discount rate of 18.5 % and a terminal capitalization rate of 15.5 % , which were determined using management 's assessment of the property operating performance and general market conditions . we compared the estimated fair value of $ 19.8 million to the related carrying value of $ 26.1 million , which resulted in the recording of an impairment charge of approximately $ 6.3 million in the consolidated statements of operations and comprehensive ( loss ) income for the year ended december 31 , 2019 . 44 during the third quarter of 2019 , we recorded impairment charges related to chautauqua mall , located in lakewood , new york , matteson plaza , located in matteson , illinois , and new towne mall , located in new philadelphia , ohio . in the case of chautauqua mall and new towne mall , the impairment charge was attributed to declines in the estimated undiscounted cash flows which resulted in the carrying value not being recoverable . the fair value of each property was based on the respective discounted estimated future cash flows of each property , using a discount rate of 18.5 % and a terminal capitalization rate of 15.5 % , which were determined using management 's assessment of the property operating performance and general market conditions . as it relates to matteson plaza , the impairment charge was due to the change in facts and circumstances when we decided to hold the asset for a shorter period which resulted in the carrying value not being recoverable from the projected cash flows . the fair value was based on the executed purchase and sale agreement with an unaffiliated real estate investor , which was sold on january 14 , 2020 ( see `` acquisitions and dispositions '' for details ) . we recorded an aggregate impairment charge for these three properties of approximately $ 28.9 million in the consolidated statements of operations and comprehensive ( loss ) income for the year ended december 31 , 2019. during the fourth quarter of 2017 , a major anchor tenant of rushmore mall , located in rapid city , south dakota , informed us of their intention to close their store at the property . the impending closure was deemed a triggering event and , therefore , we evaluated this property in conjunction with our quarterly impairment review and preparation of our financial statements for the year ended december 31 , 2017. we compared the estimated fair value of $ 37.5 million to the related carrying value of $ 75.0 million , which resulted in the recording of an impairment charge of approximately $ 37.5 million in the consolidated statements of operations and comprehensive ( loss ) income for the year ended december 31 , 2017. on october 4 , 2017 , the company entered into a purchase and sale agreement to sell colonial park mall , located in harrisburg , pennsylvania , to an unaffiliated private real estate investor , which was sold on november 3 , 2017. during the third quarter of 2017 , we shortened the hold period used in assessing impairment for this asset , which resulted in the carrying value not being recoverable from the expected cash flows . we compared the fair value measurement of the property to its relative carrying value , which resulted in the recording of an impairment charge of approximately $ 20.9 million in the consolidated statements of operations and comprehensive ( loss ) income for the year ended december 31 , 2017. during the first quarter of 2017 , the company entered into a purchase and sale agreement to dispose of morgantown commons , located in morgantown , west virginia , which was sold in the second quarter of 2017. we shortened the hold period used in assessing impairment for the asset during the quarter ended march 31 , 2017 , which resulted in the carrying value not being recoverable from the expected cash flows . the purchase offer represented the best available evidence of fair value for this property . we compared the fair value to the carrying value , which resulted in the recording of an impairment charge of approximately $ 8.5 million in the consolidated statements of operations and comprehensive ( loss ) income for the year ended december 31 , 2017. business opportunities we derive our revenues primarily from retail tenant leases , including fixed minimum rent leases , percentage rent leases based on tenants ' sales volumes and reimbursements from tenants for certain expenses . we seek to re-lease our spaces at higher rents and increase our occupancy rates , and to enhance the performance of our properties and increase our revenues by , among other things , adding or replacing anchors or big-box tenants , re-developing or renovating existing properties to increase the leasable square footage , and increasing the productivity of occupied locations through aesthetic upgrades , re-merchandising and or changes to the retail use of the space . we seek growth in earnings , ffo and cash flows by enhancing the profitability and operation of our properties and investments . additionally , we feel there are opportunities to enhance our portfolio and balance sheet through active portfolio management . we believe that there are opportunities for us to acquire additional shopping centers that match our investment and strategic criteria . we invest in real estate properties to maximize total financial return which includes both operating cash flows and capital appreciation . we also seek to dispose of assets that no longer meet our strategic criteria . these dispositions will be a combination of asset sales and transitions of over-levered properties to lenders . we consider ffo , net operating income , or noi , and comparable noi ( noi for properties owned and operating in both periods under comparison ) to be key measures of operating performance that are not specifically defined by gaap .
| results of operations the following acquisitions and dispositions affected our results in the comparative periods : on december 19 , 2019 , we completed the sale of charles towne square , located in charleston , south carolina , to an unaffiliated private real estate investor . on december 18 , 2019 , we transitioned west ridge mall and plaza ( `` west ridge , '' collectively ) , located in topeka , kansas , to the lender . during 2019 , we completed the sale of 25 outparcels to four corners ( see details under `` overview - basis of presentation - four corners outparcel sales '' ) . on july 1 , 2019 , we transitioned towne west square , located in wichita , kansas , to the lender . during 2018 , we completed the sale of 20 outparcels to four corners ( see details under `` overview - basis of presentation - four corners outparcel sales '' ) . on october 23 , 2018 , we transitioned rushmore mall to the lender . on april 24 , 2018 , we closed on the acquisition of southgate mall . on april 11 , 2018 , we closed on the acquisition of four sears department stores located at longview mall , polaris fashion placeยฎ ( unconsolidated ) , southern hills mall , and town center at aurora . on november 3 , 2017 , we completed the sale of colonial park mall . on october 17 , 2017 , we completed a discounted payoff of the mortgage loan secured by southern hills mall , located in sioux city , iowa . on october 3 , 2017 , we transitioned valle vista mall , located in harlingen , texas , to the lender . on june 13 , 2017 , we sold 49 % of our interest in malibu lumber yard as part of the o'connor joint venture ii transaction . on june 7 , 2017 , we completed the sale of morgantown commons .
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- 152 - apollo global management , inc. notes to consolidated financial statements ( dollars in thousands , except share data , except where noted ) apollo determines whether it is the primary beneficiary of a vie story_separator_special_tag the following discussion should be read in conjunction with apollo global management , inc. 's consolidated financial statements and the related notes as of december 31 , 2019 and 2018 and for the years ended december 31 , 2019 , 2018 and 2017. this discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties . actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors , including those included in the section of this report entitled โ item 1a risk factors. โ the highlights listed below have had significant effects on many items within our consolidated financial statements and affect the comparison of the current period 's activity with those of prior periods . general our businesses founded in 1990 , apollo is a leading global alternative investment manager . we are a contrarian , value-oriented investment manager in credit , private equity and real assets with significant distressed expertise and a flexible mandate in the majority of our funds which enables our funds to invest opportunistically across a company 's capital structure . we raise , invest and manage funds on behalf of some of the world 's most prominent pension , endowment and sovereign wealth funds as well as other institutional and individual investors . apollo is led by our managing partners , leon black , joshua harris and marc rowan , who have worked together for more than 33 years and lead a team of 1,421 employees , including 472 investment professionals , as of december 31 , 2019 . apollo conducts its business primarily in the united states through the following three reportable segments : ( i ) credit โprimarily invests in non-control corporate and structured debt instruments including performing , stressed and distressed instruments across the capital structure ; ( ii ) private equity โprimarily invests in control equity and related debt instruments , convertible securities and distressed debt instruments ; and ( iii ) real assets โprimarily invests in ( i ) real estate equity and infrastructure equity for the acquisition and recapitalization of real estate and infrastructure assets , portfolios , platforms and operating companies , ( ii ) real estate and infrastructure debt including first mortgage and mezzanine loans , preferred equity and commercial mortgage backed securities and ( iii ) european performing and non-performing loans , and unsecured consumer loans . these business segments are differentiated based on the varying investment strategies . the performance is measured by management on an unconsolidated basis because management makes operating decisions and assesses the performance of each of apollo 's business segments based on financial and operating metrics and data that exclude the effects of consolidation of any of the managed funds . our financial results vary since performance fees , which generally constitute a large portion of the income we receive from the funds that we manage , as well as the transaction and advisory fees that we receive , can vary significantly from quarter to quarter and year to year . as a result , we emphasize long-term financial growth and profitability to manage our business . in addition , the growth in our fee-generating aum during the last year has primarily been in our credit segment . the average management fee rate for these new credit products is at market rates for such products and in certain cases is below our historical rates . also , due to the complexity of these new product offerings , the company has incurred and will continue to incur additional costs associated with managing these products . to date , these additional costs have been offset by realized economies of scale and ongoing cost management . as of december 31 , 2019 , we had total aum of $ 331.1 billion across all of our businesses . more than 80 % of our total aum was in funds with a contractual life at inception of seven years or more , and 50 % of such aum was in permanent capital vehicles . - 94 - as of december 31 , 2017 , fund ix held its final closing , raising a total of $ 23.5 billion in third-party capital and approximately $ 1.2 billion of additional capital from apollo and affiliated investors for total commitments of $ 24.7 billion . on december 31 , 2013 , fund viii held a final closing raising a total of $ 17.5 billion in third-party capital and approximately $ 880 million of additional capital from apollo and affiliated investors , and as of december 31 , 2019 , fund viii had $ 3.0 billion of uncalled commitments remaining . additionally , fund vii held a final closing in december 2008 , raising a total of $ 14.7 billion , and as of december 31 , 2019 , fund vii had $ 1.8 billion of uncalled commitments remaining . we have consistently produced attractive long-term investment returns in our traditional private equity funds , generating a 39 % gross irr and a 25 % net irr on a compound annual basis from inception through december 31 , 2019 . apollo 's private equity fund appreciation was 15.6 % for the year ended december 31 , 2019 . for our real assets segment , there was a total gross return of 16.2 % for the year ended december 31 , 2019 . included in the gross return are u.s. real estate fund i and u.s. real estate fund ii including co-investment capital , asia real estate fund including co-investment capital , the european principal finance funds , and infrastructure equity funds . for further detail related to fund performance metrics across all of our businesses , see โ โthe historical investment performance of our funds. story_separator_special_tag relative to the u.s. dollar , the euro depreciated 2.2 % during the year , after depreciating by 4.5 % in 2018 , while the british pound appreciated 3.9 % in 2019 , after depreciating 5.6 % in 2018. the price of crude oil appreciated by 34.5 % during the year ended december 31 , 2019. in terms of economic conditions in the u.s. , the bureau of economic analysis reported real gdp increased at an annual rate of 2.1 % in 2019 , following an increase of 2.6 % in 2018. as of january 2020 , the international monetary fund estimated that the u.s. economy will expand by 2.0 % in 2020 and 1.7 % in 2021. additionally , the u.s. unemployment rate stood at 3.5 % as of december 31 , 2019. regardless of the market or economic environment at any given time , apollo relies on its contrarian , value-oriented approach to consistently invest capital on behalf of its fund investors by focusing on opportunities that management believes are - 96 - often overlooked by other investors . as such , apollo 's global integrated investment platform deployed $ 15.5 billion of capital through the funds it manages during the year ended december 31 , 2019 . we believe apollo 's expertise in credit and its focus on nine core industry sectors , combined with more than 29 years of investment experience , has allowed apollo to respond quickly to changing environments . apollo 's core industry sectors include chemicals , manufacturing and industrial , natural resources , consumer and retail , consumer services , business services , financial services , leisure , and media/telecom/technology . apollo believes that these attributes have contributed to the success of its private equity funds investing in buyouts and credit opportunities during both expansionary and recessionary economic periods . in general , institutional investors continue to allocate capital towards alternative investment managers for more attractive risk-adjusted returns in a low interest rate environment , and we believe the business environment remains generally accommodative to raise larger successor funds , launch new products , and pursue attractive strategic growth opportunities , such as continuing to grow the assets of our permanent capital vehicles . as such , apollo had $ 63.6 billion of capital inflows during the year ended december 31 , 2019 . while apollo continues to attract capital inflows , it also continues to generate realizations for fund investors . apollo returned $ 11.4 billion of capital and realized gains to the investors in the funds it manages during the year ended december 31 , 2019 . managing business performance we believe that the presentation of segment de supplements a reader 's understanding of the economic operating performance of each of our segments . segment distributable earnings and distributable earnings segment de is the key performance measure used by management in evaluating the performance of apollo 's credit , private equity and real assets segments . see note 17 to the consolidated financial statements for more details regarding the components of segment de . de represents segment de less estimated current corporate , local and non-u.s. taxes as well as the current payable under apollo 's tax receivable agreement . de is net of preferred dividends , if any , to the series a and series b preferred stockholders . de excludes the impacts of the remeasurement of deferred tax assets and liabilities which arises from changes in estimated future tax rates . the economic assumptions and methodologies that impact the implied income tax provision are similar to those methodologies and certain assumptions used in calculating the income tax provision for apollo 's consolidated statements of operations under u.s. gaap . management believes that excluding the remeasurement of the tax receivable agreement and deferred taxes from segment de and de , respectively , is meaningful as it increases comparability between periods . remeasurement of the tax receivable agreement and deferred taxes are estimates that may change due to changes in the interpretation of tax law . we believe that segment de is helpful for an understanding of our business and that investors should review the same supplemental financial measure that management uses to analyze our segment performance . this measure supplements and should be considered in addition to and not in lieu of the results of operations discussed below in โ โoverview of results of operations โ that have been prepared in accordance with u.s. gaap . see note 17 to the consolidated financial statements for more details regarding management 's consideration of segment de . fee related earnings and fee related ebitda fee related earnings , or โ fre โ , is derived from our segment reported results and refers to a component of segment de that is used as a supplemental performance measure . see note 17 to the consolidated financial statements for more details regarding the components of fre . fee related ebitda is a non-u.s. gaap measure derived from our segment reported results and is used to assess the performance of our operations as well as our ability to service current and future borrowings . fee related ebitda represents fre plus amounts for depreciation and amortization . โ fee related ebitda +100 % of net realized performance fees โ represents fee related ebitda plus realized performance fees less realized profit sharing expense . we use segment de , de , fre and fee related ebitda as measures of operating performance , not as measures of liquidity . these measures should not be considered in isolation or as a substitute for net income or other income data prepared in accordance with u.s. gaap . the use of these measures without consideration of their related u.s. gaap measures is not adequate due to the adjustments described above . segment strategies subsequent to december 31 , 2018 , apollo determined to change the business segment in which it reports certain funds and accounts to align its segment reporting with the manner in which such funds and accounts were managed .
| results of operations for the years ended december 31 , 2019 , 2018 and 2017 . for additional analysis of the factors that affected our results at the segment level , see โ โsegment analysis โ below : replace_table_token_24_th note : โ nm โ denotes not meaningful . changes from negative to positive amounts and positive to negative amounts are not considered meaningful . increases or decreases from zero and changes greater than 500 % are also not considered meaningful . a discussion of our consolidated results of operations for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 is included in the company 's annual report on form 10-k filed with the united states securities and exchange commission on march 1 , 2019 ( the โ 2018 annual report โ ) . - 113 - revenues our revenues and other income include fixed components that result from measures of capital and asset valuations and variable components that result from realized and unrealized investment performance , as well as the value of successfully completed transactions . year ended december 31 , 2019 compared to year ended december 31 , 2018 management fees increase d by $ 230.6 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 . this change was primarily attributable to an increase in management fees earned from athene and fund ix of $ 120.3 million and $ 79.4 million , respectively , during the year ended december 31 , 2019 , compared to the same period during 2018 . for additional details regarding changes in management fees in each segment , see โ โsegment analysis โ below . advisory and transaction fees , net , increase d by $ 11.4 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 .
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the fair value is expected to recover as the bonds approach story_separator_special_tag forward looking statements certain statements in this filing and future filings by the company with the sec , in the company 's press releases or other public or shareholder communications , or in oral statements made with the approval of an authorized executive officer , contain forward-looking statements , as defined in the private securities litigation reform act . these statements may be identified by the use of phrases such as โ anticipate , โ โ believe , โ โ expect , โ โ forecasts , โ โ projects , โ โ will , โ โ can , โ โ would , โ โ should , โ โ could , โ โ may , โ or other similar terms . there are a number of factors , many of which are beyond the company 's control that could cause actual results to differ materially from those contemplated by the forward looking statements . factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include , among others , the following possibilities : ( 1 ) local , regional , national and international economic conditions and the impact they may have on the company and its customers and the company 's assessment of that impact ; ( 2 ) changes in the level of non-performing assets and charge-offs ; ( 3 ) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements ; ( 4 ) the effects of and changes in trade and monetary and fiscal policies and laws , including the interest rate policies of the federal reserve board ; ( 5 ) inflation , interest rate , securities market and monetary fluctuations ; ( 6 ) political instability ; ( 7 ) acts of war or terrorism ; ( 8 ) the timely development and acceptance of new products and services and perceived overall value of these products and services by users ; ( 9 ) changes in consumer spending , borrowings and savings habits ; ( 10 ) changes in the financial performance and or condition of the company 's borrowers ; ( 11 ) technological changes ; ( 12 ) acquisitions and integration of acquired businesses ; ( 13 ) the ability to increase market share and control expenses ; ( 14 ) changes in the competitive environment among financial holding companies ; ( 15 ) the effect of changes in laws and regulations ( including laws and regulations concerning taxes , banking , securities and insurance ) with which the company and its subsidiaries must comply including those under the dodd-frank act ; ( 16 ) the effect of changes in accounting policies and practices , as may be adopted by the regulatory agencies , as well as the public company accounting oversight board , the financial accounting standards board and other accounting standard setters ; ( 17 ) changes in the company 's organization , compensation and benefit plans ; ( 18 ) the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews ; ( 19 ) greater than expected costs or difficulties related to the integration of new products and lines of business ; and ( 20 ) the company 's success at managing the risks involved in the foregoing items . the company cautions readers not to place undue reliance on any forward-looking statements , which speak only as of the date made , and advises readers that various factors including , but not limited to , those described above , could affect the company 's financial performance and could cause the company 's actual results or circumstances for future periods to differ materially from those anticipated or projected . except as required by law , the company does not undertake , and specifically disclaims any obligations to , publicly release any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements . general the financial review which follows focuses on the factors affecting the consolidated financial condition and results of operations of the company and its wholly owned subsidiaries , the bank , nbt financial services and nbt holdings during 2015 and , in summary form , the preceding two years . collectively , the registrant and its subsidiaries are referred to herein as โ the company. โ net interest margin is presented in this discussion on a fully taxable equivalent ( fte ) basis . average balances discussed are daily averages unless otherwise described . the audited consolidated financial statements and related notes as of december 31 , 2015 and 2014 and for each of the years in the three-year period ended december 31 , 2015 should be read in conjunction with this review . amounts in prior period consolidated financial statements are reclassified whenever necessary to conform to the 2015 presentation . critical accounting policies the company has identified policies as being critical because they require management to make particularly difficult , subjective and or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions . these policies relate to the allowance for loan losses , pension accounting , provision for income taxes and impairment of goodwill and intangible assets . management of the company considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the uncertainty in evaluating the level of the allowance required to cover credit losses inherent in the loan portfolio and the material effect that such judgments can have on the results of operations . while management 's current evaluation of the allowance for loan losses indicates that the allowance is adequate , under adversely different conditions or assumptions , the allowance may need to be increased . story_separator_special_tag yields on earning assets decreased from 3.94 % during 2014 to 3.78 % for 2015 , more than offsetting the growth in earning assets , resulting in a 0.7 % decrease in interest income for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. the yield compression was driven by a 20 basis-point decrease in loan yields from 2014 to 2015. average interest bearing liabilities increased $ 21.0 million , or 0.4 % , from the year ended december 31 , 2014 to the year ended december 31 , 2015. total average deposits increased $ 344.2 million , or 5.6 % , for the year ended december 31 , 2015 as compared to last year driven primarily by an 11.2 % increase in non-interest bearing demand deposits , as well as increases in money market deposit accounts and savings deposits in 2015. this increase was partially offset by a decrease in average long-term borrowings of $ 93.9 million for the year ended december 31 , 2015 as compared to last year due to the debt restructuring completed during the third quarter of 2014 , which resulted in the prepayment of $ 165.0 million of long-term debt . in addition , average short-term borrowings decreased $ 42.6 million for the year ended december 31 , 2015 as compared to last year driven by deposit growth . the rates paid on interest bearing liabilities decreased by 5 basis-points for the year ended december 31 , 2015 as compared to 2014. this decrease resulted primarily from a shift in deposits into lower cost core deposits as well as the aforementioned debt restructuring . the following table presents changes in interest income , on a fte basis , and interest expense attributable to changes in volume ( change in average balance multiplied by prior year rate ) , changes in rate ( change in rate multiplied by prior year volume ) , and the net change in net interest income . the net change attributable to the combined impact of volume and rate has been allocated to each in proportion to the absolute dollar amounts of change . replace_table_token_12_th loans and corresponding interest and fees on loans the average balance of loans increased by approximately $ 215.8 million , or 3.9 % , from 2014 to 2015. the yield on average loans decreased from 4.42 % in 2014 to 4.22 % in 2015 , as loan rates declined due to the continued low rate environment in 2015. interest income from loans decreased 0.6 % , from $ 244.2 million in 2014 to $ 242.6 million in 2015. this decrease was due to the decrease in yields , partially offset by the increase in average loan balances . total loans increased $ 287.9 million , or 5.1 % , from december 31 , 2014 to december 31 , 2015. increases in residential real estate mortgages , commercial real estate loans , and consumer loans were the primary drivers of the increase in total loans from 2014 as the company experienced strong originations in 2015 in the upstate new york and vermont markets . 33 the following table reflects the loan portfolio by major categories as of december 31 for the years indicated : replace_table_token_13_th residential real estate mortgages consist primarily of loans secured by first or second deeds of trust on primary residences . loans in the commercial and agricultural categories , including commercial and agricultural real estate mortgages , consist primarily of short-term and or floating rate loans made to small and medium-sized entities . consumer loans consist primarily of indirect installment credit to individuals , of which approximately 75 % is secured by automobiles and other personal property including marine , recreational vehicles and manufactured housing . consumer loans also consist of direct installment loans to individuals secured by similar collateral . indirect installment loans represent $ 1.4 billion of total consumer loans at december 31 , 2015 , or 91 % . installment credit for automobiles accounts for approximately 75 % of total consumer loans . although automobile loans have generally been originated through dealers , all applications submitted through dealers are subject to the company 's normal underwriting and loan approval procedures . real estate construction and development loans include commercial construction and development and residential construction loans . commercial construction loans are for small and medium sized office buildings and other commercial properties and residential construction loans are primarily for projects located in upstate new york and northeastern pennsylvania . risks associated with the commercial real estate portfolio include the ability of borrowers to pay interest and principal during the loan 's term , as well as the ability of the borrowers to refinance at the end of the loan term . the following table , maturities and sensitivities of certain loans to changes in interest rates , summarizes the maturities of the commercial and agricultural and real estate construction and development loan portfolios and the sensitivity of those loans to interest rate fluctuations at december 31 , 2015. scheduled repayments are reported in the maturity category in which the contractual payment is due . maturities and sensitivities of certain loans to changes in interest rates remaining maturity at december 31 , 2015 ( in thousands ) within one year after one year but within five years after five years total floating/adjustable rate commercial , commercial real estate , agricultural , and agricultural real estate $ 414,391 $ 390,063 $ 956,839 $ 1,761,293 fixed rate commercial , commercial real estate , agricultural , and agricultural real estate 70,854 387,427 370,133 828,414 total $ 485,245 $ 777,490 $ 1,326,972 $ 2,589,707 34 securities and corresponding interest and dividend income the average balance of securities available for sale decreased $ 199.7 million , or 15.9 % , from 2014 to 2015. the yield on average securities available for sale was 1.97 % for 2015 compared to 2.05 % in 2014. the average balance of securities held to maturity increased from $ 233.5 million in 2014 to $ 459.6 million in 2015. at december 31 , 2015 , securities
| overview significant factors management reviews to evaluate the company 's operating results and financial condition include , but are not limited to : net income and earnings per share , return on assets and equity , net interest margin , noninterest income , operating expenses , asset quality indicators , loan and deposit growth , capital management , liquidity and interest rate sensitivity , enhancements to customer products and services , technology advancements , market share and peer comparisons . the following information should be considered in connection with the company 's results for the fiscal year ended december 31 , 2015 : โ reported net income for 2015 was $ 76.4 million , the highest in the company 's history , and up from $ 75.1 million in 2014 . โ net interest margin for 2015 declined 11 basis points as a result of the continued low rate environment on loans and investments . โ asset quality indicators showed stability or improvement from last year : โช nonperforming loans to total loans improved to 0.64 % at december 31 , 2015 from 0.82 % at december 31 , 2014 ; โช past due loans to total loans improved to 0.62 % at december 31 , 2015 from 0.69 % at december 31 , 2014 ; โช net charge-offs to average loans improved to 0.38 % for 2015 from 0.41 % in 2014 . โ noninterest income was down 6.0 % from last year driven primarily by the $ 19.4 million gain on the sale of our ownership interest in springstone , llc ( `` springstone '' ) recorded in 2014 as compared to the $ 4.2 million gain recorded in 2015 from the same .
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18 - transportation the transportation segment revenues and operating earnings were as follows ( in thousands ) : replace_table_token_12_th ( 1 ) represents the percentage increase ( decrease ) from the prior year . revenues for the transportation segment were consistent and strong for the comparative periods due to consistent customer demand . operating earnings for 2012 and 2011 benefitted from gains totaling $ 2.6 million and $ 1.2 million , respectively , from the sale of used equipment following the purchase of new truck replacements . such sales did not recur in 2013 within the transportation segment . operating earnings for 2013 were adversely impacted by increased depreciation , insurance and maintenance costs . as shown above , maintenance expense increased in 2013 , in part due to increased environmental compliance costs . the company 's customers predominately consist of the domestic petrochemical industry and contributing to customer demand is low natural gas prices ( a basic feedstock cost for the petrochemical industry ) and high export demand for petrochemicals . with demand strength , industry capacity has been strained allowing rate increases and an opportunity for increased profitability . however , an industry wide shortage of qualified drivers has affected the company by suppressing current year revenues and results of operations . as transportation revenues increase or decrease , operating earnings will typically increase or decrease at an accelerated rate . this trend exists because the fixed cost components of the company 's operation do not vary with changing revenues . as currently configured , operating earnings project at break-even levels when annual revenues average approximately $ 54 million . above that level , operating earnings will grow and below that level , losses result . transportation segment depreciation increased for 2013 and 2012 as older fully depreciated tractor units were replaced with new model year vehicles . during 2013 , the company purchased 35 new trailers with 17 serving as replacements . during 2012 , the company replaced 125 truck-tractors and one trailer . during 2011 the company replaced 115 older model truck-tractor units and added 10 new units to the fleet . in addition , 25 trailers were added to the fleet during 2011 . 19 - oil and gas oil and gas segment revenues and operating earnings are primarily a function of crude oil and natural gas production volumes and prices . comparative amounts for revenues , operating earnings and depreciation and depletion were as follows ( in thousands ) : replace_table_token_13_th ( 1 ) represents the percentage increase ( decrease ) from the prior year . ( 2 ) includes gains from property sales of $ 2.2 million and $ 2.9 million in 2012 and 2011 , respectively . as shown in the table below , improving crude oil production volumes served to boost oil and gas segment revenues , with a partial offset occurring during 2013 as natural gas volumes declined . such volume changes resulting from the interplay of recent drilling efforts and normal production declines as low prices curtailed natural gas drilling . operating losses resulted in 2013 , 2012 and 2011 following producing property impairments as well as increased prospect impairment expense as shown in the second table below . property impairments resulted in 2013 following adverse drilling results while 2012 and 2011 impairments followed declines in the then current and forward price for natural gas . comparative volumes and prices were as follows : replace_table_token_14_th _ ( 1 ) crude oil prices and volumes include the sale of associated natural gas liquids production . comparative exploration and prospect impairment costs were as follows ( in thousands ) : replace_table_token_15_th 20 during 2013 , the company participated in the drilling of 80 wells with three dry holes . additionally , the company had 34 wells in process on december 31 , 2013 with ultimate evaluation anticipated during 2014. converting natural gas volumes to equate with crude oil volumes at a ratio of six to one , production volumes and proved reserve changes summarize as follows , on an equivalent barrel ( eq . bbls ) basis : replace_table_token_16_th for 2013 and for the three year period ended december 31 , 2013 , estimated reserve additions represented 157 percent and 72 percent , respectively , of production volumes . such reserve additions resulted from active drilling efforts during the periods presented . given the present low natural gas price environment , exploration and development activity during 2014 will be substantially reduced . the company 's current drilling and exploration efforts are primarily focused as follows : west texas project in 2008 the company acquired an approximate 7.5 % working interest in 49,015 gross acres located in irion and crockett counties , texas for the purpose of developing the wolfcamp shale . a total of 190 wells have been drilled through december 31 , 2013 with 177 wells on production and 13 wells being completed . drilling is expected to continue in 2014 with 31 wells scheduled for drilling . production from the wolfcamp area is oil-rich with large amounts of gas and natural gas liquids . south texas project this investment 's goal is to extend the productive area of the eagle ford trend north in fayette and lavaca counties , texas . two wells have been drilled on this acreage indicating the project is on the gas-condensate window , but substantial eagle ford production has yet to be established . evaluation of this project continues and the company holds a five percent working interest in this project which includes approximately 46,800 acres currently under lease . kansas the company presently holds a 6.8 % interest in 30,000 acres in pratt county , kansas with the objective of further developing the mississippi lime trend . one successful well has been completed on this acreage with a second well currently in process . if warranted by results , approximately 10 additional horizontal well sites can be developed on this acreage . story_separator_special_tag at various times during each month , the company makes cash prepayments and or early payments in advance of the normal due date to certain suppliers of crude oil within the marketing operations . crude oil supply prepayments totaled $ 13,705,000 as of december 31 , 2013 and such amounts will be recouped and advanced from month to month as the suppliers deliver product to the company . in addition , in order to secure crude oil supply , the company may also โearly pay โ its suppliers in advance of the normal payment due date of the twentieth of the month following the month of production . such โearly payments โ serve to reduce accounts payable as of the balance sheet date . the company also requires certain counterparties to make similar early payments or to post cash collateral with the company in order to support their purchases from the company . early payments received from customers serve to reduce accounts receivable as of the balance sheet date . such cash collateral held by the company totaled $ 6,938,000 as of december 31 , 2013. the company also maintains a stand-by letter of credit facility with wells fargo bank to provide for the issuance of up to $ 60 million in stand-by letters of credit to suppliers of crude oil ( see note ( 1 ) to consolidated financial statements ) . the issuance of stand-by letters of credit enables the company to avoid posting cash collateral when procuring crude oil supply . as of december 31 , 2013 , letters of credit outstanding totaled $ 14.6 million . the issued stand-by letters of credit are cancelled as the underlying purchase obligations are satisfied by cash payment when due . management believes current cash balances , together with expected cash generated from future operations , and the ease of financing truck and trailer additions through leasing arrangements ( should the need arise ) will be sufficient to meet short-term and long-term liquidity needs . the company utilizes cash from operations to make discretionary investments in its marketing , transportation and exploration businesses , which comprise substantially all of the company 's investing cash outflows for each of the periods in this filing . the company does not look to proceeds from property sales to fund its cash flow needs . except for an approximate $ 9.5 million commitment for storage tank terminal arrangements and office lease space , the company 's future commitments and planned investments can be readily curtailed if operating cash flows contract . historically , the company paid an annual dividend in the fourth quarter of each year , and the company paid a $ .62 per common share dividend or $ 2,615,000 to shareholders of record as of december 3 , 2012. on june 17 , 2013 , the company initiated a quarterly dividend of $ .22 per common share or $ 928,000. a quarterly dividend of $ .22 per common share or $ 928,000 was also paid during both the third and fourth quarters of 2013. the most significant item affecting future increases or decreases in liquidity is earnings from operations and such earnings are dependent on the success of future operations ( see item 1a . risk factors in this annual report on form 10-k ) . 23 off-balance sheet arrangements the company maintains certain operating lease arrangements with independent truck owner-operators for use of their equipment and driver services on a month-to-month basis . in addition , the company has entered into certain lease and terminal access contracts in order to provide tank storage and dock access for its crude oil marketing business . such contracts require certain minimum monthly payments for the term of the contracts . all operating lease commitments qualify for off-balance sheet treatment . rental expense for the years ended december 31 , 2013 , 2012 , and 2011 was $ 8,281,000 , $ 8,110,000 and $ 7,621,000 , respectively . as of december 31 , 2013 , rental commitments under long-term non-cancelable operating leases and terminal arrangements for the next five years are payable as follows : 2014 - $ 3,138,000 ; 2015 - $ 1,931,000 ; 2016 - $ 1,910,000 ; 2017 - $ 1,690,000 ; 2018 โ $ 804,000 and $ 40,000 thereafter . contractual cash obligations the company has no capital lease obligations . the company has entered into certain operating lease arrangements and terminal access agreements for tankage , truck-tractors , trailers and office space . a summary of the lease payment periods for contractual cash obligations is as follows ( in thousands ) : replace_table_token_17_th in addition to its lease obligations , the company is also committed to purchase certain quantities of crude oil in connection with its marketing activities . such commodity purchase obligations are the basis for commodity sales , which generate the cash flow necessary to meet such purchase obligations . approximate commodity purchase obligations as of december 31 , 2013 are as follows ( in thousands ) : replace_table_token_18_th insurance from time to time , the marketplace for all forms of insurance enters into periods of severe cost increases . in the past , during such cyclical periods , the company has seen costs escalate to the point where desired levels of insurance were either unavailable or unaffordable . the company 's primary insurance needs are workers ' compensation , automobile and umbrella coverage for its trucking fleet and medical insurance for employees . during each of 2013 , 2012 and 2011 , insurance costs totaled $ 14.9 million , $ 11.5 million and $ 10.1 million , respectively with 2013 costs elevated due to adverse claims experience . insurance cost may experience rate increases during 2014 subject to market conditions and claims experience . since the company is generally unable to pass on such cost increases , any increase will need to be absorbed by existing operations . competition in all phases of its operations , the company encounters strong competition from a number of entities .
| results of operations - crude oil crude oil marketing revenues , operating earnings , depreciation and certain costs are as follows ( in thousands ) : replace_table_token_9_th supplemental volume and price information : replace_table_token_10_th ( 1 ) reflects the volume purchased from third parties at the field level of operations . crude oil revenues increased in 2013 relative to 2012 and in 2012 relative to 2011 consistent with increased field level purchase volumes as shown in the table above . volume increases resulted from new production established by the company 's customer base in the eagle ford shale trend of south texas beginning in 2011 , coupled with a new area of operation established in the bakken field of north dakota during 2013 . - crude oil โ field level operating earnings ( non gaap measure ) two significant factors affecting comparative crude oil segment operating earnings are inventory valuations and forward commodity contract ( derivatives or mark-to-market ) valuations . as a purchaser and shipper of crude oil , the company holds inventory in storage tanks and third-party pipelines . inventory sales turnover occurs approximately every three days , but the quantity held in stock at the end of a given period is reasonably consistent . as a result , during periods of increasing crude oil prices , the company recognizes inventory liquidation gains while during periods of falling prices , the company recognizes inventory liquidation and valuation losses . over time , these gains and losses tend to offset and have limited impact on cash flow . while crude oil prices fluctuated during 2013 and 2012 , the net impact yielded inventory valuation losses totaling $ 3,824,000 and $ 1,596,000 , respectively as compared to inventory liquidation gains totaling $ 3,021,000 for 2011. as of december 31 , 2013 , the company held 306,633 barrels of crude oil inventory at a composite average price of $ 90.06 per barrel .
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20 overview plug power inc. , or the company , is a leading provider of alternative energy technology focused on the design , development , commercialization and manufacture of hydrogen fuel cell systems used primarily for the material handling and stationary power market . we are focused on proton exchange membrane , or pem , fuel cell and fuel processing technologies , fuel cell/battery hybrid technologies , and associated hydrogen storage and dispensing infrastructure from which multiple products are available . a fuel cell is an electrochemical device that combines hydrogen and oxygen to produce electricity and heat without combustion . hydrogen is derived from hydrocarbon fuels such as liquid petroleum gas , or lpg , natural gas , propane , methanol , ethanol , gasoline or biofuels . plug power develops complete hydrogen delivery , storage and refueling solutions for customer locations . hydrogen can also be obtained from the electrolysis of water , or produced on-site at consumer locations through a process known as reformation . currently , the company predominantly obtains hydrogen by purchasing it from fuel suppliers for resale to customers . we provide and continue to develop commercially viable hydrogen and fuel cell product solutions to replace leadโacid batteries in material handling vehicles and industrial trucks for some of the world 's largest distribution and manufacturing businesses . we are focusing our efforts on industrial mobility applications ( forklifts and electric industrial vehicles ) at multiโshift high volume manufacturing and high throughput distribution sites where our products and services provide a unique combination of productivity , flexibility and environmental benefits . additionally , we manufacture and sell fuel cell products to replace batteries and diesel generators in stationary backup power applications . these products prove valuable with telecommunications , transportation and utility customers as a robust , reliable and sustainable power solution . our current products and services include : gendrive : gendrive is our hydrogen fueled pem fuel cell system providing power to material handling vehicles ; genfuel : genfuel is our hydrogen fueling delivery system ; gencare : gencare is our ongoing maintenance program for gendrive fuel cells , gensure products and genfuel products ; gensure : gensure ( formerly relion ) is our stationary fuel cell solution providing scalable , modular pem fuel cell power to support the backup and grid-support power requirements of the telecommunications , transportation , and utility sectors ; genkey : genkey is our turn-key solution combining either gendrive or gensure with genfuel and gencare , offering complete simplicity to customers transitioning to fuel cell power ; progen : progen is our fuel cell engine technology , under development for use in mobility and stationary fuel cell systems ; genfund : genfund is a collaboration with leasing organizations to provide cost efficient and seamless financing solutions to customers . we provide our products worldwide through our direct product sales force , and by leveraging relationships with original equipment manufacturers , or oems , and their dealer networks . 21 story_separator_special_tag serviced throughout the year is corresponding with the increase in revenue , as compared to the prior years . revenue did not increase as much as installed base due to the large concentration of units at customer locations . this leverage impacts pricing strategy . revenue โ power purchase agreements . revenue from ppas represents payments received from customers for power generated through the provision of equipment and service . the equipment and service can be associated with sale/leaseback transactions in which the company sells fuel cell systems and related infrastructure to a third-party , leases them back and operates them at customers ' locations who are parties to ppas with the company . alternatively , the company can retain the equipment and provide it to customers under ppas as leased property . at december 31 , 2016 , there were 25 genkey sites associated with ppas , as compared to 14 at december 31 , 2015 and four at december 31 , 2014. revenue from ppas for the year ended december 31 , 2016 increased $ 8.0 million or 139.4 % , to $ 13.7 million from $ 5.7 million for the year ended december 31 , 2015. the increase is due to the increased numbers of sites the company has deployed with these types of arrangements . revenue from ppas for the year ended december 31 , 2015 increased $ 3.6 million or 167.6 % , to $ 5.7 million from $ 2.1 million for the year ended december 31 , 2014. the increase is due to the increased numbers of sites the company has deployed with these types of arrangements . the ppa sales model was primarily launched in the second half of 2014. revenue โ fuel delivered to customers . revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the company from a third party . as part of the genkey solution , the company contracts with fuel suppliers to purchase liquid hydrogen , which is then sold to its customers . at december 23 31 , 2016 , there were 40 sites associated with fuel contracts , as compared to 22 at december 31 , 2015 and seven at december 31 , 2014. the sites generally are the same as those that had purchased hydrogen installations within the genkey solution . revenue associated with fuel delivered to customers for the year ended december 31 , 2016 increased $ 5.8 million or 115.1 % , to $ 10.9 million from $ 5.1 million for the year ended december 31 , 2015. the increase in revenue is due to an increase of 18 additional sites taking fuel deliveries in 2016 , compared to 2015. revenue associated with fuel delivered to customers for the year ended december 31 , 2015 increased $ 3.1 million or 159.1 % , to $ 5.1 million from $ 2.0 million for the year ended december 31 , 2014. the increase in revenue is due to an increase of 15 additional sites taking fuel deliveries in 2015 , compared to 2014. the company began selling story_separator_special_tag cost of revenue from services performed on fuel cell systems and related infrastructure for the year ended december 31 , 2015 increased $ 3.7 million , or 19.1 % , to $ 22.9 million from $ 19.3 million for the year ended december 31 , 2014. the increase in the cost is attributed to increasing costs of replacement parts , as well as labor and overhead for service personnel necessary to support these service and hydrogen site maintenance contracts . these increases are a direct result of a growing installed base of gendrive units , and the number of associated customers that have gencare and genfuel service contracts . at december 31 , 2015 there were 8,655 gendrive units under gencare contracts and 22 customer sites under genfuel contracts , as compared to 5,163 gendrive units under gencare contracts and 7 customer sites under genfuel contracts at december 31 , 2014. gross margin improved to ( 63.7 % ) in 2015 from ( 94.3 % ) in 2014 due to better leverage with the growing installed base and improved model design . cost of revenueโprovision for loss contracts related to service . during 2015 , the company recognized a $ 10.1 million provision for loss contracts related to service . this provision represents extended maintenance contracts that have projected costs over the remaining life of the contracts that exceed contractual revenues . during the year ended december 31 , 2016 , the company renegotiated one of its service contracts and replaced 96 of the older fuel cell systems in service at that particular customer . as a result , the projected costs over the remaining life of the amended contract were estimated to be reduced as compared to the previous estimate , resulting in a lower necessary accrual . the change in estimate was recorded as a gain within cost of revenue where the original charge was recorded . cost of revenue โ power purchase agreements . cost of revenue from ppas includes payments made to financial institutions for leased equipment and service used to fulfill the ppas , and depreciation of leased property . leased units are primarily associated with sale/leaseback transactions in which the company sells fuel cell systems and related infrastructure to a third-party , leases them back , and operates them at customers ' locations who are parties to ppas with the company . alternatively , the company can hold the equipment for investment and recognize the depreciation and service cost of the assets as cost of revenue from ppas . at december 31 , 2016 , there were 25 genkey sites associated with ppas , as compared to 14 at december 31 , 2015 and four at december 31 , 2014. cost of revenue from ppas for the year ended december 31 , 2016 increased $ 10.9 million , or 207.1 % , to $ 16.1 million from $ 5.3 million for the year ended december 31 , 2015. the increase was a result of the increase in the number of customer sites covered by these agreements . gross margin declined to ( 17.9 ) % in 2016 from 8.1 % in 2015 , due primarily to changes in financing pricing , depreciation of capitalized leased asset costs related to sites constructed in 2016 associated with capital leases , as well as costs to maintain them . cost of revenue from ppas for the year ended december 31 , 2015 increased $ 4.2 million , or 399.3 % , to $ 5.3 million from $ 1.1 million for the year ended december 31 , 2014. the increase was a result of the increase in the number of customer sites in which the company completed sale/leaseback transactions . gross margin declined to 8.1 % in 2015 from 50.8 % in 2014 , due to changes in financing pricing , as well as decreases in the timing difference between when systems were deployed at customer sites ( beginning of the revenue stream ) and when agreements with financial institutions were reached ( beginning expense recognition of lease payments ) . we began entering into ppas in the second half of 2014. cost of revenue โ fuel delivered to customers . cost of revenue from fuel delivered to customers represents the purchase of hydrogen from suppliers that ultimately is sold to customers . as part of the genkey solution , the company contracts with fuel suppliers to purchase liquid hydrogen and separately sells to its customers upon delivery . at december 31 , 2016 , there were 40 sites associated with fuel contracts , as compared to 22 at december 31 , 2015 and seven at 25 december 31 , 2014. the sites generally are the same as those which had purchased hydrogen installations within the genkey solution . cost of revenue from fuel delivered to customers for the year ended december 31 , 2016 increased $ 7.2 million , or 107.1 % , to $ 13.9 million from $ 6.7 million for the year ended december 31 , 2015. the increase is due to higher cost of fuel per kilogram in 2016 , as compared to 2015 , and a greater volume delivered to customer sites , as a result of an increase in the number of hydrogen installations completed under genkey agreements . gross margin improved to ( 27.0 % ) in 2016 from ( 31.9 % ) in 2015 , due primarily to a settlement of a claim with a gas supplier , and improved efficiencies in fuel usage . cost of revenue from fuel delivered to customers for the year ended december 31 , 2015 increased $ 4.5 million , or 203.8 % , to $ 6.7 million from $ 2.2 million for the year ended december 31 , 2014. the increase is due to higher volume of liquid hydrogen delivered to customer sites , as a result of an increase in the number of hydrogen installations completed under genkey agreements .
| results of operations revenue , cost of revenue , gross profit/ ( loss ) and gross margin for the years ended december 31 , 2016 , 2015 , and 2014 , was as follows ( in thousands ) : replace_table_token_4_th our primary sources of revenue are from sales of fuel cell systems and related infrastructure , services performed on fuel cell systems and related infrastructure , ppas , and fuel delivered to customers . revenue from sales of fuel cell systems and related infrastructure represents sales of our gendrive units , gensure stationary backup power units , as well as hydrogen fueling infrastructure . revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts . revenue from ppas primarily represents payments received from customers who make monthly payments to access the company 's genkey solution . revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the company from a third party . revenue โ sales of fuel cell systems and related infrastructure . revenue from sales of fuel cell systems and related infrastructure represents revenue from the sale of our fuel cells , such as gendrive units and gensure stationary backup power units , as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations . revenue from sales of fuel cell systems and related infrastructure for the year ended december 31 , 2016 decreased $ 38.0 million or 48.7 % , to $ 40.0 million from $ 78.0 million for the year ended december 31 , 2015. the company recognized revenue on 1,383 gendrive units during the year ended december 31 , 2016 , as compared to 3,634 during the year ended december 31 , 2015. an additional 2,605 units were deployed in 2016 and held as leased property because they were associated with sale/leaseback transactions accounted for as capital leases .
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โ on january 1 of each year , each then serving member of the science and technology committee shall be automatically granted stock options to purchase 2,022 shares of common stock . these stock options have a term of ten years and shall have an exercise price equal to 100 % of the fair market value of a share of common stock on the date of grant . โ on january 1 of each year , the chair of the science and technology committee shall be granted stock options to purchase an additional 3,033 shares of common stock . these stock options have a term of ten years and shall have an exercise price equal to 100 % of the fair market value of a share of common stock on the date of grant . all options granted under this policy are granted pursuant to the 2017 plan . 87 equity compensation outstanding equity awards at fiscal year-end table the following table sets forth information concerning the outstanding equity awards held by each of our named executive officers as of december 31 , 2020 : option awards stock awards name number of securities underlying unexercised options ( # ) exercisable number of securities underlying unexercised options ( # ) unexercisable equity incentive plan awards : number of securities underlying unexercised unearned options ( # ) option exercise price ( $ ) option expiration date number of shares or units of stock that have not vested ( # ) market value of shares or units of stock that have not vested ( $ ) equity incentive plan awards : number of unearned shares , units or other rights that have not vested ( # ) equity incentive plan awards : market or payout value of unearned shares , units or other rights that have not vested ( # ) anthony mack โ 40,450 โ 9.89 5/22/2030 โ โ โ โ chief executive officer 20,225 โ โ 9.89 5/18/2029 โ โ โ โ jeffrey gudin , md โ 30,338 โ 9.89 5/22/2030 โ โ โ โ chief medical officer 15,169 โ โ 9.89 5/18/2029 โ โ โ โ christopher chipman 10,112 30,338 โ 9.89 5/1/2030 โ โ โ โ chief financial officer michele linde 40,450 โ โ 9.89 5/15/2030 โ โ โ โ executive vp , 10,112 โ โ 9.89 5/18/2029 โ โ โ chief legal officer 5,056 โ โ 9.89 10/31/2029 โ โ โ 5,056 โ โ 9.89 7/20/2028 โ โ โ 88 securities authorized for issuance under equity compensation plans the following table provides information with respect to our compensation plans under which equity compensation was authorized as of december 31 , 2020. number of securities to be issued upon exercise of outstanding options , warrants and rights weighted average exercise price of outstanding options , warrants and rights number of securities remaining available for future issuance under equity compensation plans ( excluding securities reflected in column a ) plan category ( a ) ( b ) ( c ) ( 2 ) equity compensation plans approved by security holders ( 1 ) 486,101 $ 9.89 334,695 equity compensation plans not approved by security holders - - - total 486,101 334,695 ( 1 ) the amounts shown in this row include securities under the 2017 plan . ( 2 ) in accordance with the โ evergreen โ provision in the 2017 plan , an additional 188,709 shares were automatically made available for issuance on the first day of 2021 , which represents 6 % of the number of shares outstanding on december 31 , 2020 ; these shares are excluded from this calculation . employee benefits plans we currently provide broad-based health and welfare benefits that are available to all of our employees , including our named executive officers , including medical , dental , vision , life and disability insurance . limitation of directors liability and indemnification the delaware general corporation law authorizes corporations to limit or eliminate , subject to certain conditions , the personal liability of directors to corporations and their stockholder for monetary damages for breach of their fiduciary duties . our certificate of incorporation limits the liability of our directors to the fullest extent permitted by delaware law . in addition , we have entered into indemnification agreements with all of our directors and named executive officers whereby we have agreed to indemnify those directors and officers to the fullest extent permitted by law , including indemnification against expenses and liabilities incurred in legal proceedings to which the director or officer was , or is threatened to be made , a party by reason of the fact that such director or story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing at the end of this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read โ cautionary note regarding forward-looking statements โ and item 1a . risk factors of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview company overview we are a preclinical-stage pharmaceutical company focused on becoming a global leader in pain management by developing and delivering innovative non-opioid and non-addictive pharmaceutical products using new drug delivery systems and technology . story_separator_special_tag depending on the timing of payments to vendors and estimated services provided , we will record net prepaid or accrued expenses related to these costs . fair value of common stock and stock-based compensation stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period , which is generally the vesting period . the company 's policy permits the valuation of stock-based awards granted to non-employees to be measured at fair value at the grant date rather than on an accelerated attribution basis over the vesting period . determining the appropriate fair value of share-based awards requires the use of subjective assumptions , including the fair value of the company 's common shares , and for options , the excepted life of the option and expected share price volatility . the company uses the black-scholes option pricing model to value its option awards . the assumptions used in calculating the fair value of share-based awards represents management 's best estimates and involve inherent uncertainties and the application of management 's judgment . as a result , if factors change and management uses different assumptions , share-based compensation expense could be materially different for future awards . the expected life of options was estimated using the simplified method , as the company has historical information to develop reasonable expectations about future exercise patterns and post-vesting employment . 70 story_separator_special_tag make a loan to us under the paycheck protection program ( the โ ppp loan โ ) offered by the u.s. small business administration ( the โ sba โ ) in a principal amount of $ 72,100 pursuant to title 1 of the coronavirus aid , relief and economic security act ( the โ cares act โ ) . the ppp loan proceeds are available to be used to pay for payroll costs , including salaries , commissions , and similar compensation , group health care benefits , and paid leaves ; rent ; utilities ; and interest on certain other outstanding debt . the amount that will be forgiven will be calculated in part with reference to our full time headcount during the period ending october 31 , 2020. cash flows years ended december 31 , 2020 and 2019 the following table summarizes our cash flows from operating and financing activities : replace_table_token_4_th 73 operating activities for the year ended december 31 , 2020 , cash used in operations was $ 1,384,860 compared to $ 1,131,834 for the year ended december 31 , 2019. the increase in cash used in operations was primarily the result of the increase in net loss , offset by an increase in non-cash interest and stock-based compensation expense from 2019 , and an increase in accounts payable and accrued expense balances . financing activities cash provided by financing activities was $ 1,398,120 during the year ended december 31 , 2020 , attributable to $ 1,376,900 from the sale of 139,220 shares of our common stock and $ 72,100 in proceeds received from the issuance of a ppp loan offset by payment of deferred costs related to our initial public offering of $ 50,880. cash provided by financing activities was $ 1,125,000 during the year ended december 31 , 2019 , attributable to $ 625,000 from the sale of 63,203 shares of our common stock and $ 500,000 from the issuance of debt . future capital requirements we expect that our existing cash will be sufficient to fund our operations , future research and development , and general working capital through approximately november 2022. however , it is difficult to predict our spending for our product candidates prior to obtaining fda approval . moreover , changing circumstances may cause us to expend cash significantly faster than we currently anticipate , and we may need to spend more cash than currently expected because of circumstances beyond our control . our expectations regarding future cash requirements do not reflect the potential impact of any future acquisitions , mergers , dispositions , joint ventures or investments that we make in the future . we have no current understandings , agreements or commitments for any material acquisitions or licenses of any products , businesses or technologies . we may need to raise substantial additional capital in order to engage in any of these types of transactions . we expect to continue to incur substantial additional operating losses for at least the next several years as we continue to develop our product candidates and seek marketing approval and , subject to obtaining such approval , the eventual commercialization of our product candidates . if we obtain marketing approval for our product candidates , we will incur significant sales , marketing and outsourced manufacturing expenses . in addition , we expect to incur additional expenses to add operational , financial and information systems and personnel , including personnel to support our planned product commercialization efforts . we also expect to continue to incur significant costs to comply with corporate governance , internal controls and similar requirements applicable to us as a public company . our future use of operating cash and capital requirements will depend on many forward-looking factors , including the following : โ the initiation , progress , timing , costs and results of clinical trials for our product candidates ; โ the clinical development plans we establish for each product candidate ; โ the number and characteristics of product candidates that we develop or may in-license ; โ the terms of any collaboration agreements we may choose to execute ; โ the outcome , timing and cost of meeting regulatory requirements established by the dea , the fda , the ema or other comparable foreign regulatory authorities ; โ the cost of filing , prosecuting ,
| results of operations years ended december 31 , 2020 and 2019 operating expenses : replace_table_token_1_th general and administrative expenses increased by $ 344,977 , or 13 % , to $ 2,904,104 for the year ended december 31 , 2020 from $ 2,559,127 for the year ended december 31 , 2019. the increase was primarily the result of an increase of $ 795,497 in share-based compensation expense , offset by a decrease of $ 343,014 in professional fees and a decrease of $ 107,506 in other general and administrative expenses . research and development expenses increased by $ 668,874 , or 107 % , to $ 1,291,615 for the year ended december 31 , 2020 from $ 622,741 for the year ended december 31 , 2019. the increase was primarily the result of : i ) an increase of $ 617,236 related to pre-clinical studies , certain milestone payments , and pre-ind related work associated with envelta during the year ended december 31 , 2020 , ii ) an increase of $ 76,482 related mainly to pre-clinical work associated with epoladerm , and iii ) an increase of $ 86,525 in professional fees associated with all indications . the increase in research and development expenses was partially offset by a $ 105,122 decrease in pre-clinical work related to probudur during the year ended december 31 , 2020. as a result of the foregoing , our loss from operations for the year ended december 31 , 2020 was $ 4,195,719 , compared to a loss from operations of $ 3,181,868 for the year ended december 31 , 2019. other expenses : replace_table_token_2_th interest expense increased by $ 23,290 , or 19 % , to $ 147,934 for the year ended december 31 , 2020 from $ 124,644 for the year ended december 31 , 2019. the increase was primarily the result of an increase in the principal amount of outstanding notes payable of $ 228,960 due to rrd in the current year .
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the adjustments of $ 602 , $ 486 , and $ 947 for the years ended december 31 , 2015 , 2014 and 2013 , respectively , for the effective portion of the gain/loss on the derivatives is included as a component of other comprehensive income , net of taxes . the interest rate corridor instrument reduces variable interest rate risk starting march 1 , 2013 through december 20 , 2019 with a notional amount of $ 80,000 as of story_separator_special_tag the following discussion and analysis of our financial condition and results of operations for the years ended december 31 , 2015 and 2014 should be read in conjunction with our consolidated financial statements and related notes that appear in item 8 , consolidated financial statements and supplementary data . in addition to historical 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 elsewhere in this annual report on form 10-k , particularly in item 1a , risk factors and forward-looking statements . executive overview we are a comprehensive regionally accredited university that offers approximately 200 graduate and undergraduate degree programs and certificates across eight colleges both online and on ground at our approximately 200+ acre campus in phoenix , arizona , and onsite at facilities we lease and at facilities owned by third party employers . our undergraduate programs are designed to be innovative and meet the future needs of employers , while providing students with the needed critical thinking and effective communication skills developed through a christian , liberal arts foundation . we offer master and doctoral degrees in contemporary fields that are designed to provide students with the capacity for transformational leadership in their chosen industry , emphasizing the immediate relevance of theory , application , and evaluation to promote personal and organizational change . at december 31 , 2015 , we had approximately 74,500 students . at december 31 , 2015 , 79.6 % of our students were enrolled in our online programs , and , of our working adult students ( online and professional studies students ) , 47.8 % were pursuing masters or doctoral degrees . key trends , developments and challenges the following circumstances and trends present opportunities , challenges and risks . evolving postsecondary education market . we believe that there is a large number of traditional-aged students looking for a residential experience at an affordable , private , christian university . as a result of state funding challenges , most state universities are receiving less state subsidies and therefore have been forced to increase tuition , decrease the number of students they can accept and or make other changes that impact the student experience . some private universities also are facing enrollment challenges as a result of their high tuition costs . we also believe the number of non-traditional students who work , are raising a family , or are doing both while trying to earn a college degree continues to grow . the continued economic environment in the u.s. , however , has caused an increased number of potential students and or their parents to consider the cost of education as a primary factor in choosing the school that they will attend . given these trends , we believe that many individuals will be attracted to our high quality academic programs at affordable tuition rates . we also believe that competition for students continues to increase . we compete primarily with traditional public and four-year degree-granting regionally accredited colleges and universities and other proprietary degree-granting regionally accredited schools . an increasing number of traditional colleges , universities and community colleges are offering distance learning and other online education programs , including programs that are geared towards the needs of working adult students . this trend has been accelerated by private companies that provide and or manage online learning platforms for traditional colleges and universities . as the proportion of traditional colleges and universities providing alternative learning modalities increases , we face increasing competition for students from such institutions , including those with well-established reputations for excellence . regulation and oversight . we are subject to extensive regulation by federal and state governmental agencies and accrediting bodies . in particular , the higher education act of 1965 , as amended ( the ยhigher education actย ) , and the regulations promulgated thereunder by the department of education subject us to significant regulatory scrutiny on the basis of numerous standards that schools must satisfy in order to participate in the various federal student financial assistance programs under title iv of the higher education act . see item 1. business ย regulation . recent regulations have imposed new reporting and disclosure requirements that have caused increased administrative burden and costs and may have a negative effect on our growth and enrollments . in addition , in recent years , there has been increased focus by congress on the role that proprietary educational institutions play in higher education and various proposals to modify the laws to which proprietary educational institutions are subject . we can not predict what legislation , if any , may result from these congressional proposals or what impact any such legislation might have on the proprietary education sector generally or our business in particular . to the extent that any laws or regulations are adopted , or other administrative actions are taken , that limit our participation in title iv programs or the amount of student financial aid for which the students at our institutions are eligible , our enrollments , revenues and results of operation could be materially and adversely affected . 47 fiscal year 2015 events we experienced the following significant events in 2015 : enrollment , net revenue , operating income growth with no increase in ground tuition rates . we achieved enrollment growth of 9.9 % during the fiscal year ended december 31 , 2015 , as ground enrollment increased 19.2 story_separator_special_tag our faculty , staff and students also go out into our surrounding neighborhoods to participate in university sponsored programs such as serve the city , canyon kids , 12 months of service and the run to fight children 's cancer . 48 revenue and enrollment net revenue consists principally of tuition , room and board charges attributable to students residing on our ground campus , application and graduation fees , and fees from educational resources such as access to online materials or commissions we earn from bookstore and publication sales , less scholarships . factors affecting our net revenue include : ( i ) the number of students who are enrolled and who remain enrolled in our courses ; ( ii ) the number of credit hours per student ; ( iii ) our degree and program mix ; ( iv ) changes in our tuition rates ; ( v ) the timing of our ground traditional campus semesters ; ( vi ) the amount of the scholarships that we offer ; and ( vii ) the number of students housed in , and the rent charged for , our on-campus student apartments and dormitories . we define enrollment as individual students who attended a course during the last two months of the calendar quarter . we offer three 15-week semesters in a calendar year with one start available per semester for our traditional ground students . online and professional studies students have more frequent class starts in five , seven , eight and sixteen-week courses through the calendar year . enrollments are a function of the number of continuing students at the beginning of each period and new enrollments during the period , which are offset by graduations , withdrawals , and inactive students during the period . inactive students for a particular period include students who are not registered in a class and , therefore , are not generating net revenue for that period , but who have not withdrawn from grand canyon university . we believe that the principal factors that affect our enrollments and net revenue are the number and breadth of the programs we offer ; the attractiveness of our program offerings and learning experience , particularly for career-oriented adults who are seeking pay increases or job opportunities that are directly tied to higher educational attainment ; the effectiveness of our marketing , recruiting and retention efforts , which is affected by our brand strength and price point ; the quality of our academic programs and student services ; the convenience and flexibility of our online delivery platform ; the availability and cost of federal and other funding for student financial aid ; the seasonality of our net revenue , which is enrollment driven and is typically lowest in our second fiscal quarter and highest in our fourth fiscal quarter ; and general economic conditions , particularly as they might affect job prospects in our core disciplines . the following is a summary of our student enrollment at december 31 , 2015 , 2014 , and 2013 by degree type and by instructional delivery method : replace_table_token_9_th replace_table_token_10_th ( 1 ) enrollment represents individual students who attended a course during the last two months of the calendar quarter . included in enrollment at december 31 , 2015 , 2014 and 2013 are students pursuing non-degree certificates of 679 , 585 , and 487 , respectively . ( 2 ) includes 6,302 , 5,570 and 4,285 students pursuing doctoral degrees at december 31 , 2015 , 2014 and 2013 , respectively . ( 3 ) as of december 31 , 2015 , 2014 and 2013 , 47.8 % , 46.0 % and 43.5 % , respectively , of our working adult students ( online and professional studies students ) were pursuing graduate or doctoral degrees . ( 4 ) includes our traditional on-campus students , as well as our professional studies students . 49 for the 2014-15 academic year ( the academic year begins in may ) , our prices per credit hour range from $ 350 to $ 465 for undergraduate online and professional studies courses , $ 325 to $ 600 for graduate online courses , $ 630 for doctoral online programs , and $ 688 for undergraduate courses for ground students . for our active duty and active reserve online and professional studies students , our prices per credit hour are $ 250 for undergraduate , $ 400 for graduate courses and $ 599 for doctoral courses . the overall price of each course varies based upon the number of credit hours per course ( with most courses representing four credit hours ) , the degree level of the program , and the discipline . in addition , we charge a fixed $ 8,250 ยblock tuitionย for undergraduate ground students taking between 12 and 18 credit hours per semester , with an additional $ 688 per credit hour for credits in excess of 18. a traditional undergraduate degree typically requires a minimum of 120 credit hours . the minimum number of credit hours required for a master 's degree and overall cost for such a degree varies by program , although such programs typically require approximately 36 credit hours . the doctoral program requires approximately 60 credit hours . a tuition increase of approximately 1 % was implemented for the majority of online programs in september 2015. the university has not raised tuition for its traditional ground programs in seven years . based on current tuition rates , tuition for a full program would generally equate to between $ 15,450 and $ 37,000 for an online master 's program , between $ 42,600 and $ 56,400 for a full four-year online bachelor 's program , $ 38,400 for a full doctoral program , and approximately $ 66,000 for a full four-year bachelor 's program taken on our ground campus . the tuition amounts referred to above assume no reductions for transfer credits or scholarships , which many of our students utilize to reduce their total program costs .
| results of operations the following table sets forth statements of operations data as a percentage of net revenue for each of the periods indicated : replace_table_token_11_th year ended december 31 , 2015 compared to year ended december 31 , 2014 net revenue . our net revenue for the year ended december 31 , 2015 was $ 778.2 million , an increase of $ 87.1 million , or 12.6 % , as compared to net revenue of $ 691.1 million for the year ended december 31 , 2014. this increase was primarily due to an increase in ground and online enrollment and , to a lesser extent , an increase in room and board and other student fees , partially offset by an increase in institutional scholarships . we did not raise tuition in any of our programs for our 2014-15 academic year . a tuition increase of approximately 1 % was implemented for the majority of our online programs in september 2015. we have not raised our tuition for our traditional ground program in seven years . end-of-period enrollment increased 9.9 % between december 31 , 2015 and 2014 , as ground enrollment increased 19.2 % and online enrollment increased 7.7 % over the prior year . the majority of the ground enrollment growth between years was residential students at our ground traditional campus in phoenix , arizona . we attribute the significant growth in our ground enrollment between years to our increasing brand recognition and the value proposition that our ground traditional campus affords to traditional-aged students and their parents . after scholarships , our ground traditional students pay for tuition , room , board , and fees , often half to a third of what it costs to attend a private , traditional university in another state and an amount comparable to what it costs to attend a public university .
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instead , an entity will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount . the standard is effective for fiscal 2020 , but the corporation has early adopted the standard in 2017. the corporation performed its annual test for goodwill impairment during the fourth quarter of fiscal 2017 under the guidance of this standard . see `` note 6. goodwill and other intangible assets `` in the notes to consolidated financial statements for further information . 50 note 3. restructuring and impairment charges restructuring costs , goodwill and long-lived asset impairments , and a valuation allowance recorded in the consolidated statements of comprehensive income are as follows ( story_separator_special_tag the following discussion of the corporation 's historical results of operations and of its liquidity and capital resources should be read in conjunction with the consolidated financial statements of the corporation and related notes . statements that are not historical are forward-looking and involve risks and uncertainties . see `` item 1a . risk factors '' and the forward-looking statements section within `` item 1. business '' for further information . overview the corporation has two reportable segments : office furniture and hearth products . the corporation is a leading global office furniture manufacturer and the leading manufacturer and marketer of hearth products . the corporation utilizes a split and focus , decentralized business model to deliver value to customers via various brands and selling models . the corporation is focused on growing its existing businesses while seeking out and developing new opportunities for growth . 2017 was a year of transition . the corporation dealt with rapid and significant market changes while taking on large-scale transformations of the operational network , fulfillment models , and the business portfolio . the corporation believes the investments have positioned the business to drive new levels of productivity and take advantage of improving market demand . the corporation 's most significant investment , the business systems transformation ( `` bst '' ) initiative , is a key enabler for long-term value creation . final implementation stages of bst began in february 2018. other initiatives around operational transformations progressed well and are delivering a more stable network while lowering costs . the corporation remains committed to driving long-term profitable growth through productivity improvements and strong financial returns on investments . net sales for 2017 were $ 2,176 million , a decrease of 1.3 percent , compared to net sales of $ 2,203 million in 2016 . the change was driven by a decrease in sales in the office furniture segment , partially offset by an increase in sales in the hearth products segment . the acquisitions and divestitures of small office furniture companies resulted in a net decrease in sales of $ 92.2 million compared to 2016 . net income attributable to the corporation in 2017 was $ 89.8 million , an increase of 4.9 percent , compared to net income of $ 85.6 million in 2016 . the increase was primarily driven by the one-time tax benefit of $ 44.8 million related to new tax legislation , lower incentive based compensation , and the impact of stock price change on deferred compensation . these factors were partially offset by strategic investments , input cost inflation , unfavorable product mix , higher restructuring and transition costs , $ 20.9 million of goodwill and intangible impairment charges primarily due to the closure of the paoli office furniture brand , and a $ 10.3 million valuation allowance of a long-term note receivable . story_separator_special_tag in 2016 . the change was primarily driven by the impairment charges recorded in conjunction with the closure of the paoli office furniture brand , the valuation allowance recorded against a long-term note receivable , strategic investments , and input cost inflation , partially offset by higher sales volume , lower incentive based compensation , and the impact of stock price change on deferred compensation . for 2016 , operating income decreased 18.3 percent or $ 30.0 million to $ 133.7 million compared to $ 163.7 million in 2015 . the change was primarily driven by the non-cash loss on the sale of artcobell and lower volume , partially offset by strong operational performance and cost reductions . income taxes the provision for income taxes reflected an effective tax rate as follows : replace_table_token_4_th the decrease in the current year effective tax rate is primarily driven by the enactment of the tax cuts and jobs act ( the `` act '' ) . the effective tax rate of the corporation without the act would have been 36.2 percent for the year . the increased rate for the year without the act is primarily driven by the establishment of valuation allowances on certain deferred tax assets partially offset by the benefits of new treatment for equity based compensation under asu no . 2016-09 , improvements to employee share-based payment accounting , and a permanent deduction for a charitable contribution of property . the effective tax rate was higher in 2016 than 2015 primarily due to the one-time release of tax contingency reserves for personal goodwill in 2015 . see recently adopted accounting standards in `` note 2. summary of significant accounting policies '' in the notes to consolidated financial statements for further information about asu no . 2016-09. see `` note 8. income taxes '' in the notes to consolidated financial statements for further information relating to income taxes . net income attributable to hni corporation net income attributable to the corporation was $ 89.8 million or $ 2.00 per diluted share in 2017 compared to $ 85.6 million or $ 1.88 per diluted share in 2016 and $ 105.4 million or $ 2.32 per diluted share in 2015 . story_separator_special_tag specific items incurred include severance , accelerated depreciation , and production move costs . of these charges , $ 5.8 million was included in cost of sales . the hearth products segment also recorded a $ 6.0 million nonrecurring gain from the sale and license of an intangible asset and a $ 0.8 million gain on the sale of a closed facility . in 2016 , the hearth products segment recorded $ 5.5 million of restructuring costs and $ 2.2 million of transition costs associated with the previously announced closure of the paris , kentucky hearth manufacturing facility . specific items incurred include severance , accelerated depreciation , and production move costs . of these charges , $ 5.5 million was included in cost of sales . in 2015 , the hearth products segment recorded $ 0.9 million of restructuring costs and $ 1.4 million of transition costs related to acquisition integration and the decision to exit a small line of business . of these charges , $ 2.2 million was included in cost of sales . liquidity and capital resources cash flow โ operating activities cash generated from operating activities in 2017 totaled $ 133.1 million compared to $ 223.4 million generated in 2016 . the decrease was driven by lower operating profits and working capital changes . changes in working capital balances resulted in a $ 29.4 million use of cash in 2017 compared to a $ 17.4 million source of cash in the prior year . cash generated from operating activities in 2015 totaled $ 173.4 million and changes in working capital balances resulted in a $ 28.1 million use of cash . the use of cash related to working capital changes in 2017 was primarily driven by strategic investments in inventory and lower incentive compensation accruals . the source of cash related to working capital changes in 2016 was primarily driven from lower accounts receivable of $ 11.2 million due to sales timing and higher accounts payable and accrued expense balances of $ 11.1 million due to timing of payments . this was partially offset by uses of cash for strategic investments in inventory . the corporation places special emphasis on management and control of working capital , including accounts receivable and inventory . management believes recorded trade receivable valuation allowances at the end of 2017 are adequate to cover the risk of potential bad debts . allowances for non-collectible trade receivables , as a percent of gross trade receivables , totaled 0.7 percent , 0.9 percent , and 1.7 percent at the end of fiscal years 2017 , 2016 , and 2015 , respectively . the corporation 's inventory turns were 8.9 , 11.6 , and 11.6 , for fiscal years 2017 , 2016 , and 2015 , respectively . 25 cash flow โ investing activities capital expenditures , including capitalized software , were $ 127.4 million in 2017 , $ 119.6 million in 2016 , and $ 115.0 million in 2015 . these expenditures continue to focus on machinery , equipment , and tooling required to support new products , continuous improvements , and cost savings initiatives in manufacturing processes , as well as the implementation of new integrated information systems to support business systems transformation . the corporation anticipates capital expenditures for 2018 to total $ 75 million to $ 85 million , primarily related to new products and operational process improvements driven by rapid continuous improvement . in 2016 , the investing activities reflected a net cash outflow of $ 34.3 million related to the acquisition of ofm , an office furniture company , and also a small office furniture dealership that offered strategic value to the corporation . refer to `` note 4. acquisitions and divestitures '' in the notes to consolidated financial statements for additional information . cash flow โ financing activities long-term debt - the corporation maintains a revolving credit facility as the primary source of committed funding from which the corporation finances its planned capital expenditures , strategic initiatives , and seasonal working capital needs . cash flows included in financing activities represent periodic borrowings and repayments under the revolving credit facility . see `` note 7. long-term debt '' in the notes to consolidated financial statements for further information . dividend - the corporation is committed to maintaining and or modestly growing the quarterly dividend . cash dividends declared and paid per share are as follows ( in dollars ) : replace_table_token_7_th the last quarterly dividend increase was from $ 0.275 to $ 0.285 per common share effective with the june 1 , 2017 dividend payment for shareholders of record at the close of business on may 19 , 2017. the average dividend payout percentage for the most recent three-year period has been 57 percent of prior year earnings or 26 percent of prior year cash flow from operating activities . stock repurchase - the corporation 's capital strategy related to stock repurchase is focused on offsetting the dilutive impact of issuances for various compensation related matters . the corporation may elect to opportunistically purchase additional shares based on excess cash generation and or share price considerations . during 2017 , the corporation repurchased 1,462,936 shares of its common stock at a cost of approximately $ 58.9 million , or an average price of $ 40.25 per share . as of december 30 , 2017 , there was a payable of $ 1.4 million reflected in `` accounts payable and accrued expenses '' in the consolidated balance sheets relating to shares repurchased but not yet settled . the board authorized $ 200 million on november 9 , 2007 and an additional $ 200 million on november 7 , 2014 for repurchases of the corporation 's common stock . as of december 30 , 2017 , approximately $ 78.0 million of this authorized amount remained unspent . during 2016 , the corporation repurchased 1,082,938 shares of its common stock at a cost of approximately $ 55.8 million , or an average price of $ 51.55 per share .
| results of operations the following table presents certain key highlights from the results of operations ( in thousands ) : replace_table_token_3_th 21 net sales for 2017 , consolidated net sales decreased 1.3 percent or $ 27.6 million to $ 2,175.9 million compared to $ 2,203.5 million in 2016 . the change was driven by a decrease in sales in the office furniture segment , partially offset by an increase in sales in the hearth products segment . office furniture segment sales were down due to a decline in the supplies-driven business combined with a $ 92.2 million negative net impact of acquisitions and divestitures of small office furniture companies . this decrease in office furniture was partially offset by an increase in the north american contract business . the hearth products segment saw an increase in the new construction business due to growth in single family housing and an increase in the retail business due to growth in pellet appliance demand . for 2016 , consolidated net sales decreased 4.4 percent or $ 100.9 million to $ 2,203.5 million compared to $ 2,304.4 million in 2015 . the change was driven by a decrease in sales across both the office furniture and hearth products segments . office furniture segment sales were down due to strategic portfolio moves and a challenging market environment , partially offset by a $ 27.2 million positive net impact of acquisitions and divestitures of small office furniture companies . the hearth products segment saw mixed results as solid growth in new construction was more than offset by declines in the retail business due to comparatively low energy prices and unseasonably warm weather .
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we are recovering the ctcs , which relate to natural gas properties that we removed from regulation on november 1 story_separator_special_tag results of operations as a result of our restructuring efforts , we have evaluated our operations to determine which segments should be included in continuing or discontinued operations . because the sale of our utility business remains subject to shareholder approval , we have included the results of operations , financial position , and cash flows of our electric ( including colstrip unit 4 ) and natural gas utility business in continuing operations . we plan to schedule a special meeting of our shareholders in the second or third quarter 2001 to consider and vote on the sale and other matters . we have not afforded continental energy discontinued operations accounting treatment since we have historically reported colstrip unit 4 with continental energy as the independent power group segment . although we sold continental energy on february 21 , 2001 , the sale of our utility business includes colstrip unit 4. consequently , we have reflected continental energy activity in continuing operations for all periods presented . as a result of our board of directors ' approval to enter into definitive agreements with respect to our former oil and natural gas and our coal operations , we have applied discontinued operations accounting treatment to these operations , resulting in the following : we have separately reported net income after income taxes from oil and natural gas and coal operations in income from discontinued operations for all periods presented to reflect the reclassification of these operations as discontinued . on our consolidated balance sheet at december 31 , 2000 , no balances exist with respect to our former oil and natural gas operations , which we sold on october 31 , 2000 , and we have netted assets and liabilities of our discontinued coal operations in `` current assets , '' under `` investment in discontinued operations . '' we have reported cash flows of oil and natural gas and coal operations as `` net cash provided by ( used for ) discontinued operations '' - whether segregated by operating , investing , or financing activities . our planned restructuring is expected to transform our company from a diversified electric and natural gas utility business to a national telecommunications transport services business . because this restructuring remains subject to various approvals , we can provide no assurance that it will occur in the timeframe contemplated . for additional information on the status of the sales of our energy businesses and our application of discontinued operations accounting to our former oil and natural gas operations and coal operations , see note 2 , `` decision to sell energy businesses . '' net income per share of common stock consolidated net income available for common stock was $ 195,801,000 in 2000 , compared with $ 146,656,000 in 1999 , and $ 161,930,000 in 1998. the following table shows the sources of consolidated net income on a per-share ( basic ) basis for 2000 , 1999 , and 1998 and each source 's percentage contribution to consolidated earnings per share . replace_table_token_5_th 1 2000 figures for discontinued operations include gain on sale of discontinued oil and natural gas operations . 2000 compared with 1999 story_separator_special_tag additional federal communications commission rulemaking and , therefore , we are unable to predict the ultimate effect of this regulation on our business . telecommunications services remain subject to regulation at the federal , state , local , and international levels . these regulations affect us and our existing and potential customers . delays in receiving required regulatory approvals or in completing interconnection agreements with local exchange carriers may have a material adverse effect on us . in addition , many regulatory actions are underway or being contemplated by federal , state , local , and international authorities . these future legislative , judicial , and regulatory agency actions could increase our costs , causing the loss of customers and revenues , in addition to impeding or prohibiting our growth . utility operations weather as measured by heating degree-days , temperatures in 2000 for our service territory were 10 percent colder than 1999 and level with the historic average . temperatures in 1999 were 3 percent warmer than 1998 and 9 percent warmer than the historic average . accounting for the effects of regulation we apply statement of financial accounting standards ( sfas ) no . 71 , `` accounting for the effects of certain types of regulation , '' to our regulated operations . pursuant to this pronouncement , we recognize certain expenses and credits as they are reflected in revenues collected through rates established by cost-based regulation . changes in regulation or changes in the competitive environment could result in our not meeting the criteria of sfas no . 71. if we were to discontinue application of sfas no . 71 for some or all of our regulated operations , we would have to eliminate the related regulatory assets and liabilities from the balance sheet and include the associated expenses and credits in income in the period when the discontinuation occurred , unless recovery of those costs was provided through rates charged to those customers in portions of the business that were to remain regulated . we received proceeds in excess of book value for the sale of our generating assets and our previously regulated natural gas properties and are carrying the excess proceeds as a regulatory liability on the consolidated balance sheet . for additional information on our tier ii filing , see note 5 , `` deregulation , regulatory matters , and 1999 sale of electric generating assets . '' the electric act identifies regulatory assets and deferred charges that exist because of regulatory practices , as well as above-market costs associated with qf contracts , as recoverable transition costs . based upon the anticipated recovery of these costs , we believe that discontinuing regulatory accounting treatment would not have a material adverse effect on our future consolidated financial position , results of operations , or cash flows . story_separator_special_tag while the decrease in price under the new agreement effectively decreased our `` sales to other utilities '' category , this decrease was offset in the `` other '' revenues category from the recognition of revenues related to the prepayment over the remaining term of the agreement . other other revenues increased mainly because of increased revenues from the ladwp $ 106,000,000 prepayment discussed above , instruments relating to the long-term power supply agreements discussed in note 13 , `` contingencies , '' ancillary services revenues from our choice customers , and third-party transmission revenues from energy sales in the secondary market . prior to the generation sale , our former affiliate , mpt & m , sold this energy in the secondary market , using our lines to transmit the energy across our service territory . intersegment intersegment revenues decreased principally because , as discussed above , mpt & m no longer sells energy in the secondary market . expenses power supply expenses for the electric utility increased mainly because of increased purchased power costs required to supply electric energy to our core customers , along with a higher average price for wholesale power under a purchase agreement that we use mainly to supply an industrial customer . a decrease in purchased power resulting from customers choosing other suppliers and from decreased fuel expenses because we no longer purchase fuel to operate the generating plants partially offset this increase . our agreements to supply electric energy to duke energy trading & marketing ( detm ) and puget sound energy ( puget ) subject us to the possibility of unrecoverable losses because , to fulfill our supply obligations , we could have to purchase electric energy at market-based rates . in addition , our agreements to supply electric energy to several large industrial customers contain fixed-price terms and , therefore , subject us to the possibility of unrecoverable losses . for general information regarding the commodity price risk and potential adverse effects that we face as a result of our contractual commitments , see item 7a , `` quantitative and qualitative disclosures about market risk , '' in the `` other-than-trading instruments '' section , under `` commodity price exposure . '' for specific information regarding how the detm and puget agreements expose us to commodity price risk , see item 7a , in the `` commodity price exposure '' section , under `` colstrip unit 4 . '' long-term power supply agreements , primarily an agreement with a large industrial customer , expose us to commodity price risk . that agreement obligates us to deliver to our customer one half of its electric energy at a fixed price and the remainder at an index-based price with a cap . when the agreement expires at the end of 2002 , the customer has an option to extend the agreement through 2004. if the customer exercises this option , however , only index-based prices with no cap would apply during the extension period . until the end of 2002 , we must supply this and other industrial customers with electric energy that we purchase through an agreement indexed to the mid-columbia ( mid-c ) market . as a result , we are exposed to the risk that electric energy we purchase at mid-c rates could be higher than the fixed sales rates that we receive pursuant to our power supply agreements . for more specific information concerning the commodity price risk and potential adverse effects arising from our long-term power supply agreements , see item 7a , in the `` commodity price exposure '' section , under `` large industrial customers , '' and note 13 , `` contingencies , '' in the `` long-term power supply agreements '' section . transmission and distribution expenses decreased primarily because , as discussed above , we are no longer selling surplus energy generated by us in the secondary markets . as a result , we did not incur the costs associated with using other utility companies ' lines outside our service territory to transmit this energy . sg & a expenses decreased approximately $ 11,700,000 mainly due to a decrease in regulatory amortizations related to the generation sale , decreased costs relating to the enterprise resource planning ( erp ) information system and the enterprise customer-care ( ecc ) information system , decreased costs for public-purpose programs in accordance with the universal system benefits charge ( usbc ) requirements of montana 's 1997 electric act , and decreased miscellaneous administrative items . we collect the costs associated with the public-purpose programs through a separate component of rates . taxes other than income taxes and depreciation expense decreased as a result of the sale of our electric generating assets . natural gas utility the following table categorizes revenues and volumes related to our natural gas utility . replace_table_token_10_th revenues all of our former large industrial and large commercial customers have now chosen other commodity suppliers . while we no longer supply the natural gas for those customers , we still earn transportation revenues from moving their natural gas through our pipelines . `` general business revenues , '' excluding gas-supply cost revenues , increased mainly because of a rate increase effective april 1 , 2000 and an interim rate increase effective november 28 , 2000. in addition , a weather-related increase in volumes sold and customer growth increased revenues . for additional information on our natural gas psc filings , see note 5 , `` deregulation , regulatory matters , and 1999 sale of electric generating assets . '' expenses expenses , excluding gas-supply costs , increased chiefly because of regulatory amortizations and other miscellaneous administrative items . continental energy continental energy 's income from operations decreased approximately $ 1,200,000 mainly due to increased sg & a expenses resulting chiefly from implementation of the erp information system . other operations revenues and o & m expenses in other operations decreased primarily because these operations no longer reflect the electric trading activities of mpt & m .
| consolidated results net income from continuing operations for 2000 decreased when compared with 1999. while our telecommunications and natural gas utility operations had improved operating results , and `` other income - net '' increased as a result of gains recognized by continental energy from its unconsolidated investments , decreased income from electric utility operations more than offset these improvements . we now classify all earnings from our unconsolidated investments in `` other income - net . '' we previously reported these earnings separately in revenues under `` earnings from unconsolidated investments '' and have reclassified all amounts from prior periods to reflect this change . income from our telecommunications operations for 2000 nearly doubled when compared with 1999 , increasing approximately 93 percent . our june 30 , 2000 acquisition contributed substantially to increased revenues . for 2000 , income from electric utility operations decreased approximately 84 percent when compared with 1999 , primarily because of the effects of the december 1999 sale of our electric generating assets . income from natural gas utility operations increased approximately 71 percent as compared to 1999 , mainly due to an increase in rates and a weather-related increase in volumes sold . revenues and expenses in other operations decreased principally because these operations no longer reflect the electric trading and marketing activities of our former affiliate , the montana power trading & marketing ( mpt & m ) , which was sold to pancanadian . interest expense decreased mainly because of the net retirement of long-term debt in 1999 and early 2000 , the effects of which were partially offset by a reversal of interest expense in the fourth quarter 1999 related to an environmental liability .
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on the anniversary date on which the participant was paid in accordance with his or her election ( the โ payment date โ ) , the company determined , for tax withholding and basis purposes , the value of each participant 's amount for which payment story_separator_special_tag the following discussion and analysis is related to our financial condition and results of operations for the three years ended december 31 , 2016. this information should be read in conjunction with item 6 โ โ selected financial data โ and our consolidated financial statements and related notes thereto beginning on f-1 of this form 10-k. statement of forward-looking information certain statements in the section are โ forward-looking statements โ . you should read the information in โ cautionary statement regarding forward-looking statements โ set forth before part i of this report above for more information about our presentation of information . 56 background we are a specialty pharmaceutical company headquartered in philadelphia , pennsylvania and engaged in the clinical development of new drug therapies based on natural immune system enhancing technologies for the treatment of viral and immune based disorders . we were founded in the early 1970s doing contract research for the national institutes of health . since that time , we have established a strong foundation of laboratory , pre-clinical and clinical data with respect to the development of natural interferon and nucleic acids to enhance the natural antiviral defense system of the human body and to aid the development of therapeutic products for the treatment of certain chronic diseases . we have reported net income only from 1985 through 1987. since 1987 , we have incurred , as expected , substantial operating losses due to our conducting research and development programs . we have been reexamining our fundamental priorities in terms of direction , corporate culture and our ability to fund operations . as a result , there have been significant changes at the company in the past year . as noted below , we have made several changes to the company 's executive management team to provide effective and competent leadership that , management believes , will properly position the company to achieve its commercial goals and increase stockholder value . recent actions include aggressively pursuing international sales of clinical grade materials and implementing a strong financial austerity plan . we are committed to a focused business plan oriented toward finding senior co-development partners with the capital and expertise needed to commercialize the many potential therapeutic aspects of our experimental drug , ampligenยฎ , and our approved drug alferonยฎ . management 's primary objectives are to create stockholder value and deliver much needed therapies to patients . fair value in connection with the equity financing in august 2016 , we issued warrants ( the โ warrants โ ) that are single compound derivatives containing both an embedded right to obtain stock upon exercise ( a โ call โ ) and a series of embedded rights to settle the warrants for cash upon the occurrence of certain events ( each , a โ put โ ) . generally , the put provisions allow the warrant holders liquidity protection ; the right to receive cash in certain situations where the holders would not have a means of readily selling the shares issuable upon exercise of the warrants ( e.g. , where there would no longer be a significant public market for our common stock ) . however , because the contractual formula used to determine the cash settlement value of the embedded put requires use of certain assumptions , the cash settlement value of the embedded put can differ from the fair value of the unexercised embedded call option at the time the embedded put option is exercised . we recompute the fair value of the warrants at the end of each quarterly reporting period . such value computation includes subjective input assumptions that are consistently applied each period . if we were to alter our assumptions or the numbers input based on such assumptions , the resulting fair value could be materially different . 57 story_separator_special_tag open-label treatment protocol , ( โ amp-511 โ ) , that allows patient access to ampligenยฎ for treatment in an open-label safety study . 60 production costs production costs were approximately $ 1,598,000 and $ 1,251,000 , respectively , for the year ended december 31 , 2015 and 2014. this increase of approximately $ 347,000 or 28 % was primarily due to charges to inventory of $ 117,000 resulting from vials removed from inventory for testing purposes and losses incurred during the manufacturing process . the remaining increase in production costs of $ 230,000 was mainly due to an increase in facility costs related to the manufacturing of alferon n injectionยฎ . research and development costs overall research and development ( โ r & d โ ) costs for the year ended december 31 , 2015 were approximately $ 8,038,000 as compared to $ 8,988,000 for the same period a year ago , reflecting a decrease of approximately $ 950,000 or 11 % . the primary reason for the decrease in research and development costs was due to a decrease in clinical trial costs of $ 122,000 associated with the conclusion of our university of washington study in 2014 utilizing ampligenยฎ as an adjuvant in optimally treated breast cancer patients as data from these patients was evaluated and resources were directed to other projects , a decrease in bonus charges to executive officers of $ 628,000 , a decrease in charges of $ 228,000 associated with the abandonment of patents and a decrease in research and development costs of $ 131,000 associated with ampligenยฎ . this was offset by an increase in stability testing and pre-production costs related to the initiation of manufacturing of alferon n injectionยฎ of $ 232,000 during the period . story_separator_special_tag in this regard , due to the repair issues mentioned above within our nj facility and the high cost estimates to bring the facility back online , we most likely will need additional funds to finance the revalidation process in our facility to initiate commercial manufacturing , thereby readying ourselves for an fda pre-approval inspection . however , there is no assurance that such financing will be available . we have been reexamining our fundamental priorities in terms of direction , corporate culture and our ability to fund operations . as a result , there have been significant changes at the company in the past few months . the ceo of the company was terminated and the board of directors has made several changes to the company 's executive management team to provide effective and competent leadership that , management believes , will properly position the company to achieve its commercial goals and increase stockholder value . recent actions include aggressively pursuing international sales of clinical grade materials and implementing a strong financial austerity plan . we are committed to a focused business plan oriented toward finding senior co-development partners with the capital and expertise needed to commercialize the many potential therapeutic aspects of its experimental drug and its approved drug alferonยฎ . a co-development partner may help in the acceleration of the commercialization of many of our potential experimental drugs as they have access to additional resources and capital ; however , there can be no assurance that such co-development partnerships will be on acceptable terms , or that such partnerships , will be acceptable from a profitability standpoint . management 's primary objectives are to create stockholder value and deliver much needed therapies to patients . 63 in 2015 , mr. equels waived his right under his employment agreement to any future payment of any incentive bonus related to the sale of the company 's stock or other securities by , or on behalf of , the company pursuant to the maxim equity distribution agreement or any similar or successor atm equity distribution agreement . mr. equels provided this waiver as part of the litigation settlements in 2016 as well as in an effort to preserve cash and to help the company to ensure its short term commercialization goals . on january 26 , 2016 , the board , based on the recommendation of its compensation committee , established two programs - the 2016 senior executive deferred cash performance award plan for thomas k. equels , the company 's primary executive officer , and the 2016 voluntary incentive stock award plan for company employees and board members other than mr. equels . both plans include a base pay supplement provision . on december 15 , 2015 , we entered into an equity distribution agreement with chardan capital markets , llc ( the โ chardan agreement โ ) to create an at-the-market equity program under which we may sell shares of our common stock from time to time through chardan capital markets , llc , as sales agent ( โ chardan โ ) . under the chardan agreement , chardan will be entitled to a commission at a fixed commission rate of 3.0 % of the gross sales price of shares sold under the chardan agreement . sales of the shares , if any , under the chardan agreement may be made in transactions that are deemed to be โ at-the-market โ offerings as defined in rule 415 under the securities act of 1933 , as amended , including sales made by means of ordinary brokers ' transactions , including on the nyse mkt , at market prices or as otherwise agreed with chardan . the company has no obligation to sell any of the shares , and may at any time suspend offers under the chardan agreement or terminate the chardan agreement . effective august 26 , 2016 , the company halted all future offers and sales of its common stock under the chardan agreement and reduced the amount of potential future offers and sales under the chardan agreement to $ 0.00. between december 15 , 2015 , the date of the chardan agreement , and august 26 , 2016 , we sold an aggregate of 114,394 shares of common stock pursuant to the chardan agreement for aggregate net proceeds of approximately $ 174,000. on september 6 , 2016 , we entered into a securities purchase agreement ( the โ purchase agreement โ ) with certain investors for the sale by us of 3,333,334 shares of our common stock at a purchase price of $ 1.50 per share . concurrently with the sale of the common stock , pursuant to the purchase agreement , we also sold warrants to purchase 2,500,000 shares of common stock for aggregate gross proceeds of $ 5,000,000. the net proceeds from the transactions were approximately $ 4,520,000 after deducting certain fees due to the transaction expenses of the placement agent and the company . the net proceeds received by the company from the transactions will be used for preparation for technology transfer opportunities , expenses related to ampligenยฎ manufacturing , working capital and general corporate purposes . on february 1 , 2017 , we entered into securities purchase agreements ( each , a โ purchase agreement โ ) with certain investors for the sale by us of 1,818,185 shares of our common stock at a purchase price of $ 0.55 per share . concurrently with the sale of the common stock , pursuant to the purchase agreement , we also sold warrants to purchase 1,363,639 shares of common stock for aggregate net proceeds of approximately $ 850,000. we also issued placement agent warrants for the purchase of an aggregate of 90,909 shares of our common stock . see also part ii ; item 8 ; financial statements and supplementary data ; โ note 7 : stockholders ' equity โ and โ note 18 : subsequent events โ for both of the above transactions .
| results of operations year ended december 31 , 2016 versus year ended december 31 , 2015 net loss our net loss was approximately $ 7,502,000 and $ 15,230,000 for the year ended december 31 , 2016 and 2015 , respectively , representing a decrease in loss of approximately $ 7,728,000 or 51 % when compared to the same period in 2015. this decrease in loss for this year was primarily due to the following : 1 ) a decrease in research and development expense of $ 2,931,000 or 36 % ; 2 ) a decrease in production costs of approximately $ 490,000 or 31 % ; 3 ) an insurance settlement net of litigation expenses recorded as other income of $ 1,626,000 ; 4 ) an increase in the gain from sale of income tax net operating losses of $ 1,496,000 or 109 % ; and 5 ) a gain on the valuation adjustment on the redeemable warrants of approximately $ 1,677,000 ; offset by 6 ) an increase in general and administrative expense of approximately $ 534,000 or 7 % . net loss per share was $ ( 0.34 ) and $ ( 0.77 ) for the year ended december 31 , 2016 and 2015 , respectively . the weighted average number of shares of our common stock outstanding as of december 31 , 2016 was 21,818,206 as compared to 19,679,315 as of december 31 , 2015. revenues revenues from our ampligenยฎ cost recovery program were $ 92,000 and $ 133,000 for the year ended december 31 , 2016 and 2015 , respectively . for the years ended december 31 , 2016 and 2015 , we had no alferon n injectionยฎ finished good product to commercially sell and all revenue was generated from the fda approved open-label treatment protocol , ( โ amp-511 โ ) , that allows patient access to ampligenยฎ for treatment in an open-label safety study . production costs production costs were approximately $ 1,108,000 and 1,598,000 , respectively , for the year ended december 31 , 2016 and 2015.
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net insurance service revenues insurance service revenues less insurance costs . is a component of net service revenues . provides a comparable basis of revenues on a net basis . professional service revenues are represented net of client payroll costs whereas insurance service revenues are presented gross of insurance costs for financial reporting purposes . promotes an understanding of our insurance services business by evaluating insurance service revenues net of our wse related costs which are substantially pass-through for the benefit of our wses . under gaap , insurance service revenues and costs are recorded gross as we have latitude in establishing the price , service and supplier specifications . net insurance margin net insurance margin ( nim ) is the ratio of net insurance services revenues to insurance service revenues . provides a comparable basis of net insurance service revenues relative to insurance service revenues . promotes an understanding of our pricing to risk performance . 34 management 's discussion and analysis adjusted ebitda net income , excluding the effects of : - income tax provision , - interest expense , - depreciation , - amortization of intangible assets , and - stock based compensation expense . provides period-to-period comparisons on a consistent basis and an understanding as to how our management evaluates the effectiveness of our business strategies by excluding certain non-cash charges such as depreciation and amortization , and stock based compensation recognized based on the estimated fair values . we believe these charges are either not directly resulting from our core operations or not indicative of our ongoing operations . enhances comparisons to prior periods and , accordingly , facilitates the development of future projections and earnings growth prospects . provides a measure , among others , used in the determination of incentive compensation for management . we also sometimes refer to adjusted ebitda margin , which is the ratio of adjusted ebitda to net service revenue . adjusted net income net income , excluding the effects of : - effective income tax rate ( 1 ) , - stock based compensation , - amortization of intangible assets , - non-cash interest expense ( 2 ) , and - the income tax effect ( at our effective tax rate ( 1 ) ) of these pre-tax adjustments . provides information to our stockholders and board of directors to understand how our management evaluates our business , to monitor and evaluate our operating results , and analyze profitability of our ongoing operations and trends on a consistent basis by excluding certain non-cash charges . corporate operating cash flows net cash ( used in ) provided by operating activities , excluding the effects of : - assets associated with wses ( accounts receivable , unbilled revenue , prepaid expenses and other current assets ) and - liabilities associated with wses ( client deposits , accrued wages , payroll tax liabilities and other payroll withholdings , accrued health benefit costs , accrued workers ' compensation costs , insurance premiums and other payables , and other current liabilities ) . provides information that our stockholders and management can use to evaluate our cash flows from operations independent of the current assets and liabilities associated with our wses . enhances comparisons to prior periods and , accordingly , used as a liquidity measure to manage liquidity between corporate and wse related activities , and to help determine and plan our cash flow and capital strategies . ( 1 ) we have adjusted our non-gaap effective tax rate to 25.5 % , 25.5 % , and 26.0 % for 2020 , 2019 and 2018 , respectively . these non-gaap effective tax rates exclude the income tax impact from stock based compensation , changes in uncertain tax positions and nonrecurring benefits or expenses from federal legislative changes . ( 2 ) non-cash interest expense represents amortization and write-off of our debt issuance costs . reconciliation of gaap to non-gaap measures the table below presents a reconciliation of total revenues to net service revenues : replace_table_token_4_th the table below presents a reconciliation of insurance service revenues to net insurance service revenues : replace_table_token_5_th 35 management 's discussion and analysis the table below presents a reconciliation of net income to adjusted ebitda : replace_table_token_6_th the table below presents a reconciliation of net income to adjusted net income : replace_table_token_7_th the table below presents a reconciliation of net cash ( used in ) provided by operating activities to corporate operating cash flows : replace_table_token_8_th 36 management 's discussion and analysis operating metrics worksite employees ( wse ) average wse growth is a volume measure we use to monitor the performance of our business . during the second quarter , we experienced significant attrition attributable to the impact of covid-19 . throughout the second half of 2020 , our client base recovered and returned to hiring , primarily in our technology vertical . our attrition abated as our clients accessed available business relief measures . this return to hiring paired with new sales , albeit at lower rates than in previous years , resulted in growth in our wses from the low of 313,104 total wses at june 30 , 2020. as a result , average wses was flat in 2020. total wses can be used to estimate our beginning wses for the next period and , as a result , can be used as an indicator of our potential future success in growing our business and retaining clients . despite the challenging economic environment and the impact of covid-19 , total wses declined by only 2 % after accounting for favorable retention of clients that value our full service offerings , our clients ' return to hiring , and our acquisition of little bird . anticipated revenues for future periods can diverge from the revenue expectation derived from average wses or total wses due to pricing differences across our hr solutions and services and the degree to which clients and wses elect to participate in our solutions during future periods . story_separator_special_tag 39 management 's discussion and analysis insurance service revenues isr consists of insurance services-related billings and administrative fees collected from clients and withheld from wse payroll for health benefits and workers ' compensation insurance provided by third-party insurance carriers . we use the following measures to analyze changes in isr : volume - the percentage change in period over period average wses , rate - the weighted average percentage change in fees associated with each of our insurance service offerings , mix - all other changes including the composition of our enrolled wses within our insurance service offerings ( health plan enrollment ) , and recovery credit - the weighted average amounts recognized for the recovery credit program . the growth in isr reflects rate increases and higher health plan enrollment as we retained and added new clients that value our full service offerings . this was partially offset by the recovery credit recognized in 2020. insurance costs insurance costs include insurance premiums for coverage provided by insurance carriers , payments for claims costs and other risk management services , reimbursement of claims payments made by insurance carriers or third-party administrators below a predefined deductible limit , and changes in accrued costs related to contractual obligations with our workers ' compensation and health benefit carriers . we use the following measures to analyze changes in insurance costs : volume - the percentage change in period over period average wses , rate - the weighted average percentage change in cost trend associated with each of our insurance service offerings , and mix - all other changes including the composition of our enrolled wses within our insurance service offerings ( health plan enrollment ) . 40 management 's discussion and analysis during 2020 , as a result of the covid-19 pandemic , we experienced higher than normal volatility and variability in the amounts that we pay for group health insurance expenses incurred by wses within our deductible layer under our risk-based health insurance policies . stay-at-home orders and social distancing practices decreased the utilization of medical services from mid-march through april as enrollees deferred or cancelled elective procedures and reduced outpatient medical , dental and vision services . utilization began to approach more typical levels by the end of the second quarter and this trend continued through the second half of the year as enrollees resumed previously deferred or canceled non-essential elective procedures , outpatient medical , dental and vision services and provider networks adapted to providing services during the covid-19 pandemic . this decrease in utilization of medical services drove the reduction in rate that we experienced on an annual basis . this reduction in utilization was offset by normal cost inflation for medical services and prescription drugs , resulting in a mct of 7.5 % - 9.5 % in 2020. the lower rate was offset by increased mix , primarily from higher health plan enrollments . we continued to experience favorable prior years development on our accrued workers ' compensation costs of $ 20 million during 2020 , primarily due to lower than expected claim severity . 41 management 's discussion and analysis net service revenues nsr provides us with a comparable basis of revenues on a net basis , acts as the basis to allocate resources to different functions and helps us evaluate the effectiveness of our business strategies by each business function . psr net insurance service revenues - % represents proportion of net insurance service revenues to total net service revenues the primary drivers to the changes in our nsr are presented below . ( 1 ) change in nisr during 2020 comprised of an increase in isr of $ 164 million , offset by an increase in insurance costs of $ 52 million . nim was 15 % for 2020 representing an increase of 3 % from 2019 , due to higher isr and lower utilization of medical services , as discussed previously . 42 management 's discussion and analysis operating expenses oe includes cost of providing services ( cops ) , sales and marketing ( s & m ) , general and administrative ( g & a ) , systems development and programming ( sd & p ) , and depreciation and amortization expenses ( d & a ) . we manage our operating expenses and allocate resources across different business functions based on a percentage of nsr , which has decreased to 65 % in 2020 from 71 % in 2019. the lower percentage of oe to nsr in 2020 when compared to 2019 was primarily driven by the increase in nsr . we had approximately 2,700 corporate employees as of december 31 , 2020 in 22 offices across the u.s. during 2020 , we exited our monthly shared office workspaces . our corporate employees ' compensation-related expenses represent a majority of our operating expenses . compensation costs for our corporate employees include payroll , payroll taxes , sbc , bonuses , commissions and other payroll- and benefits-related costs . compensation-related expense represented 63 % of our oe in 2020 and 2019. we did not incur significant operating expenses in 2020 related to covid-19 and our transition to remote work arrangements . in 2020 , we experienced oe growth of 4 % compared to 2019. the ratio of oe to total revenues was 17 % in both 2020 and 2019 . % represents portion of compensation related expense included in operating expenses we analyze and present our oe based upon the business functions cops , s & m , g & a and sd & p and d & a . the charts below provide a view of the expenses of the business functions . dollars are presented in millions and percentages represent year-over-year change .
| operational highlights our consolidated results for 2020 reflect our continuing efforts to serve our existing clients throughout the covid-19 pandemic . in response , we took the following actions : launched our covid-19 preparedness center , which provides ongoing and timely webinars , information , resources and offerings to clients and other smbs to help them navigate the rapidly changing and complicated covid-19 business landscape , helped our clients navigate the various small business relief loan programs through informational webinars and ppp loan application support initiatives , hosted the first annual trinet peopleforce , our virtual client and prospect conference , where we provided insights , thought leadership and recommendations for the challenges they face , enacted new programs in response to the ffcra and cares act to enable new employee paid sick leave and expanded family and medical leave , payroll tax deferral and tax credit programs and other employment and non-employment tax-related incentives for our clients , facilitated access to alternative health plan options in addition to cobra , and implemented and extended our remote working and office closures around the country for non-essential activities . during 2020 we : continued to grow our revenues , although at a slower rate than we initially expected due to the impact from covid-19 on both new sales and our clients , created our recovery credit program to assist our eligible clients , resulting in a reduction in revenue recognized , saw our wses increasing their participation , or enrollment , in our insurance offerings , experienced lower utilization of health services primarily in the second quarter , although utilization approached more typical levels through the second half of the year , completed the acquisition of little bird hr , inc. , expanding our footprint in our non-profit vertical , launched the extension of our people matter branding campaign - humanity campaign , and delivered profitable growth as a result of revenue growth and lower insurance costs .
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in addition to historical information , this discussion contains forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934 that involve risks and uncertainties that could cause our actual results to differ materially from our expectations . factors that could cause such differences include , but are not limited to , those described in the section titled โ risk factors โ and elsewhere in this report . overview we are a pioneer and leading provider of cloud software for contact centers , facilitating over three billion interactions between our more than 2,000 clients and their customers per year . we believe we achieved this leadership position through our expertise and technology , which has empowered us to help organizations of all sizes transition from legacy on-premise contact center systems to our cloud solution . our solution , which is comprised of our virtual contact center ( `` vcc '' ) cloud platform and applications , allows simultaneous management and optimization of customer interactions across voice , chat , email , web , social media and mobile channels , either directly or through our application programming interfaces . our vcc cloud platform routes each customer interaction to an appropriate agent resource , and delivers relevant customer data to the agent in real-time to optimize the customer experience . unlike legacy on-premise contact center systems , our solution requires minimal up-front investment and can be rapidly deployed and adjusted depending on our client 's requirements . since founding our business in 2001 , we have focused exclusively on delivering cloud contact center software . we initially targeted smaller contact center opportunities with our telesales team and , over time , invested in expanding the breadth and depth of the functionality of our cloud platform to meet the evolving requirements of our clients . in 2009 , we made a strategic decision to expand our market opportunity to include larger contact centers . this decision drove further investments in research and development and the establishment of our field sales team to meet the requirements of these larger contact centers . we believe this shift has helped us diversify our client base while significantly enhancing our opportunity for future revenue growth . to complement these efforts , we have also focused on building client awareness and driving adoption of our solution through marketing activities , which include internet advertising , digital marketing campaigns , social marketing , trade shows , industry events and telemarketing . in june 2014 , we introduced our summer release 2014 that includes new native multichannel applications that support social , mobile , chat and email interactions . the new multichannel capabilities are powered by five9 connect , an intelligent technology layer that helps contact centers evaluate , prioritize and route requests . five9 connect also provides more mobility for supervisors and enables customized monitoring and reporting . we provide our solution through a saas business model with recurring subscriptions . we offer a comprehensive suite of applications delivered on our vcc cloud platform that are designed to enable our clients to manage and optimize interactions across inbound and outbound contact centers . we primarily generate revenue by selling subscriptions and related usage of our vcc cloud platform . we charge our clients monthly subscription fees for access to our solution , primarily based on the number of agent seats , as well as the specific functionalities and applications our clients deploy . we define agent seats as the maximum number of named agents allowed to concurrently access our solution . our clients typically have more named agents than agent seats , and multiple named agents may use an agent seat , though not simultaneously . substantially all of our clients purchase both subscriptions 45 and related usage from us . a small percentage of our clients subscribe to our platform but purchase telephony usage directly from a wholesale telecommunications service provider . we do not sell telephony usage on a stand-alone basis to any client . the related usage fees are based on the volume of minutes for inbound and outbound interactions . we also offer bundled plans , generally for smaller deployments , whereby the client is charged a single monthly fixed fee per agent seat that includes both subscription and unlimited usage in the contiguous 48 states and , in some cases , canada . we offer monthly , annual and multiple-year contracts to our clients , generally with 30 days ' notice required for changes in the number of agent seats . our clients can use this notice period to rapidly adjust the number of agent seats used to meet their changing contact center volume needs , including to reduce the number of agent seats to zero . as a general matter , this means that a client can effectively terminate its agreement with us upon 30 days ' notice . our larger clients typically choose annual contracts , which generally include an implementation and ramp period of several months . fixed subscription fees ( including bundled plans ) are generally billed monthly in advance , while related usage fees are billed in arrears . for the years ended december 31 , 2014 , 2013 and 2012 , subscription and related usage fees accounted for 97 % , 98 % and 97 % of our revenue , respectively . the remainder is comprised of professional services revenue from the implementation and optimization of our solution . our revenue increased to $ 103.1 million for the year ended december 31 , 2014 , from $ 84.1 million and $ 63.8 million for the years ended december 31 , 2013 and 2012 , respectively . revenue growth has primarily been driven by new clients choosing to use our solution and to a lesser extent , existing clients gradually increasing the number of agent seats under subscription or increasing usage . story_separator_special_tag we calculate adjusted ebitda as net loss before ( 1 ) depreciation and amortization , ( 2 ) stock-based compensation , ( 3 ) other income ( expense ) , net ( 4 ) provision for income taxes , and ( 5 ) other unusual items that do not directly affect what we consider to be our core operating performance . 47 the following table shows a reconciliation from net loss to adjusted ebitda for the periods presented ( in thousands ) : replace_table_token_7_th ( 1 ) depreciation and amortization expenses included in our results of operations are as follows ( in thousands ) : replace_table_token_8_th ( 2 ) see note 8 of the notes to the consolidated financial statements under item 8 of this form 10-k for stock-based compensation expense included in our results of operations for the periods presented . ( 3 ) included in general and administrative . see note 11 of the notes to the consolidated financial statements under item 8 of this form 10-k. ( 4 ) included in cost of revenue . the 2014 amount represents an out of period adjustment for 2008 through 2013. see note 1 of the notes to the consolidated financial statements under item 8 of this form 10-k. ( 5 ) included in general and administrative . the 2014 amount represents an out of period adjustment for 2008 through 2013. see note 1 of the notes to the consolidated financial statements under item 8 of this form 10-k. key components of our results of operations revenue our revenue consists of subscription and related usage as well as professional services . we consider our subscription and related usage to be recurring . this recurring revenue includes fixed subscription fees for the delivery and support of our vcc cloud platform as well as related usage fees . the related usage fees are based on the volume of minutes for inbound and outbound client interactions . we also offer bundled plans , generally for smaller deployments , whereby the client is charged a single monthly fixed fee per agent seat that includes both subscription and unlimited usage in the contiguous 48 states and , in some cases , canada . we offer monthly , annual and multiple-year contracts for our clients , generally with 30 days ' notice required for changes in the number of agent seats . our clients can use this notice period to rapidly adjust the number of agent seats used to meet their 48 changing contact center volume needs , including to reduce the number of agent seats to zero . as a general matter , this means that a client can effectively terminate its agreement with us upon 30 days ' notice . fixed subscription fees , including plans with bundled usage , are generally billed monthly in advance , while variable usage fees are billed in arrears . fixed subscription fees are recognized on a straight-line basis over the applicable term , predominantly the monthly contractual billing period . support activities include technical assistance for our solution and upgrades and enhancements on a when and if available basis , which are not billed separately . variable subscription related usage fees for non-bundled plans are billed in arrears based on client specific per minute rate plans and are recognized as actual usage occurs . we generally require advance deposits from clients based on estimated usage . all fees , except usage deposits , are non-refundable . in addition , we generate professional services revenue from assisting clients in implementing our solution and optimizing use . these services include application configuration , system integration and education and training services . professional services are primarily billed on a fixed-fee basis and are typically performed by us directly . in limited cases , our clients may choose to perform these services themselves or engage their own third-party service providers to perform such services . professional services are recognized as the services are performed using the proportional performance method , with performance measured based on hours of work performed provided all other criteria for revenue recognition are met . cost of revenue our cost of revenue consists primarily of fees that we pay to telecommunications providers for usage , personnel costs ( including stock-based compensation ) , costs to build out and maintain co-location data centers , depreciation and related expenses of the servers and equipment , usf contributions and other regulatory costs , allocated office and facility costs and amortization of acquired technology . cost of revenue can fluctuate based on a number of factors , including the fees we pay to telecommunications providers , which vary depending on our clients ' usage of our vcc cloud platform , the timing of capital expenditures and related depreciation charges and changes in headcount . we expect to continue investing in our network infrastructure and operations and client support function to maintain high quality and availability of service . as our business grows , we expect to realize economies of scale in network infrastructure , personnel and client support . operating expenses we classify our operating expenses as research and development , sales and marketing and general and administrative expenses . research and development . our research and development expenses consist primarily of salary and related expenses ( including stock-based compensation ) for personnel related to the development of improvements and expanded features for our services , as well as quality assurance , testing , product management and allocated overhead . we expense research and development expenses as they are incurred . we believe that continued investment in our solution is important for our future growth , and we expect research and development expenses to increase in absolute dollars in the foreseeable future , although these expenses as a percentage of our revenue are expected to decrease over time . sales and marketing .
| results of operations for the years ended december 31 , 2014 , 2013 and 2012 based on the consolidated statements of operations and comprehensive loss set forth in this annual report , the following table sets forth our operating results as a percentage of revenue for the periods indicated : replace_table_token_9_th 50 comparison of the years ended december 31 , 2014 and 2013 revenue year ended december 31 , 2014 2013 $ change % change ( in thousands , except percentages ) revenue $ 103,102 $ 84,132 $ 18,970 23 % for the year ended december 31 , 2014 , approximately $ 12.2 million , or 64 % , of the increase in revenue was attributable to revenue from new clients acquired since january 1 , 2014. driven by our sales and marketing activities , our number of clients increased by approximately 17 % as of december 31 , 2014 compared to december 31 , 2013. approximately $ 6.8 million , or 36 % , of the increase in revenue was attributable to revenue from existing clients as of december 31 , 2013. our average pricing remained relatively consistent between these periods . cost of revenue replace_table_token_10_th the increase in cost of revenue was primarily due to a $ 2.2 million increase in personnel costs driven by increased headcount , a $ 1.2 million increase in usf contribution and other federal telecommunication service fees primarily due to increased sales and a $ 0.4 million charge recorded in the fourth quarter of 2014 for additional usf contribution for the period 2008 through the third quarter of 2014 ( see note 11 of the notes to consolidated financial statements under item 8 of this form 10-k ) , a $ 1.2 million increase in depreciation expenses for servers and equipment due to additional investments in technical infrastructure to support current and expected future client growth , a $ 1.1 million increase in facility-related
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( 3 ) represents actuarial losses of $ 802 , net of tax effect of $ ( 209 ) , amortized story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with โ item 1 โ business , โ โ item 6 - selected financial data โ and the consolidated financial statements and the related notes thereto in item 8 of this annual report on form 10-k. this discussion contains forward-looking statements , based on current expectations and related to future events and our future financial performance , that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those set forth under โ item 1a - risk factors. โ overview we are a leading global designer and manufacturer of a wide range of power generation equipment and other power products serving the residential , light commercial and industrial markets . power generation is our primary focus , which differentiates us from our main competitors that also have broad operations outside of the power equipment market . as the only significant market participant focused predominantly on these products , we have one of the leading market positions in the power equipment market in north america and an expanding presence internationally . we believe we have one of the widest ranges of products in the marketplace , including residential , commercial and industrial standby generators , as well as portable and mobile generators used in a variety of applications . other power products that we design and manufacture include light towers which provide temporary lighting for various end markets ; commercial and industrial mobile heaters and pumps used in the oil & gas , construction and other industrial markets ; and a broad product line of outdoor power equipment for residential and commercial use . business d rivers and operational f actors in operating our business and monitoring its performance , we pay attention to a number of business drivers and trends as well as operational factors . the statements in this section are based on our current expectations . 23 business drivers and t rends our performance is affected by the demand for reliable power generation products , mobile product solutions and other power products by our customer base . this demand is influenced by several important drivers and trends affecting our industry , including the following : increasing penetration opportunity . many potential customers are still not aware of the costs and benefits of automatic backup power solutions . we estimate that penetration rates for home standby generators are only approximately 4.5 % of u.s. single-family detached , owner-occupied households with a home value of over $ 100,000 , as defined by the u.s. census bureau 's 2017 american housing survey for the united states . the decision to purchase backup power for many light-commercial buildings such as convenience stores , restaurants and gas stations is more return-on-investment driven and as a result these applications have relatively lower penetration rates as compared to buildings used in code-driven or mission critical applications such as hospitals , wastewater treatment facilities , 911 call centers , data centers and certain industrial locations . the emergence of lower cost , cleaner burning natural gas fueled generators has helped to increase the penetration of standby generators over the past decade in the light-commercial market . in addition , the installed base of backup power for telecommunications infrastructure is still increasing due to the growing importance for uninterrupted voice and data services . we believe by expanding our distribution network , continuing to develop our product line , and targeting our marketing efforts , we can continue to build awareness and increase penetration for our standby generators for residential , commercial and industrial purposes . effect of large scale and baseline power disruptions . power disruptions are an important driver of customer awareness for back-up power and have historically influenced demand for generators , both in the united states and internationally . increased frequency and duration of major power outage events , that have a broader impact beyond a localized level , increases product awareness and may drive consumers to accelerate their purchase of a standby or portable generator during the immediate and subsequent period , which we believe may last for six to twelve months following a major power outage event for standby generators . for example , the major outage events that occurred during the second half of 2017 drove strong demand for portable and home standby generators , and the increased awareness of these products contributed to strong revenue growth in both 2017 and 2018. major power disruptions are unpredictable by nature and , as a result , our sales levels and profitability may fluctuate from period to period . in addition , there are smaller , more localized power outages that occur frequently across the united states that drive the baseline level of demand for back-up power solutions . the level of baseline power outage activity occurring across the united states can also fluctuate , and may cause our financial results to fluctuate from year to year . impact of residential investment cycle . the market for residential generators is also affected by the residential investment cycle and overall consumer confidence and sentiment . when homeowners are confident of their household income , the value of their home and overall net worth , they are more likely to invest in their home . these trends can have an impact on demand for residential generators . trends in the new housing market highlighted by residential housing starts can also impact demand for our residential generators . demand for outdoor power equipment is also impacted by several of these factors , as well as weather precipitation patterns . impact of business capital investment cycle s . the global market for our commercial and industrial products is affected by different capital investment cycles , which can vary across the numerous regions around the world in which we participate . story_separator_special_tag the recognition of the tax benefit associated with these assets for tax purposes is expected to be $ 122 million annually through 2020 and $ 102 million in 2021 , which generates annual cash tax savings of $ 32 million through 2020 and $ 26 million in 2021. based on current business plans , we believe that our cash tax obligations through 2021 will be significantly reduced by these tax attributes , after which our cash tax obligation will increase . other domestic acquisitions have resulted in additional tax deductible goodwill and intangible assets that will generate tax savings , but are not material to the company 's consolidated financial statements . acquisitions . over the years , we have executed a number of acquisitions that supported our strategic plan . a summary of the recent acquisitions can be found in note 1 , โ description of business , โ to the consolidated financial statements in item 8 of this annual report on form 10-k. components of net sales and e xpenses net s ales our net sales primarily consist of product sales to our customers . this includes sales of our power generation equipment and other power products to the residential , light commercial and industrial markets , as well as service parts to our dealer network . net sales also include shipping and handling charges billed to customers , with the related freight costs included in cost of goods sold . additionally , we offer other services , including extended warranties , remote monitoring , installation and maintenance services . however , these services accounted for less than two percent of our net sales for the year ended december 31 , 2018. refer to note 2 , โ significant accounting policies - revenue recognition , โ to the consolidated financial statements in item 8 of this annual report on form 10-k for further information on our revenue streams and related revenue recognition accounting policies . 25 we are not dependent on any one channel or customer for our net sales , with no single customer representing more than 6 % of our sales , and our top ten customers representing less than 22 % of our net sales for the year ended december 31 , 2018. costs of goods s old the principal elements of costs of goods sold in our manufacturing operations are component parts , raw materials , factory overhead and labor . component parts and raw materials comprised approximately 77 % of costs of goods sold for the year ended december 31 , 2018. the principal component parts are engines and alternators . we design and manufacture air-cooled engines for certain of our generators up to 22kw , along with certain liquid-cooled engines . we source engines for certain of our smaller products and all of our diesel products . for certain natural gas engines , we source the base engine block , and then add a significant amount of value engineering , sub-systems and other content to the point that we are recognized as the oem of those engines . we design many of the alternators for our units and either manufacture or source alternators for certain of our units . we also manufacture other generator components where we believe we have a design and cost advantage . we source component parts from an extensive global network of reliable , high quality suppliers . in some cases , these relationships are proprietary . the principal raw materials used in the manufacturing process that are sourced are steel , copper and aluminum . we are susceptible to fluctuations in the cost of these commodities , impacting our costs of goods sold . we seek to mitigate the impact of commodity prices on our business through a continued focus on global sourcing , product design improvements , manufacturing efficiencies , price increases and select hedging transactions . we are also impacted by foreign currency fluctuations . there is typically a lag between raw material price fluctuations and their effect on our costs of goods sold . other sources of costs include our manufacturing and warehousing facilities , factory overhead , labor and shipping costs . factory overhead includes utilities , support personnel , depreciation , general supplies , support and maintenance . although we attempt to maintain a flexible manufacturing cost structure , our margins can be impacted when we can not timely adjust labor and manufacturing costs to match fluctuations in net sales . operating e xpenses our operating expenses consist of costs incurred to support our sales , marketing , distribution , service parts , engineering , information systems , human resources , accounting , finance , risk management , legal and tax functions , among others . these expenses include personnel costs such as salaries , bonuses , employee benefit costs and taxes , and are classified into three categories : selling and service , research and development , and general and administrative . additionally , the amortization expense related to our finite-lived intangible assets is included within operating expenses . selling and service . our selling and service expenses consist primarily of personnel expense , marketing expense , standard warranty expense and other sales expenses . our personnel expense recorded in selling and services expenses includes the expense of our sales force responsible for our broad customer base and other personnel involved in the marketing , sales and service of our products . standard warranty expense , which is recorded at the time of sale , is estimated based on historical trends . our marketing expenses include direct mail costs , printed material costs , product display costs , market research expenses , trade show expenses , media advertising , promotional expenses and co-op advertising costs . marketing expenses are generally related to the launch of new product offerings , participation in trade shows and other events , and opportunities to create market awareness for home standby generators in areas impacted by heightened power outage activity . research and development .
| results of o perations year ended decemb er 31 , 201 8 compared to year ended december 3 1 , 201 7 the following table sets forth our consolidated statement of operations data for the periods indicated : replace_table_token_7_th the following sets forth our reportable segment information for the periods indicated : replace_table_token_8_th replace_table_token_9_th the following table sets forth our product class information for the periods indicated : replace_table_token_10_th 27 net sales . the increase in domestic sales for the year ended december 31 , 2018 was primarily due to strong broad-based growth in shipments of home standby generators , portable generators , outdoor power equipment and service parts . shipments of residential products were particularly strong with demand climbing from the recent elevated outage environment which continued to drive awareness around the home standby category and the need for homeowners to have back-up power . sales of our c & i mobile and stationary products were also strong during the year with rental , telecom , and healthcare market verticals experiencing growth . the increase in international sales for the year ended december 31 , 2018 was primarily due to the $ 30.7 million contribution from the selmec acquisition , and broad-based core growth from the pramac , ottomotores and motortech businesses as we continue to drive market penetration across the globe . gross profit . gross profit margin for the year ended december 31 , 2018 was 35.8 % compared to 34.8 % for the year ended december 31 , 2017. the increase reflected a favorable mix of home standby generators , better leverage of fixed manufacturing costs on the increase in sales , a favorable pricing environment , and focused initiatives to improve margins . these items were partially offset by general inflationary pressures from higher commodities , currencies , wages and logistics costs . operating expenses .
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as a result of its position as the controlling shareholder of bankatlantic bancorp , bfc is a ยunitary savings bank holding companyย regulated by the office of thrift supervision ( ยotsย ) . as of december 31 , 2010 , bfc and its subsidiaries had total consolidated assets and liabilities of approximately $ 5.8 billion and $ 5.6 billion , respectively and total equity of approximately $ 221.1 million , including noncontrolling interests equity of approximately $ 78.3 million . historically , bfc 's business strategy has been to invest in and acquire businesses in diverse industries either directly or through controlled subsidiaries . however , bfc believes that , in the short term , the company 's and its shareholders ' interests are best served by bfc providing strategic support to its existing investments . in furtherance of this strategy , the company took several steps in 2009 and 2010 , including those described below , which it believes will enhance the company 's prospects . during the third quarter of 2009 , bfc and woodbridge holdings corporation consummated their merger pursuant to which woodbridge became a wholly-owned subsidiary of bfc . during the fourth quarter of 2009 , our ownership interest in bluegreen increased to 52 % as a result of the purchase of an additional 23 % interest in bluegreen . we have also increased our investment in bankatlantic bancorp through our participation in bankatlantic bancorp 's rights offerings to its shareholders during the third quarter of 2009 and the second quarter of 2010 , which in the aggregate increased our economic interest in bankatlantic bancorp to 45 % and our voting interest in bankatlantic bancorp to 71 % . in the future , we will consider other opportunities that could alter our ownership in our affiliates or seek to make opportunistic investments outside of our existing portfolio ; however , we do not currently have pre-determined parameters as to the industry or structure of any future investment . in furtherance of our goals , we will continue to evaluate various financing transactions that may present themselves , including raising additional debt or equity as well as other alternative sources of new capital . during july 2010 , benihana announced its intention to engage in a formal review of strategic alternatives , including a possible sale of the company . during march 2011 , bluegreen announced its intention to evaluate strategic alternatives for the bluegreen communities division , including a possible sale of bluegreen communities . each company has engaged advisors to assist it in pursuing strategic alternatives . bfc is supportive of benihana and bluegreen in achieving their objectives . on september 21 , 2009 , we consummated our merger with woodbridge holdings corporation pursuant to which woodbridge holdings corporation merged with and into woodbridge holdings , llc , ยwoodbridgeย which continued as the surviving company of the merger and the successor entity to woodbridge holdings corporation . pursuant to the terms of the merger , which was approved by each company 's shareholders at their respective meetings held on september 21 , 2009 , each outstanding share of woodbridge 's class a common stock automatically converted into the right to receive 3.47 shares of our class a common stock . shares otherwise issuable to us attributable to the shares of woodbridge 's class a common stock and class b common stock owned by us were canceled in connection with the merger . as a result of the merger , woodbridge holdings corporation 's separate corporate existence ceased and its class a common stock is no longer publicly traded . see note 3 of the ยnotes to consolidated financial statementsย for additional information about the merger . on november 16 , 2009 , we purchased approximately 7.4 million additional shares of bluegreen 's common stock , which increased our ownership in bluegreen from 9.5 million shares , or 29 % , to 16.9 million shares , or 52 % , of bluegreen 's outstanding stock . as a result of the purchase , we hold a controlling interest in bluegreen and , since november 16 , 2009 , we have consolidated bluegreen 's results into our financial statements . any reference to bluegreen 's results of operations for 2009 includes only 45 days of activity for bluegreen relating to the period from november 16 , 2009 , the date of the share purchase , through december 31 , 2009 ( the ยbluegreen interim periodย ) . prior to november 16 , 2009 , our approximate 29 % equity investment in bluegreen was accounted for under the equity method . see note 4 of the ยnotes to consolidated financial statementsย for additional information about the bluegreen share acquisition on november 16 , 2009 . 71 in addition to our merger with woodbridge and our acquisition of additional shares of bluegreen 's common stock , we also increased our investment in bankatlantic bancorp during 2009 and 2010 through our participation in shareholder rights offerings engaged in by bankatlantic bancorp during the years . specifically , we exercised subscription rights in bankatlantic bancorp 's rights offerings to purchase an aggregate of 14.9 million shares of bankatlantic bancorp 's class a common stock during the third quarter of 2009 and 10.0 million shares of bankatlantic bancorp 's class a common stock during june and july 2010. in the aggregate , these purchases increased our ownership interest in bankatlantic bancorp from approximately 30 % to 45 % and our voting interest in bankatlantic bancorp from approximately 59 % to 71 % . as a holding company with controlling positions in bankatlantic bancorp and bluegreen , generally accepted accounting principles ( ยgaapย ) requires the consolidation of the financial results of both entities . as a consequence , the assets and liabilities of both entities are presented on a consolidated basis in bfc 's financial statements . however , except as otherwise noted , the debts and obligations of the consolidated entities , including woodbridge , are not direct obligations of bfc and are non-recourse to bfc . story_separator_special_tag the impact for the three months ended march 31 , 2010 , was an increase to sales of real estate of $ 10.2 million , net of allowance , a decrease to interest income of $ 5.8 million , an increase to interest expense of $ 1.3 million , and a decrease in income tax benefit of $ 653,000. the impact for the three months ended june 30 , 2010 , was an increase to sales of real estate of $ 12.3 million , net of allowance , a decrease to interest income of $ 6.5 million , an increase to interest expense of $ 1.3 million , and an increase in income tax provision of $ 2.2 million . the impact for the three months ended september 30 , 2010 , was a decrease to sales of real estate of $ 5.8 million , net of allowance , an increase to interest income of $ 2.6 million , a decrease to interest expense of $ 3.2 million , and an increase in income tax benefit of $ 1.8 million . for further discussion on such adjustments , see note 40 ย selected quarterly results ( unaudited ) . the company will correct these amounts in future filings when it discloses them as comparable periods . the impact for the six months ended june 30 , 2010 , was an increase to sales of real estate of $ 22.5 million , net of allowance , a decrease to interest income of $ 12.3 million , an increase to interest expense of $ 2.6 million , and an income tax benefit of $ 2.9 million . the impact for the nine months ended september 30 , 2010 was an increase to sales of real estate of $ 16.8 million , net of allowance , a decrease to interest income of $ 9.7 million , a decrease to interest expense of $ 471,000 , and an income tax provision of $ 1.1 million . the impact of these adjustments for 2009 was an increase to sales of real estate of $ 2.4 million , an increase to interest expense of $ 579,000 , an increase to the bargain purchase gain of $ 4.2 million , and an income tax benefit related to other comprehensive income of $ 2.8 million . additional recent developments and related financial matters are discussed below . bfc financial corporation summary of consolidated results of operations the table below sets forth the company 's summarized results of operations ( in thousands ) : replace_table_token_12_th the company reported a net loss attributable to bfc of $ 103.8 million in 2010 , as compared to net income attributable to bfc of $ 27.3 million in 2009 and net loss attributable to bfc of $ 58.9 million in 2008. results for the years ended december 31 , 2010 , 2009 and 2008 include $ 2.0 million of income , an $ 11.9 million loss and $ 19.4 million of income , respectively , related to discontinued operations , which were associated with ryan beck and core communities commercial leasing projects , as discussed further in note 6 of the ยnotes to consolidated financial statementsย . real estate and other results for 2009 include an approximately $ 182.8 million bargain purchase gain associated with bluegreen 's share acquisition on november 16 , 2009. see note 4 of the ยnotes to consolidated financial statementsย . the company 's real estate and other business activities are reported in four segments which are i ) bfc activities ii ) real estate operations , iii ) bluegreen communities and iv ) bluegreen resorts . bfc 's consolidated financial statements include the results of operations of bluegreen from november 16 , 2009 ( when we acquired a controlling interest in bluegreen ) through december 31 , 2009. accordingly , bluegreen 's results of operations since november 16 , 2009 are reported through the bluegreen resorts and bluegreen communities segments . prior to 73 november 16 , 2009 , we owned approximately 9.5 million shares of bluegreen 's common stock representing approximately 29 % of such stock , and the investment in bluegreen was accounted for under the equity method of accounting . our interest in bluegreen 's earnings and losses prior to november 16 , 2009 are included in our bfc activities segment . the company 's financial services business activities include bankatlantic bancorp 's results of operations and are reported in two segments : bankatlantic and bankatlantic bancorp parent company . the presentation and allocation of the assets , liabilities and results of operations of each segment may not reflect the actual economic costs of the segment as a stand-alone business . if a different basis of allocation were utilized , the relative contributions of the segments might differ but , in management 's view , the relative trends in segments would not likely be impacted . the results of our business segments and other information related to each segment are discussed below in bfc activities , real estate operations , bluegreen resorts , bluegreen communities , bankatlantic and bankatlantic bancorp parent company . see also note 34 of the ยnotes to consolidated financial statementsย contained in item 8 of this report . 74 consolidated financial condition consolidated assets and liabilities total assets at december 31 , 2010 and 2009 were $ 5.8 billion and $ 6.0 billion , respectively . the changes in components of total assets between december 31 , 2009 and december 31 , 2010 are summarized below . on january 1 , 2010 , bfc , bluegreen and bankatlantic bancorp adopted an amendment to the accounting guidance for transfers of financial assets and an amendment to the accounting guidance associated with the consolidation of vies . as a result of the adoption of these accounting standards , bluegreen consolidated seven existing special purpose finance entities associated with prior securitization transactions that previously qualified for off-balance sheet sales treatment , and bankatlantic bancorp consolidated its joint venture that conducts a factoring business .
| parent company results of operations the following table is a condensed income statement summarizing the parent company 's segment results of operations ( in thousands ) : replace_table_token_45_th parent company interest on loans during 2010 , 2009 and 2008 represented interest income from two commercial real estate loans acquired in a march 2008 loan transfer from bankatlantic that were returned to an accrual status during 2008 as the borrowers ' cash flow improved upon obtaining tenants for properties serving as collateral . interest and dividend income on investments during the years ended december 31 , 2010 and 2009 were comprised primarily of earnings from a bankatlantic reverse repurchase agreement account and dividends from an equity investment . interest and dividend income on investments during the year ended december 31 , 2008 was comprised primarily of interest and dividends associated with a portfolio of debt and equity securities managed by a money manager as well as earnings from a reverse repurchase account with bankatlantic . earnings from the bankatlantic reverse repurchase account were $ 17,000 , $ 28,000 and $ 0.2 million , respectively , during the years ended december 31 , 2010 , 2009 and 2008. interest expense for the years ended december 31 , 2010 , 2009 and 2008 represents interest expense recognized on the parent company 's junior subordinated debentures . the decline in interest expense reflects the historically low three month libor interest rates during 2009 and 2010. the decline in interest rates was partially offset by deferred interest on the junior subordinated debentures . as previously discussed , the parent company has elected to defer the payment of interest on all of its junior subordinated debentures , commencing with the first quarter of 2009. the parent company is permitted under the terms of its obligations to defer interest payments for up to 20 consecutive quarterly periods .
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note 3 : cash and cash equivalents ( dollars in thousands ) the following table is the schedule of cash and cash equivalents at december 31 , 2014 and 2013 : replace_table_token_51_th the company is required to maintain reserve balances with the federal reserve bank of new york . the required reserve is calculated on a fourteen day average and the amounts presented in the table above represent the average for the period that includes december 31. note 4. investment securities ( dollars in thousands ) the following table is the schedule of available-for-sale securities at december 31 , 2014 and 2013 : replace_table_token_52_th # 68 replace_table_token_53_th # 69 the following table is the schedule of held-to-maturity securities at december 31 , 2014 and 2013 : replace_table_token_54_th # story_separator_special_tag replace_table_token_9_th 1 s ee `` use of non-gaap financial measures '' on page 4 . # 24 replace_table_token_10_th 1 see `` use of non-gaap financial measures '' on page 4 . # 25 critical accounting estimates our significant accounting principles , as described in note 2 - summary of significant accounting policies to the consolidated financial statements are essential in understanding the md & a . many of our significant accounting policies require complex judgments to estimate the values of assets and liabilities . we have procedures and processes in place to facilitate making these judgments . the more judgmental estimates are summarized in the following discussion . in many cases , there are numerous alternative judgments that could be used in the process of determining the inputs to the models . where alternatives exist , we have used the factors that we believe represent the most reasonable value in developing the inputs . actual performance that differs from our estimates of the key variables could impact our results of operations . allowance for loan losses : the allowance for loan losses represents management 's estimate of probable losses inherent in the company 's loan portfolio . our process for determining the allowance for loan losses is discussed in note 2 - summary of significant accounting policies and note 5 - loans to the consolidated financial statements . we evaluate our allowance at the portfolio segment level and our portfolio segments are commercial , commercial construction , commercial real estate , automobile , residential real estate and other consumer loans . due to the variability in the drivers of the assumptions used in this process , estimates of the portfolio 's inherent risks and overall collectability change with changes in the economy , individual industries , and borrowers ' ability and willingness to repay their obligations . the degree to which any particular assumption affects the allowance for loan losses depends on the severity of the change and its relationship to the other assumptions . key judgments used in determining the allowance for loan losses for individual commercial loans include credit quality indicators , collateral values and estimated cash flows for impaired loans . for pools of loans we consider our historical net loss experience , and as necessary , adjustments to address current events and conditions , considerations regarding economic uncertainty , and overall credit conditions . the historical loss factors incorporate a rolling twelve quarter look-back period for each loan segment in order to reduce the volatility associated with improperly weighting short-term fluctuations . the process of determining the level of the allowance for loan losses requires a high degree of judgment . it is possible that others , given the same information , may at any point in time reach different reasonable conclusions . any downward trend in the economy , regional or national , may require us to increase the allowance for loan losses resulting in a negative impact on our results of operations and financial condition . pension and retirement plans : management is required to make various assumptions in valuing its pension and postretirement plan assets , expenses and liabilities . the most significant assumptions include the expected rate of return on plan assets , the discount rate , and the rate of increase in future compensation levels . changes to these assumptions could impact earnings in future periods . the company utilizes an actuarial firm to assist in determining the various rates used to estimate pension obligations and expense , including the evaluation of market interest rates and discounted cash flows in setting the appropriate discount rate . in addition , the company reviews expected inflationary and merit increases to compensation in determining the rate of increase in future compensation levels . changes in these assumptions due to market conditions and governing laws and regulations may result in material changes to the company 's pension and other postretirement plan assets , expenses and liabilities . other than temporary decline in the value of debt and equity securities : management systematically evaluates individual securities classified as either available-for-sale or held-to-maturity to determine whether a decline in fair value below the amortized cost basis is other than temporary . management considers historical values and current market conditions as a part of the assessment . the amount of the total other-than-temporary impairment related to the credit loss , if any , is recognized in earnings and the amount of the total other-than-temporary impairment related to other factors is generally recognized in other comprehensive income , net of applicable taxes unless the company intends to sell the security prior to the recovery of the unrealized loss or it is more likely than not that the company would be forced to sell the security , in which case the entire impairment is recognized in earnings . any significant economic downturn might result , and historically have on occasion resulted , in an other-than-temporary impairment in securities held in our investment portfolio . # 26 the following discussion and analysis focuses on and reviews our results of operations for each of the years in the three-year period ended december 31 , 2014 and our financial condition as of december 31 , 2014 and 2013 . story_separator_special_tag liquidity and access to credit markets : we did not experience any liquidity problems or special concerns during 2014 , nor during the prior two years . the terms of our lines of credit with our correspondent banks , the fhlbny and the federal reserve bank have not changed ( see our general liquidity discussion on page 49 ) . in general , we principally rely on asset-based liquidity ( i.e. , funds in overnight investments and cash flow from maturing investments and loans ) with liability-based liquidity as a secondary source ( our main liability-based sources are overnight borrowing arrangements with our correspondent banks , an arrangement for term credit advances from the fhlbny , and an additional arrangement for short-term advances at the federal reserve bank discount window ) . we regularly perform a liquidity stress test and periodically test our contingent liquidity plan to ensure that we can generate an adequate amount of available funds to meet a wide variety of potential liquidity crises , including a severe crisis . fdic shift from deposit-based to asset-based insurance premiums ; reduction in premiums : the dodd-frank act changed the basis on which insured banks would be assessed deposit insurance premiums , which has had a beneficial effect on the rates we pay and our overall premiums . beginning with the second quarter of 2011 , the calculation of regular fdic insurance premiums for insured institutions changed so as to be based thereafter on total assets ( with certain adjustments ) rather than deposits . this had the effect of imposing fdic insurance fees not only on deposits but on other sources of funding that banks typically use to support their assets , including short-term borrowings and repurchase agreements . because our banks , like most community banks , have a much higher ratio of deposits to total assets than the large banks maintain , the new lower rate , even applied to a larger base ( assets versus deposits ) , has resulted in a significant decrease in our fdic premiums . visa class b common stock : in july 2012 , visa and mastercard entered into a memorandum of understanding ( `` mou '' ) with a class of plaintiffs to settle certain additional antitrust claims against the two companies involving merchant discounts . in december 2013 , a federal judge gave final approval to the class settlement agreement in the multi-district interchange litigation against visa and mastercard . the total cash settlement payment was set at approximately $ 6.05 billion , of which visa 's share represented approximately $ 4.4 billion . visa has paid its portion of this settlement from the litigation escrow account pursuant to visa 's retrospective responsibility plan , which was developed as part of the restructuring process to address potential liability in certain visa litigation , including this interchange class action . however , there continues to be restrictions remaining on visa class b shares held by us . we , like other former visa member banks , bear some indirect contingent liability for visa 's future liability on such claims to the extent that visa 's liability might exceed the remaining escrow amount . in light of the current state of covered litigation at visa , which is winding down , as well as the substantial remaining dollar amounts in visa 's escrow fund , we determined in the second quarter 2012 to reverse the entire amount of our 2008 visa litigation-related accrual , which was $ 294 thousand pre- # 28 tax . this reversal reduced our other operating expenses for the year ending december 31 , 2012. we believed then , and continue to believe , that the balance that visa maintains in its escrow fund is substantially sufficient to satisfy visa 's remaining direct liability to such claims without further resort to the contingent liability of the former visa member banks . at december 31 , 2014 , the company held 27,771 shares of visa class b common stock for which we continue not to recognize any economic value for these shares . increase in stockholders ' equity : at december 31 , 2014 , our tangible book value per share ( calculated based on stockholders ' equity reduced by intangible assets including goodwill and other intangible assets ) amounted to $ 13.89 , an increase of $ 0.72 , or 5.5 % , from december 31 , 2013 . our total stockholders ' equity at december 31 , 2014 increased 4.6 % over the year-earlier level , and our total book value per share increased by 4.5 % over the year earlier level . this increase principally reflected the following factors : ( i ) $ 23.4 million net income for the period , and ( ii ) $ 2.1 million of equity received from our various stock-based compensation plans , offset in part by ( iii ) cash dividends of $ 12.4 million ; ( iv ) a $ 2.8 million decrease in other comprehensive income ; and ( v ) repurchases of our own common stock of $ 2.5 million . as of december 31 , 2014 , our closing stock price was $ 27.49 , resulting in a trading multiple of 1.98 to our tangible book value . the board of directors declared and the company paid a cash dividend of $ .245 per share for each of the first three quarters of 2014 , as adjusted for a 2 % stock dividend distributed september 29 , 2014 , a cash dividend of $ .25 per share for the fourth quarter of 2014 and has declared a $ .25 per share cash dividend for the first quarter of 2015 . b. results of operations the following analysis of net interest income , the provision for loan losses , noninterest income , noninterest expense and income taxes , highlights the factors that had the greatest impact on our results of operations for 2014 and the prior two years .
| summary of 2014 financial results we reported net income for 2014 of $ 23.4 million , an increase of $ 1.57 million or 7.1 % over the 2013 total . diluted earnings per share ( `` eps '' ) for 2014 was $ 1.85 , an increase of 12 cents , or 6.9 % from our 2013 eps . return on average equity ( `` roe '' ) for the 2014 year continued to be strong at 11.79 % , although down from the roe of 12.11 % for the 2013 year . return on average assets ( `` roa '' ) for 2014 also continued to be strong at 1.07 % , up from a roa of 1.04 % for 2013 . the increase in roa was due to the fact that the growth in earnings out-paced the growth in average assets , while the decrease in roe reflected the fact that average equity grew faster than net income . the driving factor behind our increase in net income was a significant increase year-over-year in our net interest income . on a tax-equivalent basis , our net interest income for 2014 was $ 65.6 million , an increase of $ 4.8 million or 7.8 % over the $ 60.8 million total for 2013. this increase in net interest income was primarily attributable to the significant amount of loan growth we experienced during the year . our noninterest income increased in 2014 by $ 255 thousand , or 0.9 % , while our noninterest expense increased by $ 825 thousand , or 1.6 % . another key factor in 2014 , which served to moderate the increase in net income and net interest income , was a $ 1.6 million increase in the provision for loan losses . total assets were $ 2.217 billion at december 31 , 2014 , which represented an increase of $ 53.7 million , or 2.5 % , above the $ 2.164 billion level at december 31 , 2013 .
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as of the date of acquisition , ka steel had cash and cash equivalents of $ 26.2 million . ka steel is one of the largest distributors of caustic soda in north america and manufactures and sells bleach in the midwest . 65 the acquisition was partially financed with proceeds from the $ 200.0 million story_separator_special_tag business background our operations are concentrated in three business segments : chlor alkali products , chemical distribution and winchester . chlor alkali products and winchester are both capital intensive manufacturing businesses . chlor alkali products 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 chemical distribution businesses are commodity businesses where all supplier products are similar and price is the major supplier selection criterion . we have little or no ability to influence prices in this large , global commodity market . cyclical price swings , driven by changes in supply/demand , can be abrupt and significant and , given capacity in our chlor alkali products business , can lead to very significant changes in our overall profitability . 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 2014 year in 2014 , chlor alkali products ' segment income was $ 130.1 million compared to $ 203.8 million in 2013. chlor alkali products ' segment income was lower than the prior year as a result of lower product prices , predominantly caustic soda , and decreased chlorine and caustic soda volumes . these decreases were partially offset by decreased operating costs , primarily related to cost reduction efforts that were implemented during 2014 and increased shipments of hydrochloric acid and potassium hydroxide . operating rates in chlor alkali products were 80 % in 2014 and 84 % in 2013. the lower operating rate in 2014 was affected by planned and unplanned customer outages in the second half of 2014. our 2014 ecu netbacks of approximately $ 505 were 10 % lower than the 2013 ecu netbacks of approximately $ 560 due to lower caustic soda prices . in the first quarter of 2014 , we announced a chlorine price increase of $ 50 per ton and a caustic soda price increase of $ 50 per ton , which included the reinstatement of the fourth quarter of 2013 $ 40 per ton caustic soda price increase . the 2014 chlorine price increase was not successful . in the second quarter of 2014 , we announced an additional $ 60 per ton caustic soda price increase . neither of these caustic soda price increases were successful . in the third quarter of 2014 , an additional caustic soda price increase was announced for $ 30 per ton . in the fourth quarter of 2014 , the caustic soda price indices increased a total of $ 30 per ton . the benefit of this increase should impact the first quarter of 2015 results . also in the fourth quarter of 2014 , an additional caustic soda price increase was announced for $ 40 per ton . in january 2015 , a chlorine price increase of $ 75 per ton was announced . while the success of the first quarter 2015 chlorine price increase and the fourth quarter 2014 caustic soda price increase are not yet known , the majority of the benefit , if realized , would impact second quarter 2015 results . ecu netbacks in the first quarter of 2015 are forecast to be higher than the fourth quarter of 2014 ecu netbacks of approximately $ 490 as a result of higher chlorine and caustic soda prices . chemical distribution segment income was breakeven in 2014 compared to $ 9.7 million in 2013. chemical distribution segment income was lower than the prior year primarily due to decreased caustic soda volumes . depreciation and amortization expense included in segment income for the years ended december 31 , 2014 and 2013 of $ 15.8 million and $ 15.4 million , respectively , were primarily associated with the acquisition fair value adjustment related to the ka steel acquisition . winchester segment income was $ 127.3 million in 2014 , which represented the second highest level of segment income in at least the last two decades , compared to $ 143.2 million in 2013. the decrease in segment income compared to last year primarily reflects a lower level of demand for shotshell and rifle ammunition . the higher than historical commercial demand level that began in november 2012 continued through the second quarter of 2014. beginning in the third quarter of 2014 , winchester began to experience a decline in commercial demand from the 2013 level . however , the second half of 2014 commercial demand remained stronger than 2011 levels . this decrease in demand was partially offset by improved selling prices and lower costs , including the impact of decreased costs associated with our new centerfire operation in oxford , ms. income from discontinued operations , net for the year ended december 31 , 2014 included an after tax gain of $ 0.7 million ( $ 4.6 million pretax ) for the favorable resolution of certain indemnity obligations related to our metals business sold in 2007 . 21 financing in august 2014 , we redeemed our $ 150.0 million 8.875 % senior notes ( 2019 notes ) , which would have matured on august 15 , 2019. we recognized interest expense of $ 9.5 million for the call premium and the write-off of unamortized deferred debt issuance costs and unamortized discount related to this action . story_separator_special_tag in the second quarter of 2013 , we announced an additional $ 40 per ton caustic soda price increase . in the third quarter of 2013 , an additional caustic soda price increase was announced for $ 30 per ton . finally in the fourth quarter of 2013 , an additional caustic soda price increase was announced for $ 40 per ton . during 2013 , caustic soda prices increased , but were more than offset by lower chlorine prices . chemical distribution segment income was $ 9.7 million in 2013 compared to $ 4.5 million in 2012. chemical distribution segment income in 2013 was higher than 2012 as a result of the additional period of our ownership . depreciation and amortization expense included in segment income for the years ended december 31 , 2013 and 2012 of $ 15.4 million and $ 5.5 million , respectively , were primarily associated with the acquisition fair value adjustment related to the ka steel acquisition . winchester segment income of $ 143.2 million in 2013 , which represented the highest level of segment income in at least the last two decades , improved 159 % compared to 2012 segment income of $ 55.2 million . the increase in segment income in 2013 compared to 2012 reflects the impact of increased volumes due to the continuation of the stronger than historical demand that began in the fourth quarter of 2012 , improved selling prices and decreased costs , including the impact of decreased costs associated with our new centerfire operation in oxford , ms. other income ( expense ) in 2013 included a gain of $ 6.5 million on the sale of our equity interest in a limited liability company that owns a bleach related chemical manufacturing facility ( bleach joint venture ) . income tax provision for 2013 included $ 11.4 million of favorable adjustments associated with the expiration of the statutes of limitations in federal and state jurisdictions , $ 8.3 million of benefit associated with reductions in valuation allowances on our capital loss carryforwards and $ 1.9 million of benefit associated with the research credit under section 41 of the u.s. internal revenue code ( research credit ) , which were partially offset by $ 1.8 million of expense associated with changes in tax contingencies and $ 1.3 million of expense associated with increases in valuation allowances on certain state tax credits carryforwards . during 2013 , we entered into sale/leaseback agreements for bleach trailers and chlorine , caustic soda and bleach railcars . we received proceeds from the sales of $ 35.8 million . in december 2013 , we repaid $ 12.2 million due under the annual requirements of the sunbelt notes . in january 2013 , we also repaid the $ 11.4 million 6.5 % senior notes ( 2013 notes ) , which became due . these were redeemed using cash . during 2013 , we repurchased and retired 1.5 million shares with a total value of $ 36.2 million under the share repurchase plan approved by our board of directors on july 21 , 2011 . 2012 year ka steel acquisition on august 22 , 2012 , we acquired 100 % of privately-held ka steel , on a debt free basis , for $ 336.6 million in cash , after receiving the final working capital adjustment of $ 1.9 million . as of the date of acquisition , ka steel had cash and cash equivalents of $ 26.2 million . ka steel is one of the largest distributors of caustic soda in north america and manufactures and sells bleach in the midwest . as part of the acquisition , we expensed $ 8.3 million of acquisition costs during 2012 . 23 for segment reporting purposes , ka steel comprises the chemical distribution segment . our results for the year ended december 31 , 2012 included ka steel sales of $ 156.3 million and $ 4.5 million of segment income , which included depreciation and amortization expense of $ 5.5 million , primarily associated with the acquisition fair value adjustment related to the ka steel acquisition . as a result of acquiring ka steel , we expect synergies to be realized by the chemical distribution and chlor alkali products segments . these synergies include opportunities to sell additional volumes of products we produce such as caustic soda , bleach , hydrochloric acid and potassium hydroxide through ka steel and to optimize freight cost and logistics assets between our chlor alkali products segment and ka steel . also , under the terms of the acquisition , both parties agreed to make an election under section 338 ( h ) ( 10 ) of the u.s. internal revenue code ( u.s. irc ) that is expected to result in cash tax benefits to us that have a net present value of approximately $ 60 million as of august 22 , 2012. financing in august 2012 , we sold $ 200.0 million of 5.5 % senior notes ( 2022 notes ) with a maturity of august 15 , 2022. the 2022 notes were issued at par value . interest is paid semi-annually on february 15 and august 15. the acquisition of ka steel was partially financed with proceeds of $ 196.0 million , after expenses of $ 4.0 million , from the 2022 notes . in june 2012 , we redeemed $ 7.7 million of industrial development and environmental improvement tax-exempt bonds ( industrial revenue bonds ) due in 2017. we paid a premium of $ 0.2 million to the bond holders , which was included in interest expense . we also recognized a $ 0.2 million deferred gain in interest expense related to the interest rate swaps , which were terminated in march 2012 , on these industrial revenue bonds . in december 2012 , we repaid $ 12.2 million due under the annual requirements of the sunbelt notes .
| segment results we define segment results as income ( loss ) from continuing operations before interest expense , interest income , other operating income , other income ( expense ) and income taxes , and include the results of non-consolidated affiliates . consistent with the guidance in asc 280 โ segment reporting โ ( asc 280 ) , we have determined it is appropriate to include the operating results of non-consolidated affiliates in the relevant segment financial results . intersegment sales of $ 96.6 million , $ 81.3 million and $ 18.1 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively , have been eliminated . these represent the sale of caustic soda , bleach , potassium hydroxide and hydrochloric acid between chemical distribution and chlor alkali products , at prices that approximate market . replace_table_token_8_th ( 1 ) earnings of non-consolidated affiliates are included in the chlor alkali products segment results consistent with management 's monitoring of the operating segment . the earnings from non-consolidated affiliates were $ 1.7 million , $ 2.8 million and $ 3.0 million for the years ended 2014 , 2013 and 2012 , respectively . during october 2013 , we sold our equity interest in a bleach joint venture . ( 2 ) the service cost and the amortization of prior service cost components of pension expense related to the employees of the operating segments are allocated to the operating segments based on their respective estimated census data . all other components of pension costs are included in corporate/other and include items such as the expected return on plan assets , interest cost and recognized actuarial gains and losses . ( 3 ) environmental expense for the years ended 2014 , 2013 and 2012 included $ 1.4 million , $ 1.3 million and $ 0.1 million , respectively , of recoveries from third parties for costs incurred and expensed in prior periods .
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the fair values of the company 's derivatives are determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative . this analysis reflects the contractual terms of the derivatives , including the period to maturity , and uses observable market-based inputs , including forward interest rate curves . the company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty 's nonperformance risk in the fair value measurements . the accounting for changes in fair value of derivative instruments depends on the intended use of the derivative and whether the company has elected to designate a derivative in a hedging relationship and apply hedge accounting . for derivative instruments that are not designated as cash flow hedges of forecasted interest payments , all changes in fair value of the derivative instruments are presented in change in fair value of derivative instruments in the consolidated statements of income in the period in which the change occurs . the company classifies cash flows for derivative instruments not designated as cash flow hedges as investing activities in the consolidated statements of cash flows . for derivative instruments that are designated and qualify as cash flow hedges of forecasted interest payments , the company defers the effective portion of the change in fair value of the derivative instruments as a component of story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto included in item 8. financial statements and supplementary data included in this annual report on form 10-k. overview red rock is a holding company that owns an indirect equity interest in and manages station llc , through which we conduct all of our operations . station llc is a gaming , development and management company established in 1976 that develops and operates casino entertainment properties . station llc owns and operates ten major gaming and entertainment facilities and ten smaller casinos ( three of which are 50 % owned ) in the las vegas regional market . station llc also manages graton resort in sonoma county , california on behalf of a native american tribe . station llc managed gun lake in allegan county , michigan on behalf of another native american tribe through february 2018. station holdco holds all of the economic interests in station llc , and at december 31 , 2018 , we held approximately 60 % of the equity interests in station holdco . we have no material assets other than our ownership interest in station holdco and our ownership of 100 % of the voting interests in station llc . we are designated as the sole managing member of both station holdco and station llc , and we operate and control all of their business and affairs . in may 2016 , we completed an ipo of approximately 29.5 million shares of class a common stock , $ 0.01 par value per share at an offering price to the public of $ 19.50 per share . we received proceeds from the ipo of approximately $ 541 million , net of underwriting discount , which was used to purchase newly issued limited liability company interests in station holdco and outstanding llc units from existing members of station holdco . station holdco used the proceeds from the newly issued llc units to pay the majority of the $ 460 million purchase price of fertitta entertainment . prior to the fertitta entertainment acquisition , subsidiaries of fertitta entertainment managed station llc through long-term management agreements and such management agreements were terminated in connection with the fertitta entertainment acquisition . prior to the fertitta entertainment acquisition , station holdco , station llc and fertitta entertainment were controlled by frank j. fertitta iii , our chairman and chief executive officer , and lorenzo j. fertitta , our vice chairman , who collectively held a majority of the voting and economic interests in these entities , and accordingly , the fertitta entertainment acquisition constituted an acquisition of an entity under common control . we have no operations outside of our management of station llc and station holdco , and our consolidated financial statements reflect the consolidation of station llc and its consolidated subsidiaries , including the retrospective consolidation of fertitta entertainment , and station holdco for all periods presented . the financial position and results of operations attributable to llc units we do not own are reported separately as noncontrolling interest . station holdco , as combined with fertitta entertainment , is our predecessor for accounting purposes and accordingly , for all periods prior to may 2 , 2016 , the financial information presented herein represents the information of the predecessor . our principal source of revenue and operating income is gaming , and our non-gaming offerings include restaurants , hotels and other entertainment amenities . approximately 80 % to 85 % of our casino revenue is generated from slot play . the majority of our revenue is cash-based and as a result , fluctuations in our revenues have a direct impact on our cash flows from operations . because our business is capital intensive , we rely heavily on the ability of our properties to generate operating cash flow to fund capital expenditures and repay debt financing . a significant portion of our business is dependent upon customers who live and or work in the las vegas metropolitan area . based on population and employment growth , the las vegas economy was one of the fastest growing economies in the united states from 2015 to 2018. based on a recent u.s. census bureau release , nevada was first among all states in percentage growth of population from july 2017 to july 2018. in addition , based on preliminary data for december 2018 from the u.s. bureau of labor statistics , las vegas experienced a 3.6 % year-over-year increase in employment to 1,023,100 , which is an all-time high . story_separator_special_tag the increase was primarily due to a one-time loss in 2017 on a related party lease termination , partially offset by a lower tra liability adjustment in 2018. operating income increase d by 7.0 % for 2017 as compared to $ 309.7 million for 2016 . the increase was primarily due to a gain representing a decrease in the tra liability , partially offset by the loss on the related party lease termination . components of operating income for the comparative periods are discussed below . casino . casino revenues increase d by $ 54.3 million to $ 940.5 million for 2018 as compared to $ 886.2 million for 2017 primarily due to increased volume across all major categories of gaming operations . despite the ongoing construction disruption at palms and palace station , slot handle increase d by 2.9 % , table games drop increase d by 11.0 % and race and sports write increase d by 9.2 % for 2018 as compared to 2017 . casino expenses increase d by $ 15.9 million or 5.1 % for 2018 as compared to 2017 primarily due to the increased casino volume . casino revenues increase d by $ 72.0 million to $ 886.2 million for 2017 as compared to $ 814.2 million for 2016 primarily due to the acquisition of palms . on a same-store basis , slot handle increase d by 4.1 % , table games drop increase d by 4.1 % and race and sports write increase d by 18.6 % . for 2017 , casino expenses increase d by $ 37.6 million or 13.8 % as compared to 2016 , primarily due to the acquisition of palms and increased casinos revenues , as well as more gaming promotions and higher employee expenses . food and beverage . food and beverage revenues for 2018 increase d to $ 381.2 million as compared to $ 365.4 million for 2017 primarily due to the opening of several new restaurants and entertainment offerings at palms and palace station . for 2018 as compared to 2017 , the average guest check increase d by 11.2 % , partially offset by a decrease of 1.2 % in the number of restaurant guests served due to the ongoing construction disruption at palms and palace station . food and beverage expenses increase d by 4.3 % for 2018 as compared to 2017 , commensurate with the increase in revenue . food and beverage revenues for 2017 increase d to $ 365.4 million as compared to $ 330.5 million for 2016 largely due to the acquisition of palms . on a same-store basis , the average guest check increase d by 4.8 % and the number of restaurant guests served decrease d by 2.7 % for 2017 as compared to 2016 . food and beverage expense increase d by 12.0 % for 2017 as compared to 2016 , primarily due to the acquisition of palms , as well as increases in employee expenses and enhancements to our food and beverage product offerings and service levels . room . information about our hotel operations is presented below : replace_table_token_5_th for 2018 , room revenues decrease d by 4.6 % to $ 170.8 million as compared to $ 179.0 million for 2017 , primarily due to construction disruption and room remodeling projects at palms and palace station . in addition , during the second half of 2017 , approximately 400 hotel rooms at palace station were permanently removed from service as part of the upgrade and expansion project . our occupancy rate decreased by 2.3 percentage points for 2018 as compared to 2017 , which was partially offset by a 5.9 % increase in adr . room expenses decrease d by 4.1 % for 2018 as compared to 2017 due to lower occupancy and the reduced room count at palace station . room revenues for 2017 increase d by 22.8 % to $ 179.0 million as compared to $ 145.8 million for 2016 primarily due to the acquisition of palms . adr increased 11.2 % for 2017 as compared to 2016 , partially offset by a 2.8 percentage point 45 decrease in occupancy rate . room expenses increase d by 33.2 % for 2017 as compared to 2016 , primarily due to the acquisition of palms , as well as increases in employee expenses . other . other primarily includes revenues from tenant leases , retail outlets , bowling , spas and entertainment and their corresponding expenses . other revenues for 2018 increase d by 8.5 % to $ 100.9 million as compared to $ 93.0 million for 2017 . other expenses for 2018 increase d by 20.1 % as compared to 2017 . the increase s in other revenues and other expenses were primarily due to additional entertainment offerings . other revenues for 2017 increase d by 26.1 % to $ 93.0 million as compared to $ 73.7 million for 2016 , primarily due to the inclusion of a full year of revenues associated with palms . other expenses for 2017 increase d by 31.5 % as compared to 2016 , commensurate with the increase in revenue . management fee revenue . management fee revenue is based on the operating results of our managed properties and primarily represents fees earned from our management agreements with native american tribes . for 2018 , management fee revenue decrease d to $ 87.6 million as compared to $ 118.5 million for 2017 due to the expiration of the gun lake management agreement in february 2018. the gun lake management agreement produced $ 4.3 million , $ 46.1 million and $ 40.5 million of the total management fee revenue for 2018 , 2017 and 2016 , respectively .
| results of operations above . 51 cash flows from operating activities for all periods presented reflect normal fluctuations in our working capital accounts . cash flows from investing activities during 2018 , 2017 and 2016 , we paid $ 579.3 million , $ 248.4 million and $ 162.4 million , respectively , for capital expenditures , which were primarily related to various renovation projects , including the redevelopment of palms and the upgrade and expansion project at palace station , as well as the purchase of slot machines and related gaming equipment . during 2018 , we paid $ 36.1 million for land held for development . during 2017 , we paid $ 23.4 million to a related party to purchase the land subject to the ground leases on which each of boulder station and texas station is located . during 2016 , we paid $ 303.7 million , net of cash received , for the acquisition of palms . also during 2016 , fertitta entertainment sold a consolidated subsidiary , which held an aircraft and related debt , to a related party for $ 8.0 million in cash and collected $ 18.3 million of related party notes . in addition , during 2018 , 2017 and 2016 , we paid $ 0.7 million , $ 2.5 million and $ 2.7 million , respectively , in reimbursable advances for the north fork project . cash flows from financing activities during 2018 , we incurred net borrowings under the revolving credit facility of $ 245.0 million , which were primarily used to fund capital expenditures . we paid $ 27.7 million in dividends to class a common shareholders and $ 19.9 million in cash distributions , primarily to the noncontrolling interest holders of station holdco .
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as a percentage of sales , these expenses were 20.4 % and 18.1 % , respectively , for the fiscal years ended march 31 , 2013 and 2012. the increase as a percentage is due primarily to higher labor costs . investment income and interest income , net of interest expense was $ 491,474 for fiscal year 2013 , compared to $ 458,191 for fiscal year 2012. the increase in interest income net of interest expense was due to increased investment in assets held for investment . cash needs of the hong kong joint venture are currently met by funds generated from operations . during fiscal year 2013 , working capital decreased from $ 10,432,351 on march 31 , 2012 to $ 9,834,568 on march 31 , 2013. critical accounting policies management 's discussion and analysis of our consolidated financial statements and results of operations are based upon our consolidated financial statement included as part of this document . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosures of contingent assets and liabilities . on an ongoing basis , we evaluate these estimates , including those related to bad debts , inventories , income taxes , impairment of long-lived assets , and contingencies and litigation . we base these estimates on historical experiences 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 available from other sources . actual results may differ from these estimates under different assumptions or conditions . - 10 - we believe that the following critical accounting policies affect management 's more significant judgments and estimates used in the preparation of its consolidated financial statements . for a detailed discussion on the application of these and other accounting policies , see note a to the consolidated financial statements included in this annual report . certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates . these judgments are based on our historical experience , terms of existing contracts , current economic trends in the industry , information provided by our customers , and information available from outside sources , as appropriate . our critical accounting policies include : income taxes : the company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements . these temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled . the deferred tax assets are reviewed periodically for recoverability and valuation allowances are provided , whenever it is more likely than not that a deferred tax asset will not be realized . our ability to realize our deferred tax assets depends primarily upon the generation of sufficient future taxable income to allow for the utilization of our deductible temporary differences and tax planning strategies . if such estimates and assumptions change in the future , we may be required to record valuation allowances against some or all of the deferred tax assets resulting in additional income tax expense in our consolidated statement of operations . at this time , we believe that the earnings performance of our business will be sufficient to utilize our deferred tax assets during the periods in which the applicable temporary income tax differences become deductible . accordingly , we believe that it is more likely than not that we will realize the benefit of our net deferred tax assets . the company follows the financial pronouncement that gives guidance related to the financial statement of recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our financial statements the impact of a tax position , if that position is more likely than not to be sustained upon an examination , based on the technical merits of the position . interest and penalties related to income tax matters are recorded as income tax expenses , see note f , income taxes . revenue recognition : revenue is recognized at the time product is shipped and title passes pursuant to the terms of the agreement with the customer , the amount due from the customer is fixed and collectability of the related receivable is reasonably assured . we establish allowances to cover anticipated doubtful accounts and sales returns based upon historical experience . the company nets the factored accounts receivable with the corresponding advance from the factor , with the net amount reflected in the consolidated balance sheet . the company assigns trade receivables on a pre-approved non-recourse basis to the factor under the factoring agreement on an ongoing basis . inventories : inventories are valued at the lower of market or cost . cost is determined on the first in/first out method . we have recorded a reserve for obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . management reviews the reserve quarterly . recently issued accounting pronouncements changes to accounting principles generally accepted in the united states of america ( u.s. gaap ) are established by the financial accounting standards board ( fasb ) in the form of accounting standards updates ( asu 's ) to the fasb 's accounting standards codification . the company considers the applicability and impact of all asu 's . recently issues asu 's were evaluated and determined to be either story_separator_special_tag as a percentage of sales , these expenses were 20.4 % and 18.1 % , respectively , for the fiscal years ended march 31 , 2013 and 2012. the increase as a percentage is due primarily to higher labor costs . investment income and interest income , net of interest expense was $ 491,474 for fiscal year 2013 , compared to $ 458,191 for fiscal year 2012. the increase in interest income net of interest expense was due to increased investment in assets held for investment . cash needs of the hong kong joint venture are currently met by funds generated from operations . during fiscal year 2013 , working capital decreased from $ 10,432,351 on march 31 , 2012 to $ 9,834,568 on march 31 , 2013. critical accounting policies management 's discussion and analysis of our consolidated financial statements and results of operations are based upon our consolidated financial statement included as part of this document . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosures of contingent assets and liabilities . on an ongoing basis , we evaluate these estimates , including those related to bad debts , inventories , income taxes , impairment of long-lived assets , and contingencies and litigation . we base these estimates on historical experiences 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 available from other sources . actual results may differ from these estimates under different assumptions or conditions . - 10 - we believe that the following critical accounting policies affect management 's more significant judgments and estimates used in the preparation of its consolidated financial statements . for a detailed discussion on the application of these and other accounting policies , see note a to the consolidated financial statements included in this annual report . certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates . these judgments are based on our historical experience , terms of existing contracts , current economic trends in the industry , information provided by our customers , and information available from outside sources , as appropriate . our critical accounting policies include : income taxes : the company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements . these temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled . the deferred tax assets are reviewed periodically for recoverability and valuation allowances are provided , whenever it is more likely than not that a deferred tax asset will not be realized . our ability to realize our deferred tax assets depends primarily upon the generation of sufficient future taxable income to allow for the utilization of our deductible temporary differences and tax planning strategies . if such estimates and assumptions change in the future , we may be required to record valuation allowances against some or all of the deferred tax assets resulting in additional income tax expense in our consolidated statement of operations . at this time , we believe that the earnings performance of our business will be sufficient to utilize our deferred tax assets during the periods in which the applicable temporary income tax differences become deductible . accordingly , we believe that it is more likely than not that we will realize the benefit of our net deferred tax assets . the company follows the financial pronouncement that gives guidance related to the financial statement of recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our financial statements the impact of a tax position , if that position is more likely than not to be sustained upon an examination , based on the technical merits of the position . interest and penalties related to income tax matters are recorded as income tax expenses , see note f , income taxes . revenue recognition : revenue is recognized at the time product is shipped and title passes pursuant to the terms of the agreement with the customer , the amount due from the customer is fixed and collectability of the related receivable is reasonably assured . we establish allowances to cover anticipated doubtful accounts and sales returns based upon historical experience . the company nets the factored accounts receivable with the corresponding advance from the factor , with the net amount reflected in the consolidated balance sheet . the company assigns trade receivables on a pre-approved non-recourse basis to the factor under the factoring agreement on an ongoing basis . inventories : inventories are valued at the lower of market or cost . cost is determined on the first in/first out method . we have recorded a reserve for obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . management reviews the reserve quarterly . recently issued accounting pronouncements changes to accounting principles generally accepted in the united states of america ( u.s. gaap ) are established by the financial accounting standards board ( fasb ) in the form of accounting standards updates ( asu 's ) to the fasb 's accounting standards codification . the company considers the applicability and impact of all asu 's . recently issues asu 's were evaluated and determined to be either
| general we are in the business of marketing and distributing safety and security products which are primarily manufactured through our 50 % owned hong kong joint venture . our financial statements detail our sales and other operational results , and report the financial results of the hong kong joint venture using the equity method . accordingly , the following discussion and analysis of the fiscal years ended march 31 , 2013 and 2012 relate to the operational results of the company and its consolidated subsidiaries only and includes the company 's equity share of earnings in the hong kong joint venture . a discussion and analysis of the hong kong joint venture 's operational results for these periods is presented below under the heading โ hong kong joint venture. โ while we believe that our overall sales are likely affected by the current global economic situation , we believe that we are specifically negatively impacted by the severe downturn in the u.s. housing market . as stated elsewhere in this report , our usi electric subsidiary markets our products to the electrical distribution trade ( primarily electrical and lighting distributors and manufactured housing companies ) ; every downturn in new home construction and new home sales negatively impacts sales by our usi electric subsidiary . our operating results for the current fiscal year ended march 31 , 2013 continue to be significantly impacted by the economic downturn of the u.s. housing market . we anticipate that when and as the housing market recovers , sales by our usi electric subsidiary will improve , as well . by the beginning of the fourth quarter of the fiscal year ended march 31 , 2012 , the company had obtained the necessary independent testing agency approvals and had commenced sales in both the canadian and u.s. markets .
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the relative importance assigned to each of these factors by the committee may differ from executive to executive . the performance of each of story_separator_special_tag the following is a discussion of our financial condition and results of operations , which should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this annual report . executive overview the following are factors that regularly affect our operating results and financial condition . in addition , our business is subject to the risks and uncertainties described in item 1a of this annual report . product costs and supply the level of profitability in the retail propane , fuel oil , natural gas and electricity businesses is largely dependent on the difference between retail sales price and product cost . the unit cost of our products , particularly propane , fuel oil and natural gas , is subject to volatility as a result of supply and demand dynamics or other market conditions , including , but not limited to , economic and political factors impacting crude oil and natural gas supply or pricing . we enter into product supply contracts that are generally one-year agreements subject to annual renewal , and also purchase product on the open market . we attempt to reduce price risk by pricing product on a short-term basis . our propane supply contracts typically provide for pricing based upon index formulas using the posted prices established at major supply points such as mont belvieu , texas , or conway , kansas ( plus transportation costs ) at the time of delivery . to supplement our annual purchase requirements , we may utilize forward fixed price purchase contracts to acquire a portion of the propane that we resell to our customers , which allows us to manage our exposure to unfavorable changes in commodity prices and to assure adequate physical supply . the percentage of contract purchases , and the amount of supply contracted for under forward contracts at fixed prices , will vary from year to year based on market conditions . product cost changes can occur rapidly over a short period of time and can impact profitability . there is no assurance that we will be able to pass on product cost increases fully or immediately , particularly when product costs increase rapidly . therefore , average retail sales prices can vary significantly from year to year as product costs fluctuate with propane , fuel oil , crude oil and natural gas commodity market conditions . in addition , periods of sustained higher commodity prices can lead to customer conservation , resulting in reduced demand for our product . seasonality the retail propane and fuel oil distribution businesses , as well as the natural gas marketing business , are seasonal because these fuels are primarily used for heating in residential and commercial buildings . historically , approximately two-thirds of our retail propane volume is sold during the six-month peak heating season from october through march . the fuel oil business tends to experience greater seasonality given its more limited use for space heating and approximately three-fourths of our fuel oil volumes are sold between october and march . consequently , sales and operating profits are concentrated in our first and second fiscal quarters . cash flows from operations , therefore , are greatest during the second and third fiscal quarters when customers pay for product purchased during the winter heating season . we expect lower operating profits and either net losses or lower net income during the period from april through september ( our third and fourth fiscal quarters ) . to the extent necessary , we will reserve cash from the second and third quarters for distribution to holders of our common units in the fourth quarter and following fiscal year first quarter . weather weather conditions have a significant impact on the demand for our products , in particular propane , fuel oil and natural gas , for both heating and agricultural purposes . many of our customers rely heavily on propane , fuel oil or natural gas as a heating source . accordingly , the volume sold is directly affected by the severity of the winter weather in our service areas , which can vary substantially from year to year . in any given area , sustained warmer than normal temperatures , will tend to result in reduced propane , fuel oil and natural gas consumption , while sustained colder than normal temperatures will tend to result in greater consumption . 28 hedging and risk management activities we engage in hedging and risk management activities to reduce the effect of price volatility on our product costs and to ensure the availability of product during periods of short supply . we enter into propane forward , options and swap agreements with third parties , and use futures and options contracts traded on the new york mercantile exchange ( ยnymexย ) to purchase and sell propane , fuel oil and crude oil at fixed prices in the future . the majority of the futures , forward and options agreements are used to hedge price risk associated with propane and fuel oil physical inventory , as well as , in certain instances , forecasted purchases of propane or fuel oil . in addition , we sell propane and fuel oil to customers at fixed prices , and enter into derivative instruments to hedge a portion of our exposure to fluctuations in commodity prices as a result of selling the fixed price contracts . forward contracts are generally settled physically at the expiration of the contract whereas futures , options and swap contracts are generally settled in cash at the expiration of the contract . although we use derivative instruments to reduce the effect of price volatility associated with priced physical inventory and forecasted transactions , we do not use derivative instruments for speculative trading purposes . story_separator_special_tag when only a range of possible loss can be established , the most probable amount in the range is accrued . if no amount within this range is a better estimate than any other amount within the range , the minimum amount in the range is accrued . fair values of acquired assets and liabilities . from time to time , we enter into material business combinations . in accordance with accounting guidance associated with business combinations , the assets acquired and liabilities assumed are recorded at their estimated fair value as of the acquisition date . fair values of assets acquired and liabilities assumed are based upon available information and may involve us engaging an independent third party to perform an appraisal . estimating fair values can be complex and subject to significant business judgment . estimates most commonly impact property , plant and equipment and intangible assets , including goodwill . generally , we have , if necessary , up to one year from the acquisition date to finalize our estimates of acquisition date fair values . story_separator_special_tag million gallons in the prior year , primarily as a result of the addition of inergy propane , as well as increases in our legacy operations resulting from colder average temperatures . higher retail propane volumes sold resulted in an increase in revenues of $ 679.8 million for fiscal 2013 compared to the prior year . average propane selling prices for fiscal 2013 decreased 11.5 % compared to the prior year due to lower wholesale product costs , resulting in a $ 166.9 million decrease in revenues year-over-year . included within the propane segment are revenues from risk management activities and other propane activities of $ 74.7 million for fiscal 2013 , which increased $ 0.6 million compared to the prior year as higher volumes from other propane activities were substantially offset by lower volumes from wholesale and risk management activities . revenues from the distribution of fuel oil and refined fuels of $ 209.0 million for fiscal 2013 increased $ 94.7 million , or 82.8 % , from $ 114.3 million for the prior year , primarily due to higher volumes sold , partially offset by lower average selling prices . fuel oil and refined fuels gallons sold in fiscal 2013 increased 25.2 million gallons , or 88.4 % , to 53.7 million gallons from 28.5 million gallons in the prior year , primarily as a result of the addition of inergy propane , as well as increases in our legacy operations resulting from colder average temperatures . higher fuel oil and refined fuels volumes sold resulted in an increase in revenues of $ 100.5 million for fiscal 2013 compared to the prior year . average selling prices in our fuel oil and refined fuels segment in fiscal 2013 decreased 2.6 % compared to the prior year , resulting in a $ 5.8 million decrease in revenues year-over-year . revenues in our natural gas and electricity segment increased $ 12.0 million , or 17.8 % , to $ 79.4 million in fiscal 2013 compared to $ 67.4 million in the prior year as a result of higher natural gas volumes sold , and higher electricity average selling prices . the increase in volumes sold was primarily attributable to the more favorable weather pattern in fiscal 2013 , compared to the unseasonably warm weather in the prior year . 32 cost of products sold replace_table_token_5_th the cost of products sold reported in the consolidated statements of operations represents the weighted average unit cost of propane , fuel oil and refined fuels , natural gas and electricity sold , including transportation costs to deliver product from our supply points to storage or to our customer service centers . cost of products sold also includes the cost of appliances and related parts sold or installed by our customer service centers computed on a basis that approximates the average cost of the products . unrealized ( non-cash ) gains or losses from changes in the fair value of derivative instruments that are not designated as cash flow hedges are recorded within cost of products sold . cost of products sold excludes depreciation and amortization ; these amounts are reported separately within the consolidated statements of operations . average posted prices for propane for fiscal 2013 were 19.2 % lower than the prior year , and fuel oil prices were essentially flat year-over-year . total cost of products sold increased $ 262.8 million , or 43.9 % , to $ 861.9 million in fiscal 2013 compared to $ 599.1 million in the prior year due to higher volumes sold , partially offset by lower average propane product costs . the net change in the fair value of derivative instruments during the period resulted in unrealized ( non-cash ) losses of $ 4.3 million and unrealized ( non-cash ) gains of $ 4.6 million reported in cost of products sold in fiscal 2013 and 2012 , respectively , resulting in an increase of $ 8.9 million in cost of products sold in fiscal 2013 compared to the prior year , all of which was reported in the propane segment . cost of products sold associated with the distribution of propane and related activities of $ 612.2 million for fiscal 2013 increased $ 164.1 million , or 36.6 % , compared to the prior year . higher retail propane volumes sold resulted in an increase of $ 368.4 million in cost of products sold during fiscal 2013 compared to the prior year . the impact of the increase in volumes sold was partially offset by lower average propane costs , which resulted in a $ 190.0 million decrease in cost of products sold year-over-year . cost of products sold from other propane activities decreased $ 23.2 million in fiscal 2013 compared to the prior year , primarily due to lower sales from wholesale and risk management activities . cost of products sold associated with our fuel oil and refined fuels segment of $ 172.0 million for fiscal 2013 increased $ 80.8 million , or 88.5
| results of operations and financial condition for comparative purposes , fiscal 2013 included 52 weeks of operations compared to 53 weeks in fiscal 2012. in addition , the variances in year-over-year results were primarily attributable to the inclusion of inergy propane , acquired on august 1 , 2012 , as well as improvements in the operating performance in our legacy operations . net income for fiscal 2013 amounted to $ 78.8 million , or $ 1.35 per common unit , compared to $ 0.6 million , or $ 0.02 per common unit , in fiscal 2012. earnings before interest , taxes , depreciation and amortization ( ยebitdaย ) for fiscal 2013 amounted to $ 305.2 million , compared to $ 86.4 million for fiscal 2012. net income and ebitda for fiscal 2013 included : ( i ) $ 10.6 million in expenses related to the ongoing integration of inergy propane ; ( ii ) $ 7.0 million in charges related to our voluntary withdrawal from multi-employer pension plans covering certain employees acquired in the inergy propane acquisition ; and ( iii ) a loss on debt extinguishment of $ 2.1 million . net income and ebitda for fiscal 2012 included : ( i ) $ 17.9 million in acquisition-related costs associated with the inergy propane acquisition ; ( ii ) a charge of $ 4.5 million associated with a legal settlement ; ( iii ) a $ 2.1 million non-cash charge from a loss on disposal of an asset in our natural gas and electricity business ; and ( iv ) a loss on debt extinguishment of $ 2.2 million . excluding the effects of these charges , as well as the unrealized ( non-cash ) mark-to-market adjustments on derivative instruments in both years , adjusted ebitda ( as defined and reconciled below ) amounted to $ 329.3 million for fiscal 2013 , compared to adjusted ebitda of $ 108.5 million in fiscal 2012 .
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the bank of greene county currently operates 13 full-service branches , an administration office , a lending center , and an operations center in new york 's hudson valley region . in june 2004 , greene county commercial bank ( โ gccb โ ) was opened for the limited purpose of servicing local municipalities . gccb is a subsidiary of the bank of greene county , and is a new york state-chartered commercial bank . greene county bancorp , inc. 's stock is traded on the nasdaq capital market under the symbol โ gcbc. โ greene county bancorp , mhc is a mutual holding company that owns 54.4 % of the company 's outstanding common stock . in june 2011 , greene property holdings , ltd. was formed as a new york corporation that has elected under the internal revenue code to be a real estate investment trust . greene properties holding , ltd. is a subsidiary of the bank of greene county . certain mortgages and notes held by the bank of greene county were transferred to and are beneficially owned by greene property holdings , ltd. the bank of greene county continues to service these loans . in december 2014 , greene risk management , inc. was formed as a nevada corporation that is operating as a pooled captive insurance company . the purpose of this company is to provide additional insurance coverage for the company and its subsidiaries related to the operations of the company for which insurance may not be economically feasible . overview of the company 's activities and risks greene county bancorp , inc. 's results of operations depend primarily on its net interest income , which is the difference between the income earned on greene county bancorp , inc. 's loan and securities portfolios and its cost of funds , consisting of the interest paid on deposits and borrowings . results of operations are also affected by greene county bancorp , inc. 's provision for loan losses , gains and losses from sales of securities , noninterest income and noninterest expense . noninterest income consists primarily of fees and service charges . greene county bancorp , inc. 's noninterest expense consists principally of compensation and employee benefits , occupancy , equipment and data processing , and other operating expenses . results of operations are also significantly affected by general economic and competitive conditions , changes in interest rates , as well as government policies and actions of regulatory authorities . additionally , future changes in applicable law , regulations or government policies may materially affect greene county bancorp , inc. critical accounting policies greene county bancorp , inc. 's critical accounting policies relate to the allowance for loan losses and the evaluation of securities for other-than-temporary impairment . the allowance for loan losses is based on management 's estimation of an amount that is intended to absorb losses in the existing portfolio . the allowance for loan losses is established through a provision for loan losses based on management 's evaluation of the risk inherent in the loan portfolio , the composition of the portfolio , specific impaired loans and current economic conditions . such evaluation , which includes a review of all loans for which full collectability may not be reasonably assured , considers among other matters , the estimated net realizable value or the fair value of the underlying collateral , economic conditions , historical loan loss experience , management 's estimate of probable credit losses and other factors that warrant recognition in providing for the allowance of loan losses . however , this evaluation involves a high degree of complexity and requires management to make subjective judgments that often require assumptions or estimates about highly uncertain matters . this critical accounting policy and its application are periodically reviewed with the audit committee and the board of directors . securities are evaluated for other-than-temporary impairment by performing periodic reviews of individual securities in the investment portfolio . greene county bancorp , inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security , on which there is an unrealized loss , is impaired on an other-than-temporary basis . the company considers many factors , including the severity and duration of the impairment ; the intent and ability of the company to hold the equity security for a period of time sufficient for a recovery in value ; recent events specific to the issuer or industry ; and for debt securities , the intent to sell the security , the likelihood to be required to sell the security before it recovers the entire amortized cost , external credit ratings and recent downgrades . the company is required to record other-than-temporary impairment charges through earnings , if it has the intent to sell , or will more likely than not be required to sell an impaired debt security before a recovery of its amortized cost basis . in addition , the company is required to record other-than-temporary impairment charges through earnings for the amount of credit losses , regardless of the intent or requirement to sell . credit loss is measured as the difference between the present value of an impaired debt security 's cash flows and its amortized cost basis . non-credit related write-downs to fair value must be recorded as decreases to accumulated other comprehensive income as long as the company has no intent or requirement to sell an impaired security before a recovery of amortized cost basis . 26 index management of credit risk management considers credit risk to be an important risk factor affecting the financial condition and operating results of greene county bancorp , inc. the potential for loss associated with this risk factor is managed through a combination of policies approved by greene county bancorp , inc. 's board of directors , the monitoring of compliance with these policies , and the periodic reporting and evaluation of loans with problem characteristics . story_separator_special_tag the eve table indicates the market value of assets less the market value of liabilities at each specific rate shock environment . these calculations were based upon assumptions believed to be fundamentally sound , although they may vary from assumptions utilized by other financial institutions . the information set forth below is based on data that included all financial instruments as of june 30 , 2016. assumptions made by greene county bancorp , inc. relate to interest rates , loan prepayment rates , core deposit duration , and the market values of certain assets and liabilities under the various interest rate scenarios . actual maturity dates were used for fixed rate loans and certificate accounts . securities were scheduled at either maturity date or next scheduled call date based upon judgment of whether the particular security would be called based upon the current interest rate environment , as it existed on june 30 , 2016. variable rate loans were scheduled as of their next scheduled interest rate repricing date . additional assumptions made in the preparation of the eve table include prepayment rates on loans and mortgage-backed securities . for each interest-bearing core deposit category , a discounted cash flow based upon the decay of each category was calculated and a discount rate applied based on the fhlb fixed rate advance term nearest the average life of the category . the noninterest-bearing category does not use a decay assumption , and the 24 month fhlb advance rate was used as the discount rate . the eve at โ par โ represents the difference between greene county bancorp , inc. 's estimated value of assets and value of liabilities assuming no change in interest rates . the eve for a decrease of 100 , 200 and 300 basis points have been excluded since they would not be meaningful in the interest rate environment as of june 30 , 2016. the following sets forth greene county bancorp , inc. 's eve as of june 30 , 2016. replace_table_token_4_th 1 calculated as the estimated eve divided by the present value of total assets . 2 calculated as the excess ( deficiency ) of the eve ratio assuming the indicated change in interest rates over the estimated eve ratio assuming no change in interest rates . the prolonged low rate environment continues to increase eve sensitivity across the industry , as the decreasing yield on assets increases price sensitivity to large rate shocks . eve sensitivity will increase further as rates rise and loans and investments lose value and move out the sensitivity curve . greene county bancorp , inc. 's eve modeling projects that the eve will decrease in instantaneous rate shocks , however , the level of sensitivity resulting from these rate shocks is within the company 's policy limits and regulatory guidance . in anticipation of rising interest rates from the current historical low rate environment , greene county bancorp , inc. has implemented several strategies to help mitigate the negative impact on eve that would result from rising interest rates . these strategies include shortening the average duration of assets and lengthening the average duration of its liabilities . certain shortcomings are inherent in the methodology used in the above interest rate risk measurements . modeling changes in eve require the making of certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates . gap analysis . the matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are โ interest rate sensitive โ and by monitoring a company 's interest rate sensitivity โ gap. โ an asset or liability is deemed to be interest rate sensitive within a specific time period if it will mature or reprice within that time period . the interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period . a gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities . a gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets . accordingly , during a period of rising interest rates , an institution with a negative gap position generally would not be in as favorable a position , compared with an institution with a positive gap , to invest in higher yielding assets . the resulting yield on the institution 's assets generally would increase at a slower rate than the increase in its cost of interest-bearing liabilities . conversely , during a period of falling interest rates , an institution with a negative gap would tend to experience a repricing of its assets at a slower rate than its interest-bearing liabilities which , consequently , would generally result in its net interest income growing at a faster rate than an institution with a positive gap position . at june 30 , 2016 , greene county bancorp , inc. 's cumulative one-year and three-year gap positions , the difference between the amount of interest-earning assets maturing or repricing within one year and three years and interest-bearing liabilities maturing or repricing within one year and three years , as a percentage of total interest-earning assets were positive 14.30 % and 18.29 % respectively . 28 index certain shortcomings are inherent in this method of analysis . for example , although certain assets and liabilities may have similar maturities or periods to repricing , they may react in different degrees to changes in market interest rates . it should also be noted that interest-bearing core deposit categories , which have no stated maturity date , have an assumed decay rate applied to create a cash flow on those deposit categories for gap purposes .
| summary of significant accounting policies of this report . 43 index unaudited quarterly financial data the following table sets forth a summary of selected financial data at and for the years ended june 30 , 2016 and 2015 and quarter ends within those years . replace_table_token_23_th 1 amounts in period during the year ended june 30 , 2015 and the six months ended december 31 , 2015 have been restated for comparability to reflect the 2-for-1 stock split effective march 15 , 2016. item
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our debt maturities are well-laddered over the next nine years , and $ 752.0 million of the borrowings outstanding at year-end may be repaid prior to maturity , in part or in full , without penalty . our stock repurchase program allows us to take advantage of market opportunities from time to time when we believe our stock is undervalued . during 2017 , we repurchased $ 57.6 million of our common stock ( 2.7 million shares at an average price of $ 21.46 per share ) . since september 2015 , under our stock repurchase programs , we have repurchased an aggregate of $ 121.4 million of common stock at an average price of $ 21.85 per share . ( 1 ) statistics include our ownership interest in the gross real estate assets and debt at properties held through unconsolidated joint ventures as described in note 4 , unconsolidated joint ventures , of the accompanying financial statements ; and exclude the 263 shuman mortgage note , as the note matured in july 2017 and we are in the process of transferring the property to the lender . key performance indicators our operating results depend primarily upon the level of income generated by the leases at our properties . occupancy and rental rates are critical drivers of our lease income . over the last year , our portfolio percentage leased ranged from 90.6 % at december 31 , 2016 to 96.2 % at december 31 , 2017 . the following table sets forth details related to recent leasing activities , which drive changes in our rental revenues : replace_table_token_11_th ( 1 ) includes our proportionate share of renewal and new leasing at properties owned through unconsolidated joint ventures . ( 2 ) rent leasing spreads for renewal leases are calculated based on the change in base rental income measured on a straight-line basis . ( 3 ) rent leasing spreads for new leases are calculated only for space that has been vacant less than one year , and are measured on a straight-line basis . in 2017 , rent leasing spreads have been significantly positive ( 43.6 % ) due to extending the 119,000-square-foot lease with dla piper at university circle in san francisco and leasing 230,000 square feet at 650 california street in san francisco . the leasing at 650 california street has required significant tenant improvements ; however , the net economic impact of leasing at 650 california street is favorable . positive rent leasing spreads for renewal leases are partially offset by a slight rent roll-down for the 824,000-square-foot lease extension and amendment executed with westinghouse at cranberry woods in pittsburgh in the fourth quarter of 2017. in 2016 , we executed a new 390,000-square-foot , 30-year lease at our 222 east 41st street property with nyu langone medical , which resulted in positive rent leasing spreads of 14.4 % , tenant improvements of $ 180.10 per square foot , and leasing commissions of $ 44.90 per square foot . over the next 12 months , approximately 94,000 square feet of our leases ( approximately 2 % of our office portfolio based on revenues ) are scheduled to expire . liquidity and capital resources overview cash flows generated from the operation of our properties are primarily used to fund recurring expenditures and stockholder dividends . the amount of distributions to common stockholders is determined by our board of directors and is dependent upon a page 24 index to financial statements number of factors , including funds deemed available for distribution based principally on our current and future projected operating cash flows , reduced by capital requirements necessary to maintain our existing portfolio . in determining the amount of distributions to common stockholders , we also consider our future capital needs and future sources of liquidity , as well as the annual distribution requirements necessary to maintain our status as a reit under the code . we have transformed the composition of our portfolio by selling suburban assets and reinvesting in assets in high-barrier-to-entry markets that offer lower initial yields and higher potential for growth over time . as a result , our board of directors elected to adjust our payout level to be consistent with our current investment objectives , by reducing the quarterly stockholder distribution rate from $ 0.30 per share to $ 0.20 per share beginning with the first quarter of 2017. this rate has been maintained through the first quarter of 2018. we believe this dividend rate is sustainable over the near and medium term and offers the potential for growth over the long term . investments in new property acquisitions and first-generation capital improvements are generally funded with capital proceeds from property sales , debt , or cash on hand . short-term liquidity and capital resources during 2017 , we generated net cash flows from operating activities of $ 61.9 million , which consists primarily of receipts from tenants for rent and reimbursements , reduced by payments for operating costs , administrative expenses , interest expense , and lease inducements . during the same period , we paid total distributions to stockholders of $ 109.6 million , which included dividend payments for four quarters ( $ 36.7 million for the fourth quarter of 2016 and an aggregate of $ 72.9 million for the first three quarters of 2017 ) . distributions to stockholders exceeded net cash flow from operating activities for 2017 primarily due to the impact of timing differences between selling assets and redeploying capital , and of new and renewal leases in free rent periods . properties acquired in 2017 and recent leases are expected to contribute to additional cash flow from operations in future periods . during 2017 , we sold five wholly owned properties and partial interests in two additional properties for net proceeds of $ 737.6 million . story_separator_special_tag debt covenants the $ 300 million term loan , $ 300 million bridge loan , the $ 150 million term loan , and the revolving credit facility contain the following restrictive covenants : limits the ratio of secured debt to total asset value , as defined therein , to 40 % or less ; requires the fixed charge coverage ratio , as defined therein , to be at least 1.50 :1.00 ; limits the ratio of debt to total asset value , as defined therein , to 60 % or less ; requires the ratio of unencumbered adjusted net operating income , as defined therein , to unsecured interest expense , as defined therein , to be at least 1.75 :1.00 ; requires the ratio of unencumbered asset value , as defined therein , to total unsecured debt , as defined therein , to be at least 1.66 :1.00 ; and requires maintenance of certain minimum tangible net worth balances . as of december 31 , 2017 , we believe we were in compliance with the restrictive covenants on these outstanding debt obligations . bonds payable in august 2016 , we issued $ 350.0 million of 10-year , unsecured 3.650 % senior notes at 99.626 % of their face value ( the `` 2026 bonds payable '' ) . we received proceeds from the 2026 bonds payable , net of fees , of $ 346.4 million , which were used to prepay our $ 250 million bonds payable , originally due in april of 2018. the 2026 bonds payable require semi-annual interest payments in february and august based on a contractual annual interest rate of 3.650 % . the principal amount of the 2026 bonds payable is due and payable on the maturity date , august 15 , 2026. in march 2015 , we issued $ 350.0 million of 10-year , unsecured 4.150 % senior notes at 99.859 % of their face value ( the `` 2025 bonds payable '' ) . we received proceeds from the 2025 bonds payable , net of fees , of $ 347.2 million , a portion of which was used to repay a bridge loan , which was originated in january 2015. the 2025 bonds payable require semi-annual interest payments in april and october based on a contractual annual interest rate of 4.150 % . the principal amount of the 2025 bonds payable is due and payable on the maturity date , april 1 , 2025. the restrictive covenants on the 2026 bonds payable and the 2025 bonds payable as defined pursuant to an indenture include : a limitation on the ratio of debt to total assets , as defined , to 60 % ; limits to our ability to incur debt if the consolidated income available for debt service to annual debt service charge , as defined , for four previous consecutive fiscal quarters is less than 1.5:1 on a pro forma basis ; page 26 index to financial statements limits to our ability to incur liens if , on an aggregate basis for us , the secured debt amount would exceed 40 % of the value of the total assets ; and a requirement that the ratio of unencumbered asset value , as defined , to total unsecured debt be at least 150 % at all times . as of december 31 , 2017 , we believe we were in compliance with the restrictive covenants on the 2026 bonds payable and the 2025 bonds payable . debt repayments , maturities , and interest payments during 2017 and 2016 , we made the following debt repayments : on august 17 , 2017 , we repaid the $ 124.8 million balance of the 650 california street building mortgage note , which was originally scheduled to mature on july 1 , 2019. columbia property trust recognized a loss on early extinguishment of debt of $ 0.3 million related to unamortized deferred financing costs . on march 10 , 2017 , we repaid the $ 73.0 million balance of the 221 main street building mortgage note , which was originally scheduled to mature on may 10 , 2017. columbia property trust recognized a loss on early extinguishment of debt of $ 45,000 related to unamortized deferred financing costs . on october 3 , 2016 , a portion of the proceeds from the sale of the 80 park plaza property was used to repay the $ 99.0 million remaining outstanding balance on our revolving credit facility . on september 2 , 2016 , the proceeds from the 2026 bonds payable , as described above , were used to redeem $ 250.0 million of seven -year , unsecured 5.875 % senior notes due april 2018 , including a $ 17.9 million make-whole payment recorded as an early loss on extinguishment of debt in the accompanying consolidated statement of operations . on june 30 , 2016 , we used borrowings on the revolving credit facility to repay the $ 39.0 million santan corporate center mortgage notes , which were scheduled to mature on october 11 , 2016 , resulting in the write-off of approximately $ 10,000 of related unamortized financing costs , which are included in loss on early extinguishment in the accompanying statements of operations . on april 1 , 2016 , we repaid the $ 119.0 million remaining on a $ 300 million , six -month , unsecured loan , which was used to finance a portion of the 229 west 43rd street building acquisition in august of 2015 ( the `` 2015 bridge loan '' ) . the 2015 bridge loan was scheduled to mature on august 4 , 2016. we recognized a loss on early extinguishment of debt of $ 82,000 related to unamortized deferred financing costs . during 2017 and 2016 , we made interest payments of approximately $ 21.5 million and $ 27.8 million , respectively , related to our term loans , line of credit , and notes payable . during 2017 and 2016 , we made interest payments of $ 27.4 million and $ 28.0 million , respectively , on our bonds payable .
| executive summary our primary strategic objective is to generate long-term shareholder returns from a combination of growing cash flows and appreciation in the values of our properties , by owning and operating high-quality office properties principally located in high-barrier-to-entry markets . we concentrate on office buildings that are competitive within the top tier of their markets or that will be repositioned as such through value-add initiatives . in addition , our investment objectives include optimizing our portfolio allocation between stabilized investments and more growth-oriented , value-add investments , with an emphasis on central business districts and multi-tenant buildings . we recently completed a multi-year capital recycling program that involved selling more than 50 properties in geographically dispersed markets for aggregate proceeds of $ 3.6 billion , and reinvested this capital in new york , san francisco , washington , d.c. , and boston . during the second half of 2017 , we executed the following transactions : on july 6 , 2017 , we formed a strategic partnership with allianz real estate of america llc ( `` allianz '' ) to increase our operating scale in key markets by freeing-up capital for additional investment . we consummated the partnership by simultaneously selling a 22.5 % interest in two of our san francisco properties , 333 market street and university circle , to allianz for $ 234.0 million , and by acquiring a 49.5 % interest in 114 fifth avenue in manhattan from allianz for $ 108.9 million . in february 2018 , we sold an additional 22.5 % interest in 333 market street and university circle to allianz for $ 235.3 million . on october 11 , 2017 , we acquired a 55 % interest in 1800 m street , a 10-story office building in washington , d.c. , for $ 231.6 million through a joint venture with allianz .
| 7,042 |
management is in discussions to obtain an additional extension of the quail creek credit facility to at least april 30 , 2019. management believes the extension of the maturity of the quail creek credit facility is probable of being executed as the company has successfully extended the maturity date of this facility in the past , and the facility is secured by a first mortgage on the real property and improvements constituting the nursing & rehabilitation center located in oklahoma city , oklahoma ( the โ quail creek facility story_separator_special_tag of financial condition and results of operations overview the company is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living . our business primarily consists of leasing and subleasing healthcare facilities to third-party tenants . as of december 31 , 2017 , the company owned , leased , or managed for third parties 30 facilities primarily in the southeast . on october 6 , 2016 , the company completed the sale of the nine arkansas facilities . the operators of the company 's facilities provide a range of health care and related services to patients and residents , including skilled nursing and assisted living services , social services , various therapy services , and other rehabilitative and healthcare services for both long-term and short-stay patients and residents . the following table provides summary information regarding the number of facilities and related operational beds/units as of december 31 , 2017 : replace_table_token_7_th the following table provides summary information regarding the number of facilities and related operational beds/units by operator affiliation as of december 31 , 2017 : replace_table_token_8_th ( 1 ) represents the number of facilities which are leased or subleased to separate tenants , which tenants are affiliates of the entity named in the table above . see โ portfolio of healthcare investments โ in part i , item 1 , โ business โ in this annual report . 48 acquisitions on march 8 , 2017 , the company executed the meadowood purchase agreement with meadowood retirement village , llc and meadowood properties , llc to acquire the meadowood facility for $ 5.5 million cash . in addition , on march 21 , 2017 , the company executed a long-term , triple net operating lease with the meadowood operator to lease the facility upon purchase . lease terms include : ( i ) a 13-year initial term with one five-year renewal option ; ( ii ) base rent of $ 37,500 per month ; ( iii ) a rental escalator of 2.0 % per annum in the initial term and 2.5 % per annum in the renewal term ; ( iv ) a cross renewal provision , whereby the meadowood operator may exercise the lease renewal for the meadowood facility if its affiliate exercises the lease renewal option for the coosa valley facility ; and ( v ) a security deposit equal to one month of base rent . the company completed the purchase of the meadowood facility on may 1 , 2017 pursuant to the meadowood purchase agreement , at which time the lease commenced and operations of the meadowood facility transferred to the meadowood operator . divestitures for information regarding the company 's divestitures , please refer to note 11 - discontinued operations , to our audited consolidated financial statements in part ii , item 8. , โ financial statements and supplementary data โ in this annual report . the following table summarizes the activity of discontinued operations for the years ended december 31 , 2017 and 2016 : replace_table_token_9_th critical accounting policies we prepare our financial statements in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets , liabilities , revenues and expenses . on an ongoing basis we review our judgments and estimates , including , but not limited to , those related to doubtful accounts , income taxes , stock compensation , intangible assets and loss contingencies . we base our estimates on historical experience , business knowledge and on various other assumptions that we believe to be reasonable under the circumstances at the time . actual results may vary from our estimates . these estimates are evaluated by management and revised as circumstances change . we believe that the following represents our critical accounting policies . revenue recognition and allowances triple-net leased properties . the company 's triple-net leases provide for periodic and determinable increases in rent . we recognize rental revenues under these leases on a straight-line basis over the applicable lease term when collectability is probable . recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants , creating a straight-line rent receivable that is included in straight-line rent receivable on our consolidated balance sheets . in the event the company can not reasonably estimate the future collection of rent from one or more tenant ( s ) of the company 's facilities , rental income for the affected facilities will be recognized only upon cash collection , and any accumulated straight-line rent receivable will be reversed in the period in which the company deems rent collection no longer probable . rent revenues for the arkansas facilities previously leased by us and two facilities in georgia are recorded on a cash basis . ( see note 11 - discontinued operations to our audited consolidated financial statements in part ii , item 8. , โ financial statements and supplementary data โ in this annual report ) management fee revenues and other revenues . the company recognizes management fee revenues as services are provided . further , the company recognizes interest income from loans and investments , using the effective interest method when collectability is probable . we apply the effective interest method on a loan-by-loan basis . 49 allowances . story_separator_special_tag option valuation models require the input of highly subjective assumptions , including the expected stock price volatility . we use projected volatility rates , which are based upon historical volatility rates , trended into future years . because our stock options have characteristics significantly different from those of traded options , and because changes in the subjective input assumptions can materially affect the fair value estimate , in management 's opinion , the existing models do not necessarily provide a reliable single measure of the fair value of our options . income taxes as required by asc topic 740 , `` income taxes โ , we established deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities at tax rates in effect when such temporary differences are expected to reverse . when necessary , we record a valuation allowance to reduce our net deferred tax assets to the amount that is more likely than not to be realized . at december 31 , 2017 , the company has a valuation allowance of approximately $ 17.6 million . in future periods , we will continue to assess the need for and adequacy of the remaining valuation allowance . asc 740 provides information and procedures for financial statement recognition and measurement of tax positions taken , or expected to be taken , in tax returns . on december 22 , 2017 , tax legislation commonly known as the tax cuts and jobs act ( the โ tax reform โ ) was enacted . among other changes , the tax reform reduces the us federal corporate tax rate from 35 % to 21 % beginning in 2018. the company has remeasured certain deferred tax assets and liabilities as of the enactment date of the tax reform based on the rates at which they are expected to reverse in the future , which is generally 21 % . the amount recorded related to the remeasurement of our deferred tax balance was $ 9.5 million , which was offset by a reduction in the valuation allowance . the company also recorded an income tax benefit of approximately $ 0.2 million related to the use of our naked credit ( a deferred tax liability for an indefinite-lived asset ) as a source of income to release a portion of our valuation allowance . in determining the need for a valuation allowance , the annual income tax rate , or the need for and magnitude of liabilities for uncertain tax positions , we make certain estimates and assumptions . these estimates and assumptions are based on , among other things , knowledge of operations , markets , historical trends and likely future changes and , when appropriate , the opinions of advisors with knowledge and expertise in certain fields . due to certain risks associated with our estimates and assumptions , actual results could differ . in october 2014 , the georgia department of revenue initiated an examination of our georgia income tax returns and net worth returns for the 2010 , 2011 , 2012 , and 2013 tax years , which was closed during 2016 , with no adjustments required to the filed tax returns . we are not currently under examination by any other major income tax jurisdiction . 51 recently issued accounting pronouncements the information required by this item is provided in note 1 - summary of significant accounting policies to our audited consolidated financial statements included in part ii , item 8. , `` financial statements and supplementary data '' in this annual report . story_separator_special_tag audited consolidated financial statements in part ii , item 8. , โ financial statements and supplementary data. โ gain on disposal of assets โgain on disposal of assets was $ 8.8 million for the year ended december 31 , 2016 , due to the sale of the arkansas facilities , see note 10 โ acquisitions and dispositions to our audited consolidated financial statements in part ii , item 8. , โ financial statements and supplementary data. โ 53 other expense โother expense increased by $ 0.4 million to $ 0.5 million for the year ended december 31 , 2017 , compared with $ 0.1 million for the year ended december 31 , 2016. the increase is primarily due to legal expenses related to the merger loss from discontinued operations โthe loss from discontinued operations decreased by $ 11.8 million or 87.5 % to $ 1.7 million for the twelve months ended december 31 , 2017 , compared with a loss of $ 13.4 million for the same period in 2016. the decrease is primarily due to lower professional and general legal and bad debt expense . current period expenses comprise approximately $ 0.6 million for professional and general legal expenses and settlements or estimated litigation expenses , net of approximately $ 2.8 million insurance contributions for recently settled cases , the remaining $ 1.1 million is related to legal expenses , collection activities and other miscellaneous items . liquidity and capital resources the company continues to undertake measures to grow its operations and to streamline its cost infrastructure by : ( i ) increasing future lease revenue through acquisitions and investments in existing properties ; ( ii ) modifying the terms of existing leases ; ( iii ) refinancing or repaying debt to reduce interest costs and mandatory principal repayments ; and ( iv ) reducing general and administrative expenses . management anticipates access to several sources of liquidity , including cash on hand , cash flows from operations , and debt refinancing . at december 31 , 2017 , the company had $ 1.8 million in cash and cash equivalents . during the twelve months ended december 31 , 2017 , the company generated positive cash flow from continuing operations of approximately $ 6.0 million and anticipates continued positive cash flow from operations in the future .
| results of operations year ended december 31 , 2017 and 2016 the following table sets forth , for the periods indicated , statement of operations items and the amount and percentage of change of these items . the results of operations for any particular period are not necessarily indicative of results for any future period . the following data should be read in conjunction with our audited consolidated financial statements and the notes thereto , which are included in part ii , item 8. , `` financial statements and supplementary data '' in this annual report . replace_table_token_10_th year ended december 31 , 2017 compared with year ended december 31 , 2016 : rental revenues โtotal rental revenue decreased by $ 2.6 million , or 9.9 % , to $ 23.7 million for the year ended december 31 , 2017 , compared with $ 26.3 million for the year ended december 31 , 2016. the decrease reflects lower rent due to the sale of the arkansas facilities on october 6 , 2016 , partially off-set by lease revenue from the meadowood facility ( acquired on may 1 , 2017 ) and the peach facilities . the company recognizes all rental revenues on a straight line rent accrual basis except with respect to the oceanside facility and the jeffersonville facility under the peach health sublease prior to recertification ( which were recertified by cms , in february 2017 and december 2016 , respectively ) , the aria subleases ( which were terminated for non-payment of rent ) and the skyline lease ( which terminated upon sale of the arkansas facilities ) , for which rental revenue is recognized based on cash amount owed , and the sublease with affiliates of new beginnings ( which terminated in connection with the bankruptcy of such entities ) , for which rental revenue is recognized when cash is received .
| 7,043 |
overview we are a clinical-stage biopharmaceutical company focused on the discovery , development and commercialization of therapies for glaucoma . glaucoma is a disease of the eye that is typically characterized by structural evidence of optic nerve damage , vision loss and consistently elevated intraocular pressure ( โ iop โ ) . our lead product candidate , trabodenoson , is a first-in-class selective adenosine mimetic that we rationally designed to lower iop by restoring the eye 's natural pressure control mechanism . our product pipeline includes trabodenoson monotherapy delivered in an eye drop formulation , as well as a fixed-dose combination ( โ fdc โ ) of trabodenoson with latanoprost , a prostaglandin analogue ( โ pga โ ) , given once-daily . our completed phase 2 trial of trabodenoson co-administered with latanoprost demonstrated iop-lowering in patients who have previously had inadequate response to latanoprost . these patients represent pga poor-responders , as evidenced by persistently elevated iop at levels that typically require the addition of a second drug to further lower iop . on january 3 , 3017 , we announced top-line results of matrx-1 , the first pivotal phase 3 trial of trabodenoson for the treatment of primary open-angle glaucoma or ocular hypertension . the trial did not meet its primary endpoint because it did not demonstrate a statistically significant difference in absolute intraocular pressure ( โ iop โ ) , from placebo at every single one of the 12 time points comprising the primary endpoint . this was due to a larger than expected treatment effect in the placebo/vehicle group , as compared to both our prior phase 2 data and a recent meta-analysis examining placebo responses from 10 placebo-controlled trials , which showed a placebo/vehicle result of -2.01 mmhg ( raber , et al ) . during analysis of the iop data from the trial , a treatment-by-site interaction was found where a small number of sites ( 4 sites out of a total of 55 ) caused an important change in the expected vehicle results . matrx-1 did achieve several clinically meaningful secondary endpoints - the 6 % dose was significant versus placebo in the daily iop change from diurnal baseline at all days tested . additionally , an analysis of responders ( subjects with iop reduction of 5mmhg or greater from baseline ) indicated a statistically higher proportion of responders in the 6 % trabodenoson group than the placebo group at all visits . there were no significant safety or tolerability events reported . the safety profile of trabodenoson was comparable to placebo and there was minimal drug related hyperemia . in august 2016 , we closed an underwritten public offering of $ 52.0 million aggregate principal amount of 5.75 % convertible senior notes due 2021 , including $ 2.0 million from an exercise of the underwriters ' overallotment option , ( the โ 2021 convertible notes โ ) , and received net proceeds of approximately $ 48.7 million after deducting underwriting discounts and offering-related costs . ( see note 5 in the accompanying notes to the consolidated financial statements ) . in july 2016 , we announced the initiation of a phase 2 dose-ranging trial of a fixed-dose combination ( โ fdc โ ) of trabodenoson and latanoprost . the trial will enroll approximately 165 patients with an iop greater than or equal to 25 mmhg and less than or equal to 34 mmhg ; which represents the patients most likely to receive treatment for glaucoma or ocular hypertension . data from this trial is expected in mid-2017 . in april 2016 , we filed a registration statement on form s-3 containing two prospectuses : ( i ) a base prospectus which covers the offering , issuance and sale by us of up to $ 200.0 million in the aggregate of an indeterminate number of shares of common stock and preferred stock , such indeterminate principal amount of debt securities and such indeterminate number of warrants and ; and ( ii ) a sales agreement prospectus covering the offering , issuance and sale by us of up to a maximum aggregate offering price of $ 50.0 million of our common stock that may be issued and sold under an at-the-market sales agreement with cowen and company , llc ( the โ atm โ ) . the $ 50.0 million of common stock that may be issued and sold under the atm reduces the available balance under the base prospectus by the amount issued . during the year ended december 31 , 2016 , we sold 482,689 shares of common stock and received net proceeds of $ 4.0 million pursuant to the atm . at december 31 , 2016 , $ 45.6 million was available for sale of common stock under the atm . as disclosed in item 5.02 of the current report on form 8-k filed with the securities and exchange commission ( โ sec โ ) on october 7 , 2016 , we informed william mcvicar , ph.d. that his employment would be ending . dr. mcvicar stepped down from his position as our executive vice president , chief scientific officer and executive officer effective october 4 , 2016. dr. mcvicar has agreed to remain employed by us in a non-executive capacity as senior advisor , through april 4 , 2017 , unless we terminate him or he resigns sooner ( such date , the โ separation date โ ) , to facilitate a smooth transition . in connection with the departure , we and dr. mcvicar have entered into a transition agreement signed on october 27 , 2016 ( the โ transition agreement โ ) , effective as of november 3 , 2016 . ( see note 9 of notes to consolidated financial statements . ) 74 as of december 31 , 2016 , we had an accumulated deficit of $ 238.9 million and cash and cash equivalents and short-term investments aggregating $ 126.5 million . we estimate we have sufficient funding to sustain operations into 2019. see โ liquidity and capital resources. story_separator_special_tag as a result of the uncertainties discussed above , we are unable to determine with certainty the duration and completion costs of our development programs or precisely when and to what extent we will receive revenue from the commercialization and sale of our product candidates . we may never succeed in achieving regulatory approval for one or more of our product candidates . the duration , costs and timing of clinical trials and development of any product candidates will depend on a variety of factors , including the uncertainties of future preclinical studies and clinical trials , uncertainties in the clinical trial enrollment rate and changing government regulation . in addition , the probability of success for each product candidate will depend on numerous factors , including efficacy and tolerability profiles , manufacturing capability , competition , and commercial viability . general and administrative expenses general and administrative expenses consist of salaries and related benefit costs , including stock-based compensation for administrative personnel . other significant general and administrative expenses include professional fees for legal , patents , consulting , 76 investor and public relations , auditing and tax services as well as other direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies used in general and administrative activities . interest expense interest expense in 2016 relates to our 2021 convertible notes which are due in august 2021. in 2015 and prior , interest expense related to our 2020 convertible notes , notes payable , convertible promissory notes , amortization of loan discounts as well as interest calculated based on the amortization of the beneficial conversion feature of the convertible promissory notes . in february 2015 , we repaid our borrowings under our existing notes payable agreements with horizon technology finance corporation and fortress credit co. llc with the proceeds from our ipo and the convertible promissory notes converted into common stock pursuant to the ipo . in july and august of 2015 our 2020 convertible notes fully converted into common stock . interest income interest income relates to interest earned from invested funds . story_separator_special_tag style= '' margin-top:8pt ; margin-bottom:0pt ; margin-left:4.54 % ; text-indent:0 % ; font-style : italic ; font-family : times new roman ; font-size:10pt ; font-weight : normal ; text-transform : none ; font-variant : normal ; '' > research and development expenses research and development expenses increased $ 7.0 million to $ 12.6 million for the year ended december 31 , 2015 , from $ 5.6 million for the year ended december 31 , 2014. this increase was related to higher pre-clinical expenses of $ 4.7 million primarily related to work preparing drug product for our trabodenoson clinical trials , along with ongoing pre-clinical studies , higher payroll-related and stock-based compensation expense of $ 1.9 million related to increased staffing and higher consulting expenses of $ 0.6 78 million . this increase was partially offset by a $ 0.3 million net reduction in direct clinical trial expenses as a result of the completion of our phase 2 trial in october 2014 over increased costs of our phase 3 trial that commenced in october 2015. general and administrative expenses general and administrative expenses increased $ 5.7 million , to $ 7.8 million , for the year ended december 31 , 2015 , as compared to $ 2.1 million for the year ended december 31 , 2014. this increase included $ 1.6 million in stock-based compensation of which $ 1.0 million related to the elimination of repurchase rights and final vesting related to the series x preferred shares held by our former ceo and cfo pursuant to our ipo . the remaining increase was due primarily to higher compensation-related expenses of $ 2.0 million primarily related to increased staffing , including our current ceo and vp of finance , higher insurance expenses and other public-company related expenses of $ 0.9 million , higher professional fees of $ 0.7 million , and higher consulting fees of $ 0.3 million . interest expense interest expense increased $ 0.2 million , to $ 1.2 million , for the year ended december 31 , 2015 , as compared to $ 1.0 million for the year ended december 31 , 2014. interest expense in 2015 was comprised of $ 1.0 million for coupon interest and amortization of debt discount and deferred financing costs related to our 2020 convertible notes , $ 0.1 million related to our convertible bridge notes and $ 0.1 million related to our notes payable . interest expense in 2014 related primarily to our notes payable . loss on extinguishment of debt the loss on extinguishment of debt of $ 4.4 million in the year ended december 31 , 2015 , consisted of $ 3.7 million related to the july and august 2015 conversion of all of the 2020 convertible notes into common stock ( see note 5 in the accompanying notes to the consolidated financial statements ) , $ 0.4 million of unamortized debt discount and issuance costs related to our convertible bridge notes and $ 0.3 million related to unamortized debt discount and issuance costs and prepayment fees related to our notes payable . change in fair value of warrant liabilities the change in fair value of warrant liabilities for the year ended december 31 , 2015 , was a gain of $ 0.3 million related to a decrease in our warrant liabilities related to warrants to purchase shares of series aa preferred stock that became warrants to purchase shares of common stock upon our ipo . the $ 0.8 million loss in the year ended december 31 , 2014 , related to an increase in the value of the warrant liabilities related to our series aa preferred stock . change in fair value of derivative liabilities the change in fair value of derivative liabilities for the year ended december 31 , 2015 , was a net loss of $ 42.3 million .
| results of operations comparison of the years ended december 31 , 2016 and 2015 the following table summarizes the results of our operations for the years ended december 31 , 2016 and 2015 : replace_table_token_9_th loss from operations loss from operations increased $ 21.5 million to $ 41.9 million for the year ended december 31 , 2016 , as compared to $ 20.4 million for the year ended december 31 , 2015 , and related primarily to the $ 19.4 million increase in research and development expenses . research and development expenses research and development expenses increased $ 19.4 million to $ 32.0 million for the year ended december 31 , 2016 , as compared to $ 12.6 million for the year ended december 31 , 2015. this increase primarily reflects $ 12.1 million of increased clinical expenses related to our phase 3 trial with monotherapy that was ongoing for the full year and our phase 2 trial with our fdc product candidate that commenced in october 2016. in 2016 , we recorded a charge of $ 0.9 million relating to the termination of our chief scientific officer . additionally , employee-related expenses due to increased headcount and additional stock option grants increased $ 2.7 million , preclinical expenses increased $ 2.6 million and consulting expenses increased $ 0.7 million . general and administrative expenses general and administrative expenses increased $ 2.1 million to $ 9.9 million for the year ended december 31 , 2016 , as compared to $ 7.8 million for the year ended december 31 , 2015. this increase primarily reflects $ 0.8 million related to increased staffing expenses due to increased headcount and salaries and $ 1.4 million primarily related to increased consulting and other outside services .
| 7,044 |
typically , milestone payments are associated with events that are not entirely within the control of the company or the licensee , such as regulatory approvals ; are included in the transaction price ; and are subject to a constraint until story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited annual consolidated financial statements and the related notes that appear elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties . actual results may differ materially from those discussed in these forward-looking statements due to a number of factors , including those described in item 1a , โ risk factors โ and elsewhere in this annual report on form 10-k. for further information regarding forward-looking statements , please refer to the โ special note regarding forward-looking statements and projections โ at the beginning of part i of this annual report on form 10-k. overview alimera sciences , inc. , and its subsidiaries ( we , our or us ) , is a pharmaceutical company that specializes in the commercialization and development of prescription ophthalmic pharmaceuticals . we presently focus on diseases affecting the back of the eye , or retina , because we believe these diseases are not well treated with current therapies and affect millions of people globally . iluvien our only product is iluvien ยฎ , which has received marketing authorization and reimbursement in numerous countries for the treatment of dme . in the u.s. and certain other countries outside europe , iluvien is indicated for the treatment of dme in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure . in 17 countries in europe , iluvien is indicated for the treatment of vision impairment associated with chronic dme considered insufficiently responsive to available therapies . iluvien is also now indicated in 16 countries in europe for prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment of the eye ( niu-ps ) . see item 1 , โ business - overview โ above . we market iluvien directly in the u.s. , germany , the u.k. , portugal , and ireland , and we are planning to launch directly in the nordic region ( denmark , finland , norway and sweden ) with the support of an exclusive wholesaler . in addition , we have entered into various agreements under which distributors are providing or will provide regulatory , reimbursement and sales and marketing support for iluvien in austria , belgium , the czech republic , france , italy , luxembourg , the netherlands , spain , australia , new zealand , canada and several countries in the middle east . as of december 31 , 2020 , we have recognized sales of iluvien to our international distributors in the middle east , austria , france , italy , spain and the netherlands . 38 accumulated deficit we commenced operations in june 2003. since our inception we have incurred significant losses . as of december 31 , 2020 , we had accumulated a deficit of $ 392.9 million . we expect to incur additional expenses as we pursue our business strategy . see item 1 , โ business - business strategy โ above . as of december 31 , 2020 , we had approximately $ 11.2 million in cash and cash equivalents . effects of the covid-19 pandemic the unprecedented events of the covid-19 pandemic , and its unpredictable duration , in the regions where we have customers , employees and distributors have had an adverse effect on our sales of iluvien and thus on our net revenues and may in the future have an adverse effect on our liquidity and financial condition . these adverse effects of the pandemic on us have resulted from the following , among other factors . governments and private parties imposed limitations on in-person access to physicians , which adversely affects us in at least two ways . first , these limitations can affect patient access to treatment . because iluvien is administered only by an injection into the eye , telemedicine is not a viable substitute when administration of treatment is required . second , limitations on in-person access to physicians also makes it difficult or impossible for our sales representatives ( including those employed by our distributors ) to meet with retina specialists and their staff to educate them about iluvien . our business is also negatively affected by patients ' concerns in the current environment . prior to the pandemic , most of our iluvien sales were driven by the use of iluvien to treat diabetic macular edema , or dme . given that health authorities have cited diabetes as a factor that places a person at higher risk for severe illness from the covid-19 pandemic , many dme patients are unwilling to visit their physicians in person ( even if otherwise permitted ) for fear of contracting the covid-19 coronavirus . in addition to the effects of limitations on in-person access to physicians , limitations on travel within and between the countries in which we market and sell iluvien , as well as various types of โ shelter in place โ orders , have curtailed our in-person marketing activities . these limitations and other effects of the covid-19 pandemic have had an adverse impact on our revenues beginning late in the first quarter and continuing through the date of this report . we expect these factors to continue to adversely impact our revenue and capital resources , and the extent and duration of that impact is uncertain at this time , particularly in light of the emergence of covid-19 variants that may increase the transmissibility of the coronavirus or be more deadly , or both . ( see โ liquidity and capital resources โ current cash position โ below . ) story_separator_special_tag cost of goods sold , excluding depreciation and amortization , and gross profit gross profit is affected by costs of goods sold , which includes costs of manufactured goods sold and royalty payments to eyepoint under the new collaboration agreement . additionally , cost of goods sold by our international distributors fluctuates depending on the revenue share attributable to the respective contract . cost of goods sold , excluding depreciation and amortization increased by approximately $ 300,000 , or 5 % , to approximately $ 6.9 million for 2020 , compared to approximately $ 6.6 million for 2019. the increase was primarily attributable to increased sales in our international segment , including to distributors , where costs of goods sold is a higher percentage of net revenue , and an increase in royalty expense payable on our global revenue as a result of the increased royalty percentage payable to eyepoint . gross profit decreased by approximately $ 3.4 million , or 7 % , to approximately $ 43.9 million for 2020 , compared to approximately $ 47.3 million for 2019. gross margin was 86 % and 88 % for 2020 and 2019 , respectively . as our revenues to our international distributors increase and our royalty expense payable to eyepoint increases , we expect our gross margin to decrease . research , development and medical affairs expenses currently , our research , development and medical affairs expenses are primarily focused on activities that support iluvien and include salaries and related expenses for research and development and medical affairs personnel , including 41 medical science liaisons . our research , development and medical affairs expenses also include costs related to the provision of medical affairs support , including symposia development for physician education , and costs related to compliance with fda , eea or other regulatory requirements . we expense both internal and external development costs as they are incurred . research , development and medical affairs expenses decreased by approximately $ 1.3 million , or 12 % , to approximately $ 9.7 million for 2020 , compared to approximately $ 11.0 million for 2019. the decrease was primarily attributable to decreases of approximately $ 650,000 in personnel costs , including international vacant positions , global bonus expenses and global stock-based compensation expenses ; $ 620,000 in scientific communications expenses ; $ 450,000 in travel expenses ; and $ 420,000 in consulting costs . these decreases were offset by an increase of approximately $ 790,000 in clinical study costs , primarily consisting of costs associated with the new day study . general and administrative expenses general and administrative expenses consist primarily of compensation for employees in executive and administrative functions , including finance , accounting , information technology and human resources . other significant costs include facilities costs and professional fees for accounting and legal services , including legal services associated with obtaining and maintaining patents . we expect to continue to incur significant costs to comply with the corporate governance , internal control and similar requirements applicable to public companies . general and administrative expenses decreased by approximately $ 1.6 million , or 12 % , to approximately $ 11.7 million for 2020 , compared to approximately $ 13.3 million for 2019. the decrease was primarily attributable to decreases of approximately $ 700,000 in global stock-based compensation expenses and $ 470,000 in professional fees . additionally , in 2020 we benefitted from a one-time cash refund of approximately $ 400,000 associated with recovery of previously paid vat expense in germany for the years 2014 through 2018. sales and marketing expenses sales and marketing expenses consist primarily of third-party service fees and compensation for employees for the commercial promotion , the assessment of the commercial opportunity of , the development of market awareness for , the pursuit of reimbursement approval for and the commercialization of iluvien , including launch plans for iluvien in new markets . other costs include professional fees associated with developing plans for iluvien or any future products or product candidates and maintaining public relations . sales and marketing expenses decreased by approximately $ 5.3 million , or 21 % , to approximately $ 20.4 million for 2020 , compared to approximately $ 25.7 million for 2019. the decrease was primarily attributable to a decrease of approximately $ 4.2 million in marketing costs related to cost controls we implemented to address the covid-19 pandemic , the absence in 2020 of expenses we incurred in 2019 for the launch of our direct-to-patient advertising pilot program in the u.s. , a decrease of $ 870,000 in travel expenses and a decrease of $ 400,000 in market access costs . operating expenses as a result of the changes in expenses described above , total operating expenses decreased by approximately $ 8.2 million , or 16 % , to approximately $ 44.4 million for 2020 , compared to approximately $ 52.6 million for 2019. the decrease was primarily attributable to decreases of approximately $ 5.3 million in sales and marketing expenses , $ 1.6 million in general and administrative expenses and $ 1.3 million in research , development and medical affairs expenses as described above . interest expense and other on january 5 , 2018 , we entered into a $ 40.0 million loan and security agreement ( the 2018 solar loan agreement ) with solar capital ltd. ( solar capital ) . on december 31 , 2019 , we refinanced the 2018 solar loan agreement by entering into a $ 45.0 million loan and security agreement ( the 2019 solar loan agreement ) with solar capital . for 2020 and 2019 , interest expense consisted primarily of interest and amortization of deferred financing costs and debt discounts associated with our outstanding debt under the 2018 and 2019 solar loan agreements . interest income consisted primarily of interest earned on our cash , cash equivalents and investments . interest expense and other .
| general and administrative expenses . general and administrative expenses decreased by approximately $ 400,000 , or 5 % , to approximately $ 8.0 million for 2020 , compared to approximately $ 8.4 million for 2019. the decrease was primarily attributable to decreases in costs related to operating as a public company , including professional fees and shareholder relations costs . sales and marketing expenses . sales and marketing expenses decreased by approximately $ 3.3 million , or 19 % , to approximately $ 14.3 million for 2020 , compared to approximately $ 17.6 million for 2019. the decrease was primarily attributable to a decrease of approximately $ 2.8 million in marketing costs related to cost controls we implemented to address the 43 covid-19 pandemic , the absence in 2020 of expenses we incurred in 2019 for the launch of our direct-to-patient advertising pilot program in the u.s. and a decrease of $ 560,000 in travel expenses . international segment replace_table_token_3_th international segment - year ended december 31 , 2020 compared to year ended december 31 , 2019 net revenue . net revenue increased by approximately $ 4.3 million , or 20 % , to approximately $ 26.0 million for 2020 , compared to approximately $ 21.7 million for 2019. the increase was primarily attributable to the expansion and growth into new and existing markets through our distributors , partially offset by the effects of the covid-19 pandemic . we also saw increased sales volume in the markets where we sell direct . these direct sales included sales for our uveitis indication . cost of goods sold , excluding depreciation and amortization . cost of goods sold , excluding depreciation and amortization increased by approximately $ 1.0 million , or 32 % , to approximately $ 4.1 million for 2020 , compared to approximately $ 3.1 million for 2019. the increase was primarily attributable to our increased sales volume including increased sales to our international distributors , where costs of goods sold is a higher percentage of net revenue .
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during 2011 , two events story_separator_special_tag cautionary statement regarding forward-looking statements this management 's discussion and analysis of financial condition and results of operations includes a number of forward-looking statements that reflect the company 's current views with respect to future events and financial performance , including , but not limited to , availability of funding for educational institutions , economic conditions , statements regarding plans and objectives of management for future operations , including plans and objectives relating to products , pricing , marketing , expansion , and manufacturing processes ; new business strategies ; the company 's ability to continue to control costs and inventory levels ; availability and cost of raw materials , especially steel and petroleum-based products ; the availability and cost of labor ; the potential impact of the company 's โ assemble-to-ship โ program on earnings ; market demand ; the company 's ability to position itself in the market ; references to current and future investments in and utilization of infrastructure ; statements relating to management 's beliefs that cash flow from current operations , existing cash reserves , and available lines of credit will be sufficient to support the company 's working capital requirements to fund existing operations ; references to expectations of future revenues ; pricing ; and seasonality . such statements involve known and unknown risks , uncertainties , assumptions and other factors , many of which are outside of the company 's control and difficult to forecast , that may cause actual results to differ materially from those which are anticipated . such factors include , but are not limited to , changes in , or the company 's ability to predict , general economic conditions , the markets for school and office furniture generally and specifically in areas and with customers with which the company conducts its principal business activities , the rate of approval of school bonds for the construction of new schools , the extent to which existing schools order replacement furniture , customer confidence , competition and other factors included in the โ risk factors โ section of this report . 23 in this report , words such as โ anticipates , โ โ believes , โ โ expects , โ โ will continue , โ โ future , โ โ intends , โ โ plans , โ โ estimates , โ โ projects , โ โ potential , โ โ budgets , โ โ may , โ โ could โ and similar expressions identify forward-looking statements . readers are cautioned not to place undue reliance on forward-looking statements , which speak only as of the date hereof . story_separator_special_tag children and make this an ongoing priority for future government spending . third , many schools have responded to the budget strains by reducing their support infrastructure . school districts historically have operated central warehouses and professional purchasing departments in a central business office . in order to retain teaching staff , many school districts have shut down the warehouses and reduced their purchasing departments and janitorial staffs . this change provides opportunities to provide services to schools , such as project management for new or renovated schools , delivery to individual school sites rather than truckload deliveries to central warehouses , and installation of furniture in classrooms . moreover , this change offers opportunities for virco to promote its complete product assortment which allows one-stop shopping as opposed to sourcing furniture needs from a variety of suppliers . fourth , many suppliers have shut down or dramatically curtailed their domestic manufacturing capabilities , making it difficult for competitors to provide custom colors or finishes during a tight seasonal summer delivery window when they are reliant upon a supply chain extending to china . unlike its primary competitors , virco has maintained and invested in automation at its domestic manufacturing facilities , recently adding flat metal forming processes to its manufacturing capabilities and bringing production into its factories of items formerly sourced from other suppliers . virco 's domestic factories are a strategic resource for providing its customers with timely delivery of a broad selection of colors , finishes , laminates , and product styles . during 2014 the company anticipates continued uncertainty and volatility in commodity costs , particularly with respect to certain raw materials , transportation , and energy . the company does not anticipate that this volatility will be as dramatic as experienced in 2011 , but it has no assurances that commodity prices will not reach or exceed the levels in 2011. the company may benefit from industry disruption in 2014. in 2012 , a smaller domestic manufacturing competitor liquidated , and in 2013 a significant reseller of school furniture entered chapter 11 reorganization-from which it emerged in mid-2013 . while such events are illustrative of the challenging conditions in the company 's industry , the company is hopeful that this disruption presents an opportunity for virco to expand its customer base . critical accounting policies and estimates this discussion and analysis of virco 's financial condition and results of operations is based upon the company 's financial statements which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires virco management to make estimates and judgments that affect the company 's reported assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , management evaluates such estimates , including those related to revenue recognition , allowance for doubtful accounts , valuation of inventory and related obsolescence reserves , self-insured retention for products and general liability insurance , self-insured retention for workers ' compensation insurance , provision for warranty , liabilities under defined benefit and other compensation programs , and estimates related to deferred tax assets and liabilities . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . this forms the basis of judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . story_separator_special_tag the company 's warranties generally provide that customers can return a defective product during the specified warranty period following purchase in exchange for a replacement product or that the company can repair the product at no charge to the customer . the company determines whether replacement or repair is appropriate in each circumstance . the company uses historic data to estimate appropriate levels of warranty reserves . because product mix , production methods , and raw material sources change over time , historic data may not always provide precise estimates for future warranty expense . defined benefit obligations : the company has three defined benefit plans , the virco employees retirement plan ( the โ employee plan โ ) , the virco important performers plan ( the โ vip plan โ ) and the non-employee directors retirement plan ( the โ directors plan โ ) , which provide retirement benefits to employees and outside directors . virco discounted the pension obligations for the various plans using the following rates : replace_table_token_5_th because the company froze new benefit accruals for all three plans effective december 31 , 2003 , the assumed rate of increase in compensation has no effect on the accounting for the plans . the company estimated a 6.5 % return on plan assets for the employee plan for all three years . the vip plan and directors plan are unfunded and have no plan assets . these rate assumptions can vary due to changes in interest rates , the employment market , and expected returns in the stock market . in prior years , the discount rate and the anticipated rate of return on plan assets have decreased by several percentage points , causing pension expense and pension obligations to increase . in 2008 , the company incurred significant losses on investments held in trust to fund the employee plan . these investment losses will cause future pension costs to increase , and will require future cash contributions to adequately fund the employee plan . in the third quarter of 2011 the company offered an early retirement program to employees who voluntarily terminated their employment with the company . the incentive offered was a cash incentive and did not include additional retirement benefits , but was heavily directed toward employees with significant years of service . approximately 150 employees accepted this offer . due to the volume of lump sum payments processed during the third and fourth quarters of 2011 , the company incurred a pension settlement cost for the employee plan . in the fourth quarter of 2012 , as a result of cumulative retirement benefits paid during the year , the company incurred an additional pension settlement cost for the employee plan . in may of 2013 , the company implemented a reduction in force . in the third and fourth quarters of 2013 , as a result of cumulative retirement benefits paid during the year , the company incurred additional pension settlement costs for the employee plan . although the company does not anticipate any change in these rates in the coming year , any moderate change should not have a significant effect on the company 's financial position , results of operations or cash flows . the company obtains annual actuarial valuations for all three plans . deferred tax assets and liabilities : the company recognizes deferred income taxes under the asset and liability method of accounting for income taxes in accordance with the provisions of fasb asc topic 740 โ income taxes. โ deferred income taxes are recognized for differences between the financial statement and tax basis of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse . the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date . in assessing the realizability of deferred tax assets , the company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or reversal of deferred tax liabilities during the periods in which those temporary differences become deductible . the company considers the scheduled reversal of deferred tax liabilities , projected future taxable income , and tax planning strategies in making this assessment . the company incurred a substantial operating loss for the years ended january 31 , 2013 , 2012 , and 2011. during the fourth quarter of the year ended january 31 , 2011 , based on this consideration , the company determined the realization of a majority of the net deferred tax assets no longer met the more likely than not criteria and a valuation allowance was recorded against the majority of the net deferred tax assets . valuation allowances totaled $ 24,210,000 and $ 24,601,000 at january 31 , 2014 and 2013 , respectively . at january 31 , 2014 , the company has net operating loss carryforwards for federal and state income tax purposes , expiring at various dates through 2033. federal net operating losses that can potentially be carried forward totaled approximately $ 24,546,000 at january 31 , 2014. state net operating losses that can potentially be carried forward totaled approximately $ 51,082,000 at january 31 , 2014 . 26 results of operations ( 2013 vs. 2012 ) financial results and cash flow the company incurred a pre-tax loss of $ 2,733,000 on net sales of $ 155,920,000 for the fiscal year ended january 31 , 2014 , compared to pre-tax loss of $ 4,039,000 on net sales of $ 158,856,000 in the fiscal year ended january 31 , 2013. net loss per share was $ 0.12 for the fiscal year ended january 31 , 2014 , compared to net loss per share of $ 0.27 in the prior year .
| executive overview management 's strategy is to position virco as the overall value supplier of educational furniture and equipment . the markets that virco serves include the education market ( the company 's primary market ) , which is made up of public and private schools ( preschool through 12th grade ) , junior and community colleges , four-year colleges and universities ; and trade , technical and vocational schools . virco also serves convention centers and arenas ; the hospitality industry , with respect to their banquet and meeting facilities ; government facilities at the federal , state , county and municipal levels ; and places of worship . in addition , the company sells to wholesalers , distributors , retailers and catalog retailers that serve these same markets . these institutions are frequently characterized by extreme seasonality and or a bid-based purchasing function . the company 's business model , which is designed to support this strategy , includes the development of several competencies to enable superior service to the markets in which virco competes . an important element of virco 's business model is the company 's emphasis on developing and maintaining key manufacturing , warehousing , distribution , installation , project management , and service capabilities . the company has developed a comprehensive product offering for the furniture , fixtures and equipment needs of the k-12 education market , enabling a school to procure all of its furniture , fixtures and equipment ( โ ff & e โ ) requirements from one source . virco 's product offering consists primarily of items manufactured by virco , complemented with products sourced from other furniture manufacturers . our product offerings are continually enhanced with an ongoing new product development program that incorporates internally developed products as well as product lines developed with accomplished designers . finally , management continues to hone virco 's ability to forecast , finance , manufacture , warehouse , deliver , and install furniture within the relatively narrow delivery window associated with the highly seasonal demand for education sales .
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subsequently , a qualitative assessment of a hedge 's effectiveness is performed on a quarterly basis . for a fair value hedge , the change in fair value on the hedging instrument is recognized currently in earnings and the change in fair value on the hedged item attributable to the hedged risk adjusts the carrying amount of the story_separator_special_tag the following discussion and analysis is intended to facilitate the understanding and assessment of significant changes and trends in our businesses that accounted for the changes in our results of operations in the year ended december 31 , 2019 , as compared to our results of operation in the year ended december 31 , 2018 ; in our results of operations in the year ended december 31 , 2018 , as compared to our results of operations in the year ended december 31 , 2017 , and our financial condition at december 31 , 2019 as compared to our financial condition at december 31 , 2018. this discussion and analysis is based on and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto contained elsewhere in this annual report on form 10-k. in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause results to differ materially from management 's expectations . some of the factors that could cause results to differ materially from expectations are discussed in the sections entitled โ risk factors โ and โ forward-looking statements โ contained elsewhere in this annual report on form 10-k. critical accounting policies our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states ( โ gaap โ ) and accounting practices in the banking industry . certain of those accounting policies are considered critical accounting policies , because they require us to make estimates and assumptions regarding circumstances or trends that could materially affect the value of those assets , such as economic conditions or trends that could impact our ability to fully collect our loans or ultimately realize the carrying value of certain of our other assets . those estimates and assumptions are made based on current information available to us regarding those economic conditions or trends or other circumstances . if changes were to occur in the events , trends or other circumstances on which our estimates or assumptions were based , or other unanticipated events were to occur that might affect our operations , we may be required under gaap to adjust our earlier estimates and to reduce the carrying values of the affected assets on our balance sheet , generally by means of charges against income , which could also affect our results of operations in the fiscal periods when those charges are recognized . allowance for loan and lease losses . our alll is established through a provision for loan losses charged to expense and may be reduced by a recapture of previously established loss reserves , which are also reflected in the statement of income . loans are charged against the alll when management believes that collectability of the principal is unlikely . the alll is an amount that management believes will be adequate to absorb estimated losses on existing loans that may become uncollectible based on an evaluation of the collectability of loans and prior loan loss experience . this evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio , overall portfolio quality , review of specific problem loans , current economic conditions and certain other subjective factors that may affect the borrower 's ability to pay . while we use the best information available to make this evaluation , future adjustments to our alll may be necessary if there are significant changes in economic or other conditions that can affect the collectability in full of loans in our loan portfolio . utilization and valuation of deferred income tax benefits . we record as a โ deferred tax asset โ on our balance sheet an amount equal to the tax credit and tax loss carryforwards and tax deductions ( collectively โ tax benefits โ ) that we believe will be available to us to offset or reduce income taxes in future periods . under applicable federal and state income tax laws and regulations , tax benefits related to tax loss carryforwards will expire if they can not be used within specified periods of time . accordingly , the ability to fully use our deferred tax asset related to tax loss carryforwards to reduce income taxes in the future depends on the amount of taxable income that we generate during those time periods . at least once each year , or more frequently , if warranted , we make estimates of future taxable income that we believe we are likely to generate during those future periods . if we conclude , on the basis of those estimates and the amount of the tax benefits available to us , that it is more likely , than not , that we will be able to fully utilize those tax benefits prior to their expiration , we recognize the deferred tax asset in full on our balance sheet . on the other hand , if we conclude on the basis of those estimates and the amount of the tax benefits available to us that it has become more likely , than not , that we will be unable to utilize those tax benefits in full prior to their expiration , then , we would establish a valuation allowance to reduce the deferred tax asset on our balance sheet to the amount with respect to which we believe it is still more likely , than not , that we will be able to use to offset or reduce taxes in the future . story_separator_special_tag the increase in banking was due to higher net interest income , which was partially offset by a higher provision for loan losses , lower noninterest income and higher noninterest expenses . the increase in wealth management was due to higher noninterest income , which was partially offset by higher noninterest expenses . corporate interest expenses increased $ 1.1 million due to increases in balances outstanding and increased rates on our holding company line of credit . our effective tax rate for 2018 was 28.5 % as compared to 45.5 % for 2017 , and as a result of reduced federal tax rates under the tax cuts and job act enacted in the fourth quarter of 2017 , our statutory tax rate decreased from 41.5 % in 2017 to 29.0 % in 2018. in the fourth quarter of 2017 , we recorded a $ 5.4 million tax charge , attributable to the remeasurement of the net deferred tax asset as a result of the reduced corporate tax rate under the tax cuts and jobs act enacted in the fourth quarter of 2017 , that was partially offset by a 743 basis point reduction in our effective tax rate related to excess tax benefits resulting from the exercise of stock awards . 39 net interest income . the following tables set forth information regarding ( i ) the total dollar amount of interest income from interest-earning assets and the resultant average yields on those assets ; ( ii ) the total dollar amount of interest expense and the average rate of interest on our interest-bearing liabilities ; ( iii ) net interest income ; ( iv ) net interest rate spread ; and ( v ) net yield on interest-earning assets for the years ended december 31 : replace_table_token_12_th net interest income is impacted by the volume ( changes in volume multiplied by prior rate ) , interest rate ( changes in rate multiplied by prior volume ) and mix of interest-earning assets and interest-bearing liabilities . the following table provides a breakdown of the changes in net interest income due to volume and rate changes between 2018 as compared to 2017. replace_table_token_13_th net interest income for banking increased 38 % from $ 114.3 million in 2017 , to $ 157.4 million in 2018 due to a 34 % increase in interest-earning assets and an increase in the net yield on interest earning assets . on a consolidated basis our net yield on interest earning assets was 2.99 % for 2018 as compared to 2.93 % during 2017. this increase was due to a 41 % increase in noninterest bearing deposits and a 48 % increase in our average equity balance which were partially offset by a decrease in the net interest rate spread from 2.65 % in 2017 to 2.51 % in 2018. the decrease in the net interest rate spread was due to an increase in the cost of interest-bearing 40 liabilities , which was partially offset by an increase in the yield on interest-earnings assets . the yield on interest-earning assets increased to 3.99 % in 2018 from 3.53 % in 2017 as ( i ) new originations and acquired loans added to the portfolio bear interest rates higher than the current portfolio rates as a result of increases in market rates , ( ii ) the realization of $ 3.7 million of credit and yield discounts on the payoff of acquired loans and ( iii ) higher yields on securities due to purchases of securities in 2018 with yields higher than those in our existing securities portfolio , which were partially offset by a net $ 1.2 million decrease in interest income due to accounting for swaps in place during 2018. the increase in the cost of interest-bearing liabilities was due to increased costs of interest-bearing deposits , resulting from increases in deposit market rates , and increased costs of borrowings as the average rate on fhlb advances increased from 0.98 % in 2017 to 1.92 % in 2018. the average balance outstanding under the holding company line of credit increased from $ 13.7 million in 2017 to $ 31.5 million in 2018 , and the average rate increased by 82 basis points , resulting in a $ 1.1 million increase in corporate interest expense . provision for loan losses . the provision for loan losses represents our estimate of the amount necessary to be charged against the current period 's earnings to maintain the alll at a level that we consider adequate in relation to the estimated losses inherent in the loan portfolio . the provision for loan losses is impacted by changes in loan balances as well as changes in estimated loss assumptions and charge-offs and recoveries . the amount of the provision also takes into consideration such factors as changes in the nature and volume of the loan portfolio , overall portfolio quality , review of specific problem loans , current economic conditions and certain other subjective factors that may affect the ability of borrowers to meet their repayment obligations to us . for 2018 and 2017 , we recorded provisions for loan losses of $ 4.2 million and $ 2.8 million , respectively . the increase in the provision for loan losses for 2018 as compared to 2017 reflects the increase in loan balances during 2018 when compared to the increase in loan balances during 2017. we recognized $ 3.6 million in loan chargeoffs , net of recoveries , in 2018 , as compared to $ 0.2 million in recoveries in 2017. noninterest income . noninterest income for banking includes fees charged to clients for trust services and deposit services , consulting fees , prepayment and late fees charged on loans , gain on sale of loans , gains and losses from capital market activities and insurance commissions .
| results of operations years ended december 31 , 2019 and 2018. the primary sources of revenue for banking are net interest income , fees from its deposits and trust services , gains on sales of loans , certain loan fees , and consulting fees . the primary sources of revenue for wealth management are asset management fees assessed on the balance of aum . compensation and benefit costs , which represent the largest component of noninterest expense , accounted for 50 % and 76 % , respectively , of the total noninterest expense for banking and wealth management in 2019. the following tables show key operating results for each of our business segments for the years ended december 31 : replace_table_token_6_th general . our net income and income before taxes in 2019 were $ 56.2 million and $ 79.5 million , respectively , as compared to $ 43.0 million and $ 60.1 million , respectively , in 2018. the $ 19.4 million increase in income before taxes was the result of an $ 18.5 million increase in income before taxes for banking , a $ 1.4 million decrease in income before taxes for wealth management and a $ 2.4 million decrease in corporate expenses . the increase in banking was due to higher net interest income , a lower provision for loan losses and higher noninterest income which were partially offset by higher noninterest expenses . the decrease in wealth management was due to lower noninterest income and higher noninterest expenses . the decrease in corporate expenses was due to decreases in interest expense and noninterest expenses . our effective tax rate for 2019 was 29.3 % as compared to 28.5 % for 2018 and as compared to our statutory tax rate of 29.0 % . during 2018 , the effective tax rate benefited from excess tax benefits resulting from the exercise or vesting of stock awards . 36 net interest income .
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โ 1,103 note payable to the bank , maturing october 2029 ; with monthly payments of approximately $ 22 of principal and interest fixed at 3.64 % under a swap agreement ; collateralized by principally all assets of smith-carolina corporation and story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements of the company ( including the notes thereto ) included elsewhere in this report . dollar amounts are in thousands , except for per share amounts . the company generates revenues primarily from the sale , leasing , licensing , shipping and installation of precast concrete products and systems for the construction , utility and farming industries . the company 's operating strategy has involved producing and marketing innovative and proprietary products , including slenderwall , a patent pending , lightweight , energy efficient concrete and steel exterior wall panel for use in building construction ; j-j hooksยฎ barrier , a patented positive-connected highway safety barrier ; sierra wall , a patented sound barrier primarily for roadside use ; transportable concrete buildings ; and softsound , a highway sound attenuation system . in addition , the company produces utility vaults ; farm products such as cattleguards ; and custom order precast concrete products with various architectural surfaces . 12 as a part of the construction industry , the company 's sales and net income may vary greatly from quarter to quarter over a given year . because of the cyclical nature of the construction industry , many factors not under our control , such as weather and project delays , affect the company 's production schedule , possibly causing a momentary slowdown in sales and net income . as a result of these factors , the company is not always able to earn a profit for each period , therefore , please read management 's discussion and analysis of financial condition and results of operations and the accompanying financial statements with these factors in mind . on january 30 , 2020 , the world health organization ( โ who โ ) announced a global health emergency because of a new strain of coronavirus originating in wuhan , china ( the โ covid-19 outbreak โ ) and the risks to the international community as the virus spread globally beyond its point of origin . in march 2020 , the who classified the covid-19 outbreak as a pandemic , based on the rapid increase in exposure globally . the full impact of the covid-19 outbreak continues to evolve as of the date of this report . as such , it is uncertain as to the full magnitude that the pandemic will have on the company 's financial condition , liquidity , and future results of operations . the company has already experienced an adverse impact to its business by a reduction in revenues in 2020 from that in 2019 , a reduction in backlog , lower production volumes , employee absence , bidding restrictions within certain key states such as maryland and north carolina , and minor delays in receipt of materials through the company 's supply chain . the company may be further negatively impacted in the following respects : a ) by the potential inability of customers of the company to pay amounts owed to the company for products or services already provided should their businesses suffer setbacks ; this risk is heightened by the relatively long lag time experienced by the company in collecting accounts receivable ( see `` liquidity and capital resources '' below ) ; b ) by potential supply side issues should our vendors experience hardships , and have to reduce or terminate operations , due to the covid-19 outbreak , impacting the company 's sourcing of materials ; c ) by increased adverse effects on our workforce due to contracting or taking care of a relative who has contracted covid-19 , or have been quarantined by a medical professional ; in this respect , our workforce has been impacted as of this date with an effect on operations at all locations , but this impact has diminished as of the filing date , but no assurance can be provided as to future impacts , particularly in view of new coronavirus outbreaks ; d ) in the event that any of the three states in which we have facilities provide for the quarantine of our manufacturing employees , our production manufacturing will be significantly affected ; e ) in the event that any of the states in which we sell our products and services may eliminate , cancel , or delay projects due to monetary limitations resulting from the covid-19 outbreak ; in this respect , the company has experienced a reduction in bidding activity ; f ) the reduction of state infrastructure budgets due to the reduction in funding through the gas tax , or other funding sources ; g ) the increase in the overall loan defaults , which in turn impacts the banking sector 's ability to fund projects in which the company 's products may be utilized ; and h ) in the event that economic hardships force the company to default on loan payments , our loans may be called and our ability to borrow under our bank line of credit could cease ; management is actively monitoring the global situation on its financial condition , liquidity , operations , suppliers , industry , and workforce . although the company experienced a loss in the first quarter of 2020 and reduced revenues for the year 2020 as compared to 2019 , as well as experiencing factors described above , given the daily evolution of the covid-19 outbreak and the global responses to curb its spread , the company is not able to ultimately estimate the effects of the covid-19 outbreak on its results of operations , financial condition , or liquidity for fiscal year 2021. the discussions below , including without limitation with respect to liquidity , are subject to the future effects of the covid-19 outbreak . story_separator_special_tag the company has a mortgage note payable to the bank for the construction of it 's north carolina facility . the note carries a ten year term at a fixed interest rate of 3.64 % annually per the promissory note rate conversion agreement , with monthly payments of $ 22 , and is secured by all of the assets of smith-carolina and a guarantee by the company . the balance of the note payable at december 31 , 2020 was $ 2,008. on march 27 , 2020 , the company completed the refinancing of existing loans with a note payable to the bank in the amount of $ 2,701. a portion of the funds in the amount of $ 678 were secured for improvements to an existing five acre parcel for additional storage at the midland , virginia plant . the loan is collateralized by a first lien position on the virginia property , building , and assets . the refinance also released the lien on the smith-columbia plant in hopkins , south carolina ( columbia ) . the interest rate per the promissory note is fixed at 3.99 % per annum , with principal and interest payments payable monthly over 120 months in the amount of $ 27. the loan matures on march 27 , 2030. the balance of the note payable at december 31 , 2020 was $ 2,535. the company additionally has 5 smaller installment loans with annual interest rates between 3.99 % and 5.29 % , maturing between 2020 and 2025 , with varying balances totaling $ 166. under the loan covenants with the bank , the company is limited to annual capital expenditures of $ 3,500 and must maintain tangible net worth of $ 10,000. the company is in compliance with all covenants pursuant to the loan agreements as of december 31 , 2020. in addition to the notes payable discussed above , on april 16 , 2020 , the company obtained a loan , evidenced by a promissory note , under the paycheck protection program ( the `` ppp '' ) from the bank in the amount of $ 2,692. the ppp provides for loans to qualifying businesses , the proceeds of which may ony be used for payroll costs , rent , utilities , mortgage interest , and interest on other pre-existing indebtedness ( the `` permissible expenses '' ) . the interest rate per the promissory note , dated april 16 , 2020 and executed by the company in favor of the bank , is fixed at 1.00 % per annum , with principal and interest payments starting thirty ( 30 ) days after the amount of forgiveness is determined under section 1106 of the cares act . the loan matures on april 16 , 2022. the proceeds of the loan must be utilized pursuant to the requirements of the ppp , and all or a portion of the loan may be forgiven in accordance with the ppp applicable rules , regulations , and guidelines . pursuant to the loan agreement relating to the ppp loan , the bank may accelerate the loan in the event of a default under this or any other loan agreement with the bank . the company has currently applied for loan forgiveness in the full amount of the loan , but no assurance can be given as to the amount , if any , of forgiveness . also in addition to the notes payable discussed above , the company has a $ 4,000 line of credit with the bank with no balance outstanding as of december 31 , 2020 . the line of credit is evidenced by a commercial revolving promissory note which carries a variable interest rate of prime and matures on october 1 , 2021. the loan is collateralized by a first lien position on the company 's accounts receivable and inventory and a second lien position on all other business assets . key provisions of the line of credit require the company ( i ) to obtain bank approval for capital expenditures in excess of $ 3,500 during the term of the loan ; and ( ii ) to obtain bank approval prior to its funding any acquisition . on october 21 , 2020 the company received a commitment letter from the bank to provide a guidance line of credit specifically to purchase business equipment in an amount up to $ 1,500. the commitment provides for the purchase of equipment for which a note payable will be executed with a term not to exceed five years with an interest rate at the wall street journal prime rate plus 0.50 % with a floor of 4.00 % per annum . the loan is collateralized by a first lien position on all equipment purchased under the line . the commitment for the guidance line of credit matures on october 21 , 2021. as of december 31 , 2020 , the company had not purchased any equipment pursuant to the $ 1,500 commitment . 17 at december 31 , 2020 , the company had cash totaling $ 8,764 and $ 1,228 of investment securities available for sale compared to cash totaling $ 1,364 and $ 1,176 of investment securities available for sale at december 31 , 2019. investment securities at december 31 , 2020 consist of shares of usvax ( a virginia bond fund ) . during 2020 , the company 's operating activities provided $ 7,487 of cash due mainly to operating income and the collection of accounts receivable . in 2020 , investing activities used $ 2,421 in cash primarily for the yard expansion in virginia , the purchase of rental barrier , manufacturing equipment , and a vehicle . financing activities provided $ 2,334 in cash in 2020 , resulting primarily from the ppp loan received in april as a result of the cares act .
| results of operations year ended december 31 , 2020 compared to the year ended december 31 , 2019 for the year ended december 31 , 2020 , the company had total revenue of $ 43,862 compared to total revenue of $ 46,691 for the year ended december 31 , 2019 , a decrease of $ 2,829 , or 6 % . revenue includes product sales , barrier rentals , royalty income , and shipping and installation revenues . product sales are further divided into soundwall , architectural and slenderwall panels , miscellaneous wall panels , highway barrier , easi-setยฎ/easi-spanยฎ buildings , utility products , and miscellaneous precast products . the following table summarizes the revenue by type and a comparison for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_0_th the revenue items : soundwall sales , architectural panel sales , slenderwall sales , miscellaneous wall sales , barrier rentals , and royalty income are recognized as revenue over time . the revenue items : barrier sales , easi-set and easi-span building sales , utility sales , miscellaneous sales , and shipping and installation revenue are recognized as revenue at a point in time .
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the purchase price for the miners was recorded as follow ( in thousands ) : cash consideration $ 11,000 fair value of common stock 8,480 other expenses 2 total $ 19,482 the 200,000 shares held in escrow ( the โ escrow shares โ ) were deposited into an escrow account with corporate stock transfer , inc. , as escrow agent ( the โ escrow agent โ ) , pursuant to an escrow agreement ( the โ escrow agreement โ ) . certificates representing the escrow shares were deposited and recorded with the escrow agent to be held in escrow and not be transferred , pledged or hypothecated except as provided in the escrow agreement . no value was assigned to the escrow shares at the time of the acquisition as they are contingent consideration . the escrow shares will be released to the sellers upon the company generating net cash flow ( as defined in the prive purchase agreement ) of at least $ 10.0 million from the equipment . if the escrow shares are not released to the sellers on or before the two-year anniversary ( february 2020 ) of the prive purchase agreement , the escrow shares shall be returned to the company for cancellation . as of december 31 , 2019 and 2018 , no escrow shares have been released based upon not achieving required net cash flow ( see note 17 ) . under the guidance of asc 360 , impairment or disposal of long-lived assets , a long-lived asset or asset group ( including intangibles ) will be tested for recoverability whenever events or changes in circumstances indicate that its carrying story_separator_special_tag the discussion and analysis below includes certain forward-looking statements that are subject to risks , uncertainties and other factors , as described in โ risk factors โ and elsewhere in this annual report on form 10-k , that could cause our actual growth , results of operations , performance , financial position and business prospects and opportunities for this fiscal year and the periods that follow to differ materially from those expressed in , or implied by , those forward-looking statements . see also โ forward-looking statements โ on page 8 of this report . story_separator_special_tag expenses in the year ended december 31 , 2019 totaled approximately $ 0.1 million , which is a decrease of approximately $ 5.2 million , compared to $ 5.3 million during the year ended december 31 , 2018. the decrease is primarily due to , lower depreciation expenses recognized for our cryptocurrency mining equipment which was substantially impaired during 2018. asset impairment charges asset impairment charges of $ 1.5 million were recognized during the year ended december 31 , 2019 and were related to $ 0.8 million for the impairment of our cryptocurrencies accounted for as intangible assets and $ 0.7 million related to our intangible assets acquired in connection with our riotx / logical brokerage business . the impairment charges during the year ended december 31 , 2018 consisted of approximately $ 29.2 million related to impairments of our cryptocurrency mining equipment , $ 3.5 million related to the impairment of our cryptocurrencies accounted for as intangible assets , $ 2.1 million consisting of the impairment charges of $ 0.8 million of goodwill and $ 1.3 million for the impairment of intangible rights acquired of associated with the tess investment , and impairment charges of $ 0.4 million of goodwill related to our original acquisition of the legacy business . other income and expense during the year ended december 31 , 2019 , we recognized losses related to the fair value of the issuance of our senior secured convertible notes ( the โ notes โ ) of approximately $ 6.2 million . we also recognized expenses totaling approximately $ 6.8 million to revalue the notes and the related warrant liability to fair value during the year ended december 31 , 2019. during the year ended december 31 , 2019 , we recorded a gain of approximately $ 1.1 million on the deconsolidation of tess , due to our reduced ownership interest from 50.2 % to 8.8 % . interest expense totaled approximately $ 0.1 million for the years ended december 31 , 2019 and 2018 , respectively . for the year ended december 31 , 2018 , the company recorded a loss of $ 0.3 million related to the amendment of the blockchain mining supply & services ltd. ( โ bmss โ ) deferred purchase price which was recorded as a loss on extinguishment of debt . other income was approximately $ 0.9 million for the year ended december 31 , 2019 , due to a $ 0.4 million gain on forgiveness of our payable and interest in connection with our agreement with bmss , and a $ 0.5 million gain on forgiveness of various accounts payable balances . there was no other income recognized for the year ended december 31 , 2018. for the year ended december 31 , 2019 we recorded a gain on sale of cryptocurrencies of approximately $ 0.7 million . for the year ended december 31 , 2018 the gain on sale of cryptocurrencies was nominal . for the year ended december 31 , 2019 our investment income was nominal . for the year ended december 31 , 2018 we recorded investment income of approximately $ 0.1 million . for the year ended december 31 , 2018 , the company recorded other expenses of approximately $ 1.4 million , which is primarily related to the penalty accrual for our registration rights agreement associated with our private placement on december 19 , 2017. the agreement provided that the company register our securities by the effectiveness date of march 5 , 2018. the registration rights were not registered by the effectiveness date and the company recognized a contingency . income taxes for the year ended december 31 , 2019 , the company recorded an income tax benefit of $ 0.1 million in connection with our decision not to pursue our logical brokerage business . story_separator_special_tag 333-226111 ) , including the accompanying prospectus and any related prospectus supplement ( the โ atm offering โ ) , is subject to the provisions of general instruction i.b.6 of form s-3 , which provides that the company may not sell securities in a public primary offering with a value exceeding one-third of its public float in any twelve-month period unless its public float is at least $ 75 million . as of march 24 , 2020 , the company 's public float ( i.e. , the aggregate market value of its outstanding equity securities held by non-affiliates ) was approximately $ 24.5 million , based on the closing price per share of the company 's common stock , no par value , as reported on the nasdaq capital market on march 20 , 2020 , as calculated in accordance with general instruction i.b.6 of form s-3 . the company has not sold any securities pursuant to general instruction i.b.6 of form s-3 during the twelve calendar months immediately prior to the date of this annual report on form 10-k. if the company 's public float meets or exceeds $ 75 million at any time , the company will no longer be subject to the restrictions set forth in general instruction i.b.6 of form s-3 , at least until the filing of its next section 10 ( a ) ( 3 ) update as required under the securities act . 34 operating activities net cash consumed by operating activities was $ 16.9 million during the year ended december 31 , 2019. cash was consumed from the net loss of $ 20.3 million , less non-cash items of $ 14.7 million , including a loss on the issuance of our convertible notes of $ 6.2 million , the change in fair value of our convertible notes and the related warrant liability of $ 6.8 million , amortization of our right of use assets of $ 2.3 million , stock-based compensation totaling $ 0.7 million , impairment to our cryptocurrencies of $ 0.8 million , an impairment of intangible assets acquired of $ 0.7 million related to our decision not to pursue our logical brokerage business , net of deferred income tax benefit of $ 0.1 million , and depreciation and amortization totaling $ 0.1 million , offset by a $ 1.1 million gain recognized on the deconsolidation of tess , a $ 0.9 million gain on the extinguishment of notes , interest and accounts payable , other income of approximately $ 0.1 million , primarily related to the amortization of our deferred revenue related to our legacy animal health business and a $ 0.7 million related to the gain from the sale of cryptocurrencies . cryptocurrencies increased by $ 6.6 million and deposits increased $ 1.4 million for the purchase of our cryptocurrency miners not yet received , offset by , a decrease in our lease liability of $ 2.3 million and a decrease in accounts payable and accrued expenses of $ 0.8 million . net cash consumed by operating activities was $ 19.1 million , consisting of $ 19.0 million from continuing operations and $ 0.1 million from discontinued operations during the year ended december 31 , 2018. cash was consumed from continuing operations by the loss of $ 60.3 million , less non-cash items of $ 35.3 million consisting of an asset impairment for the company 's miners of $ 29.2 million , impairment of our cryptocurrencies of $ 3.5 million , impairment of acquired intangible rights of $ 1.3 million , the write-off of goodwill of $ 1.2 million , depreciation and amortization totaling $ 5.3 million , stock-based compensation totaling $ 4.7 million , stock issued for the extinguishment of the bmss payable of $ 0.3 million and common stock issued for services totaling $ 0.4 million , net of deferred income tax benefit of $ 0.7 million , amortization of license fee revenue totaling $ 0.1 million and the realized gain on sale of cryptocurrencies of $ 26,000. prepaid expenses and other current assets increased $ 0.8 million due primarily to increases in prepaid insurance premiums , cryptocurrencies increased $ 7.7 million and accounts payable and accrued expenses increased $ 4.7 million related to the significant expansion of the company 's operating activities in 2018. investing activities net cash consumed by investing activities during the year ended december 31 , 2019 was $ 1.8 million , consisting of proceeds from the sale of cryptocurrencies of $ 3.2 million , offset by $ 5.0 million for the purchase of our next generation bitmain s17 pro antminers and $ 37,000 for the amortization of patent costs . net cash consumed by investing activities during the year ended december 31 , 2018 was $ 24.9 million primarily consisting of purchases of cryptocurrencies of $ 5.6 million , purchases of property and equipment of $ 20.2 million related to the company 's cryptocurrency miners , an additional investment in coinsquare of $ 6.4 million , security deposits of $ 0.7 million , purchases of patent and trademark application costs of $ 60,000 , an investment in logical brokerage of $ 0.5 million and a purchase of developed technology of $ 0.6 million , offset by proceeds from the sale of cryptocurrencies of $ 9.2 million . financing activities net cash inflows from financing activities was $ 25.9 million during the year ended december 31 , 2019 , which consisted of net proceeds from the issuance of our common stock pursuant to general instruction i.b.1 of form s-3 in connection with our atm offering of $ 23.8 million , the proceeds received from the issuance of our notes and warrants of $ 3.0 million , offset by the repayment of the principal balance related to our agreement with bmss of $ 0.9 million , net of the $ 0.4 million gain recorded on extinguishment of the bmss balance .
| results of operations management 's plans and basis of presentation : the company has experienced recurring losses and negative cash flows from operations . at december 31 , 2019 , the company had approximate balances of cash and cash equivalents of $ 7.4 million , working capital of $ 9.3 million , total stockholders ' equity of $ 26.2 million and an accumulated deficit of $ 217.2 million . to date , the company has in large part relied on debt and equity financing to fund its operations . the company 's current focus is on its cryptocurrency mining operation , which has recently been upgraded with the purchase of 4,000 s17 pro antminers from bitmain . the company 's current strategy will continue to expose the company to the numerous risks and volatility associated within this sector . the company expects to continue to incur losses from operations for the near-term and these losses could be significant as the company incurs costs and expenses associated with potential future acquisitions , as well as public company , legal and administrative related expenses being incurred . the company is closely monitoring its cash balances , cash needs and expense levels . management 's strategic plans include the following : continuing expansion of cryptocurrency mining operations relative to the price of cryptocurrencies ; continuing to evaluate opportunities for acquisitions in the blockchain and cryptocurrency sector ; exploring other possible strategic options and financing opportunities available to the company ; evaluating options to monetize , partner or license the company 's assets ; and continuing to implement cost control initiatives to conserve cash . 2019 compared to 2018 revenues cryptocurrency mining revenues for the years ended december 31 , 2019 and 2018 , totaled approximately $ 6.7 million and $ 7.7 million , respectively . other revenue consisted of license payments of approximately $ 0.1 million in each period .
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the discussion is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes ( or , the โ consolidated financial statements โ ) contained in item 8 , โ financial statements and supplementary data โ of this annual report on form 10-k ( or , โ form 10-k โ ) . when we refer to โ resolute forest products , โ โ resolute , โ โ we , โ โ our , โ โ us , โ or the โ company , โ we mean resolute forest products inc. with its subsidiaries , either individually or collectively , unless otherwise indicated . o verview resolute forest products is a global leader in the forest products industry with a diverse range of products , including market pulp , tissue , wood products , newsprint and specialty papers , which are marketed in close to 70 countries . the company owns or operates some 40 facilities , as well as power generation assets , in the u.s. and canada . we are the largest canadian producer of wood products east of the canadian rockies , the largest producer of uncoated mechanical papers in north america , and a competitive pulp producer in north america . we are also a leading global producer of newsprint and an emerging tissue producer . we report our activities in five business segments : market pulp , tissue , wood products , newsprint and specialty papers . we believe an integrated approach across these segments maximizes value creation for our company and stakeholders . we are guided by our vision and values , focusing on safety , sustainability , profitability , accountability , and teamwork . we believe we can be distinguished by the following competitive strengths : competitive cost structure combined with diversified and integrated asset base โ large-scale and cost-effective operations , including significant internal energy production from cogeneration and hydroelectric facilities , which support our value proposition ; โ control over fiber transformation chain from standing timber to end-product for the majority of our offering ; โ nearly 100 % of our products sourced from high-quality virgin fiber ; โ harvesting rights for the majority of fiber needs in canada ; and โ sophisticated logistics capabilities to meet demanding customer expectations . solid balance sheet โ favorable pricing and flexibility under borrowing agreements together with our liquidity levels support ability to weather challenging market cycles and to execute transformation strategy ; โ significant tax assets to defer cash income taxes and provide synergies to execute this strategy ; and โ customers benefit from a financially stable and reliable business partner in a challenging industry . seasoned management team โ deep industry expertise , with influential leaders in forestry , operations , environmental risk management and public policy ; โ culture of accountability , encouraging transparency and straightforwardness ; and โ core identity tied to renewable resources we harvest in a truly sustainable manner . 24 our business products for information on our products , see part i , item 1 , โ business โ products โ of this form 10-k. strategy and highlights our corporate strategy is focused on continuing to transform the company away from mature markets and declining products toward a more profitable and sustainable organization over the long run , founded on a competitive portfolio of manufacturing assets and a solid presence in long-term growth markets . our strategy is based on maximizing value generation from structurally declining paper , growing in pulp and wood products , integrating our pulp into value-added quality tissue , and investing in product innovation , while maintaining a disciplined approach to capital allocation . maximizing value generation from paper our paper products โ newsprint and specialty papers โ remain an important part of our business , generating cash to help finance our transformation strategy . in order to remain competitive in mature and declining markets that our paper operations face , we strive to consistently : maintain a stringent focus on controlling costs and optimizing our diversified asset base ; manage production and inventory levels ; and focus production at our most profitable and lower-cost facilities and machines . growing in pulp and wood products market pulp and wood products are core segments for the company , and we believe in their long-term , sustained growth potential . we are confident in our ability to generate attractive returns for shareholders as operators of these assets . our strategy is to take an opportunistic approach to these strategic initiatives , such as : spending to improve productivity and or lower costs ; investing selectively in organic expansions ; and pursuing opportunistic strategic acquisitions . for example , we recently completed the acquisition of three sawmills in the u.s. south , with combined production capacity of 550 million board feet once ramped-up . the transaction will give us immediate scale in an attractive region , with quality assets in a rich fiber basket , close to growing end-markets , and it gives us an opportunity to create value by deploying our operational expertise in sawmilling , with a focus on reliability , productivity and safety . we plan to pursue capital investments started under the previous owner , to maintain appropriate working capital , and to upgrade maintenance practices . integrating our pulp into value-added quality tissue we entered the tissue market in 2015 with the construction of a greenfield tissue facility at our calhoun ( tennessee ) site and the acquisition of two tissue mills and a recovered paper facility in florida . the purpose of our diversification into tissue is to add value with the integration of our market pulp , particularly as printing and writing demand for pulp continues to decline . we also believe that the tissue business will provide a more stable source of revenue and profitability . our tissue operations are almost entirely supplied from our pulp mills , creating synergies and minimizing risks associated with cyclical market pulp pricing . story_separator_special_tag increasing facilities ' energy efficiency and lowering ghg emissions , including initiatives at our alma ( quebec ) and kรฉnogami specialty paper mills to optimize boiler performance for a reduction of 6,000 metric tons of co 2 equivalents per year , as well as our baie-comeau newsprint mill to increase control of combustion for a 50 % reduction in oil usage , or approximately 4,000 metric tons of co 2 equivalents per year . deploying a carbon capture unit and ancillary equipment at our saint-fรฉlicien pulp mill to improve growth rates at serres toundra inc. in which we hold a 49 % interest . maintaining certification of 100 % of resolute-owned or managed woodlands to at least one internationally recognized forest management standard ( sustainable forestry initiative ยฎ , or โ sfi ยฎ โ , and or forest stewardship council ยฎ , or โ fsc ยฎ โ ) . as a result , our commitments extend well beyond strict compliance with applicable forestry regulations , which in quebec and ontario are already among the most , if not the most , rigorous in the world . maintaining internationally recognized chain of custody certifications at 100 % of our manufacturing facilities ( sfi , fsc , and the programme for the endorsement of forest certification ) , with the exception of the tissue operation at our calhoun facility , which is expected to have its fiber-tracking system certified in 2020. launching our regional procurement web portal to support the development of local and regional business in our operating communities as part of our commitment to further integrate sustainability practices in our procurement process . appointing suzanne blanchet as a member of our board of directors and chair of the environmental , health and safety committee . continuing to report climate change , water security , and forests disclosures to cdp . full disclosures and scores are available on cdp 's website ( https : //www.cdp.net/ ) , though this information is not incorporated by reference into this form 10-k and should not be considered part of this or any other report that we file with or furnish to the u.s. securities and exchange commission ( or , the โ sec โ ) . continuing to implement our proactive approach to environmental management by beating our environmental incidents target ( class 1 and 2 ) by recording 18 environmental incidents in 2019 . maintaining active engagement of union officials , employees , mayors and other community leaders , first nations partners , small community business owners , customers , and representatives of governments at various levels . in addition to developing information resources such as borealforestfacts.com and the resolute blog , we continued to expand the scope of our social media presence as well as our engagement on the forum borรฉal and boreal forum social media platforms . these quebec and ontario sites provide a forum for fact-based discussion concerning sustainable forestry practices in the boreal forest and they help to ensure that individual and community voices are heard , particularly when it comes to the importance of forestry to northern communities in canada . the information contained on or connected to borealforestfacts.com , the resolute blog and the forum borรฉal and boreal forum social media platforms , is not incorporated by reference into this form 10-k and should not be considered part of this or any other report that we file with or furnish to the sec . other sustainability performance indicators and disclosures prepared in accordance with the global reporting initiative 's gri standards are available on our website ( www.resolutefp.com ) . such sustainability disclosures on our 28 website are not incorporated by reference into this form 10-k and should not be considered part of this or any other report that we file with or furnish to the sec . our leadership and sustainability accomplishments have been recognized by independent organizations . in 2019 , we received extensive regional , north american and global recognition for our sustainability achievements . some of the more noteworthy included : the business intelligence group sustainability award , in the sustainability initiative of the year category ( august 1 , 2019 ) ; canada 's 2020 clean50 and 2020 clean16 ( www.clean50.com ) , for our president and chief executive officer 's contribution to sustainability and clean capitalism in canada ( october 3 , 2019 ) ; three gold international business awards ( known as the โ stevies ยฎ โ ) , for energy industry innovation of the year , company of the year โ manufacturing ( large ) and corporate social responsibility program of the year for the u.s. and canada ( october 19 , 2019 ) ; and the american forest and paper association 's leadership in sustainability award , in the energy efficiency/greenhouse gas reduction ( large company ) category ( november 11 , 2019 ) . power generation we produce electricity at six cogeneration facilities and seven hydroelectric dams . the output is consumed internally or sold under contract to third parties . this allows us to reduce our costs by generating energy internally at a lower cost compared to open market purchases , and by producing revenue from external sales . this table provides a breakdown of the output capacity ( based on installed capacity and operating expectations in 2020 ) available for internal consumption at our existing production facilities : replace_table_token_6_th we estimate that the approximate annualized cost savings to our operations attributable to internal consumption from our cogeneration assets and hydroelectric facilities is between $ 35 million and $ 40 million .
| consolidated results โ selected annual financial information โ above . ( 3 ) includes wood pellets measured by mass , converted to board feet using a density-based conversion ratio . replace_table_token_23_th industry trends 2019 u.s. housing starts were 1.3 million , up by 3.2 % compared to 2018 , which reflects a 7.3 % increase in multi-family starts , and a 1.4 % increase in single-family starts . the 2x4 โ random length ( or , โ rl โ ) # 1-2 kiln dried great lakes ( or , โ kd gl โ ) price dropped by 22.0 % in 2019 , and the 2x4x8 stud kd gl price was down by 20.2 % . 45 2019 vs. 2018 operating ( loss ) income variance analysis sales sales were $ 207 million lower , or 25 % , to $ 616 million in 2019 , reflecting a $ 90 per thousand board feet drop in the average transaction price , or 20 % , and a reduction of 115 million board feet in shipments , in each case reflecting a sharp drop in market prices in the second half of 2018 , and a slow recovery through 2019. lack of transportation availability also contributed to the decrease in shipments in the latter part of 2019. despite lower shipments , finished goods inventory remained at a normal level of 133 million board feet , as we took 95 million board feet of additional downtime compared to 2018 , for a total of 242 million board feet in 2019. cost of sales , excluding depreciation , amortization and distribution costs manufacturing costs increased by $ 23 million after adjusting for the effect of lower volume and the canadian dollar fluctuation , mainly reflecting : higher wood fiber costs ( $ 13 million ) , including higher transportation costs ; an increase in labor costs ( $ 6 million ) ; and unfavorable maintenance costs ( $ 5 million ) .
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deferred direct marketing expenses included in prepaid expenses and other were not material in 2020 and 2019. supplier rebates we receive quarterly and annual performance rebates from suppliers based upon attainment of certain purchase or sales goals . supplier rebates are included as a reduction of cost of sales and are recognized over the period they are earned . the factors considered in estimating supplier rebate accruals include forecasted inventory purchases and sales in conjunction with supplier rebate contract terms , which generally provide for increasing rebates based on either increased purchase or sales volume . property and equipment property and equipment are stated at cost , net of accumulated depreciation and amortization . depreciation is computed primarily under the straight-line method . amortization of leasehold improvements is computed using the straight-line method over the lesser of the useful life of the assets or the lease terms . see note 6 - property and equipment , net . capitalized software costs consist of costs to purchase and develop software for internal use . costs incurred during the application development stage for software bought and further customized by outside suppliers , software developed by a supplier for proprietary use , and costs incurred for our own personnel who are directly associated with software development are capitalized . income taxes we account for income taxes under an asset and liability approach that requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or tax returns . in estimating future tax consequences , we generally consider all expected future events other than enactments of changes in tax laws or rates . the effect on deferred income tax assets and liabilities of a change in story_separator_special_tag in our annual report on form 10-k for the year ended december 31 , 2019 is incorporated by reference into this md & a . during the fourth quarter of 2020 , in conjunction with our efforts to remediate our income tax material weakness , we identified an error in the calculation of the deferred tax asset related to investments in partnerships . specifically , as of december 30 , 2017 our deferred tax asset was overstated by $ 42 million . as a result of the overstatement of this deferred tax asset , our valuation allowance established during the year ended december 31 , 2019 was overstated . this revision did not affect our statement of operations in any other year . we have revised affected amounts below as of december 31 , 2019 from the amounts previously reported . overview we are a global , animal-health technology and services company dedicated to supporting the companion , equine , and large-animal veterinary markets . our mission is to provide the best products , services , and technology to veterinarians and animal-health practitioners across the globe , so they can deliver exceptional care to their patients when and where it is needed . in february 2019 , we combined the complementary capabilities of the animal health business , previously operated by our former parent , and vets first choice , bringing together leading practice management software and supply chain distribution businesses with a technology-enabled prescription management platform and related pharmacy services . we believe our approach to the market will support the delivery of improved veterinary care and health of their practices while driving increased demand for our products and services . we are organized based upon geographic region and focus on delivering our platform of products and services to our customers on a geographical basis . our reportable segments are ( i ) north america , ( ii ) europe , and ( iii ) apac & emerging markets . our major product groups that we disaggregate within our reportable segments are ( i ) supply chain services , ( ii ) software services , and ( iii ) prescription management . see note 20 - segment data and note 5 - revenue from contracts with customers . across our segments and major product groups , the willingness of animal owners to spend with their veterinarians on preventative and therapeutic treatments and procedures is critical to our financial performance . in the companion-animal market specifically , there is an ongoing trend of owners humanizing , or providing the best possible lives for their pets . across the companion animal , equine , and large animal markets , we anticipate that for us to succeed on our strategic roadmap , we should prioritize value creation with our customers so that we can seek to strengthen the relationship between customers and animal owners as well as enable our customers to provide proactive healthcare options to animal owners , including our investment in higher margin proprietary brand products and compounding . see item 1. business for a detailed discussion of our corporate mission and strategy that should be read in conjunction with our discussion and analysis of financial condition and results of operations . key factors and trends affecting our results covid-19 , growth , and cost containment in an effort to contain covid-19 or slow its spread , governments around the world enacted various measures , including orders to close all businesses not deemed โ essential , โ isolate residents to their homes or places of residence , and practice social distancing when engaging in essential activities . the determination of what is an โ essential โ business is mandated by local authorities . the covetrus , inc. 2020 form 10-k 38 animal-health industry and veterinary-care sector have proven to be more resilient than originally anticipated . operationally , all of our distribution centers and pharmacies continue to remain open as veterinary medicine has been deemed an essential service in most geographies across the globe . our supply chain operations continue to work with manufacturers and suppliers across the globe to provide access to critical supplies and quality products . story_separator_special_tag adjusted ebitda excludes share-based compensation , strategic consulting , transaction costs , formation of covetrus expenses , separation programs and executive severance , carve-out operating expenses , it infrastructure , goodwill impairment charges , capital structure-related fees , operating lease right-of-use asset impairments , managed exits from businesses we are exiting or closing , and other income and expense items , net . currently , we do not allocate expenses managed at the corporate level , such as corporate wages and related benefits , corporate occupancy costs , professional services utilized at the corporate level , and non-recurring expenses to our operating segments . other companies may not define or calculate adjusted ebitda in the same way . we provide adjusted ebitda by segment as a supplemental measure to gaap . see below for our adjusted ebitda explanations on a segment basis as well as on a consolidated , non-gaap basis . non-gaap adjusted ebitda on a total segment basis is reconciled in note 20 - segment data , as required by asc 280. story_separator_special_tag costs related to various corporate functions as we continue to invest in our corporate infrastructure to enable our growth , the increase of $ 27 million from acquisitions ( primarily covetrus , inc. 2020 form 10-k 41 vets first choice ) , $ 18 million of strategic consulting fees , $ 8 million operating lease right-of-use asset impairment , increased costs to support the growth in our prescription management business , and $ 6 million of costs accrued in connection with the managed exit of our french distribution business . these costs were partially offset by decreases due to the disposition of scil and the deconsolidation of a subsidiary in spain as the divested businesses contributed expenses for a full year in 2019 , $ 12 million decrease in expenses related to the formation of covetrus , and favorable foreign exchange . the drivers by segment and at corporate are detailed below : north america increased primarily due to the acquisition of vets first choice which contributed $ 18 million incremental expense from a complete year of sg & a expense this year versus 10.75 months last year , $ 8 million operating lease right-of-use asset impairment , and increased costs to support the growth in our prescription management business , partially offset by $ 9 million of lower share-based compensation expenses and expenses related to the formation of covetrus . europe decreased primarily due to $ 21 million for the disposition of scil and the deconsolidation of a subsidiary in spain as the divested businesses contributed expenses for a full period in 2019. these decreases were partially offset by $ 7 million from acquisitions in france and romania being present for the full year in 2020 , $ 6 million of costs incurred in connection with the managed exit of our french distribution business , $ 3 million of increased it and facility costs associated with the formation of covetrus as we exited our transition service agreements , and unfavorable foreign exchange of $ 2 million . apac & emerging markets decreased primarily due to favorable foreign exchange . corporate grew primarily due to increased costs incurred of $ 32 million as we continue to invest in our corporate infrastructure to enable our growth and $ 18 million related to strategic consulting fees , partially offset by decreased expenses of $ 15 million related to the formation of covetrus . other income ( expense ) replace_table_token_8_th for the year ended december 31 , 2020 , we generated other income , net as compared to other expense , net for the year ended december 31 , 2019 primarily due to the gain on the divestiture of scil , a mark-to-market adjustment related to our distrivet options , and a gain on the deconsolidation of our subsidiary , sahs , in spain . income taxes for the year ended december 31 , 2020 , our effective tax rate was 28.9 % compared to 4.5 % for the prior year period . the increase in our effective tax rate is primarily related to the sale of our scil business and non-deductible share-based compensation . on december 22 , 2017 , the u.s. government passed the u.s. tax cuts and jobs act of 2017 ( the โ tax act โ ) . the tax act included provisions for tax on global intangible low-taxed income ( โ gilti โ ) . the valuation allowance on deferred tax assets was $ 11 million as of december 31 , 2020 and $ 10 million as of december 31 , 2019. in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some or all the deferred tax assets will be realized . the ultimate realization of deferred taxes assets is dependent upon generation of future taxable income during the period in which those temporary differences become deductible . management considers the scheduled reversal of deferred tax liabilities , projected future taxable income , and taxable income in carryback years and tax-planning strategies when making this assessment . the change in valuation allowance for the year ended december 31 , 2020 was $ 1 million and was attributable primarily to an increase related to the uncertainty regarding the realization of future tax benefit in certain foreign jurisdictions and a decrease of a portion of the valuation allowance recorded against u.s. deferred tax assets . see note 16 - income taxes .
| results of operations replace_table_token_4_th the year-over-year increase in net sales for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 was primarily due to improved performance across certain of our markets , prescription management growth , and acquisitions , partially offset by net sales from divestitures as the divested businesses contributed net sales for a full period in 2019 as well as unfavorable foreign exchange . the year-over-year improvement in operating loss for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 was largely due to the goodwill impairment charge in the comparative period of the prior year , partially offset by increased sg & a expense related to various corporate functions as we continue to invest in our corporate infrastructure to enable our growth . the year-over-year improvement in net loss for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 was largely due to the goodwill impairment charge in the comparative period of the prior year , as well as the gain on the divestiture of scil , partially offset by increased sg & a expense related to various corporate functions as we continue to invest in our corporate infrastructure to enable our growth .
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this retention is billable to the customer upon expiration of the contractual warranty period , which is expected to occur in the second quarter 2020. in january 2020 , the customer entered into a restructuring transaction through a prepackaged chapter 11 process that is intended to enable the customer to fulfill its commitments story_separator_special_tag financial condition and results of operations the following โ management 's discussion and analysis of financial condition and results of operations โ is provided to assist readers in understanding our financial performance during the periods presented and significant trends that may impact our future performance . this discussion should be read in conjunction with our financial statements and the related notes thereto . overview certain terms are defined in the โ glossary of terms โ beginning on page ii . we are a leading fabricator of complex steel structures , modules and marine vessels , and a provider of project management , hookup , commissioning , repair , maintenance and civil construction services . our customers include united states ( `` u.s. '' ) and , to a lesser extent , international energy producers ; refining , petrochemical , lng , industrial , power , and marine operators ; epc companies ; and certain agencies of the u.s. government . we operate and manage our business through three operating divisions ( `` fabrication '' , `` shipyard '' and `` services '' ) and one non-operating division ( `` corporate '' ) , which represent our reportable segments . during the first quarter 2019 , our former epc division was operationally combined with our fabrication division , and accordingly , the segment results for the epc division for 2018 and 2017 were combined with the fabrication division to conform to the presentation of our reportable segments for 2019. our corporate headquarters is located in houston , texas , with facilities for all our operating divisions located in houma , louisiana , and additional facilities for our shipyard division located in jennings and lake charles , louisiana . see note 10 of our financial statements in item 8 for further discussion of our realigned operating divisions for 2019 and see below for discussion of anticipated changes to our operating divisions for 2020. see note 3 of our financial statements in item 8 and below for discussion of our anticipated closure of the jennings yard . beginning in late 2014 , a decline in oil and gas prices led to a significant and sustained reduction in capital spending and drilling activities from our traditional offshore oil and gas customer base . consequently , our operating results and cash flows were negatively impacted as we experienced reductions in revenue , lower margins due to competitive pricing and a significant underutilization of our facilities in our fabrication and shipyard divisions . in recent years we have also experienced losses on certain projects , primarily in our fabrication and shipyard divisions , including project charges of $ 17.2 million during 2019. see note 2 of our financial statements in item 8 and โ results of operations โ below for further discussion of our project charges and losses on projects . given the aforementioned market challenges and project charges , we implemented a strategy focused on the following initiatives : improve and maintain our liquidity through cost reduction efforts and the sale of underutilized assets ; reduce our reliance on the fabrication of structures and marine vessels associated with the offshore oil and gas sector by repositioning the company to : โ fabricate modules , piping systems and other structures for onshore refining , petrochemical , lng and industrial facilities ; โ fabricate newbuild marine vessels for the government and other customers unrelated to the offshore oil and gas sector ; and โ fabricate foundations , secondary steel components and support structures for offshore wind developments . improve our resource utilization and centralize our key project resources through the rationalization and integration of our facilities and operations ; improve our competitiveness and project execution by enhancing our proposal , estimating and operations resources , processes and procedures ; and review alternative strategies for the company . summarized below is our progress and current status with respect to the aforementioned initiatives . efforts to preserve and improve our liquidity โ we continue to take actions to preserve and improve our liquidity . at december 31 , 2019 , our cash and short-term investments totaled $ 69.6 million , and our total available liquidity , including our credit agreement , totaled $ 99.4 million . our liquidity reflects our cost reduction initiatives ( including reducing the compensation of our directors and executive officers ) , the sale of underutilized assets and facilities , and an improved overall cash flow position on our projects in backlog . in addition to our cash and short-term investments , at december 31 , 2019 , our assets held for sale totaled $ 9.0 million , and in february 2020 , we reached a $ 10.0 million settlement related to disputed change orders for a completed project and received payment from the customer in february 2020. see note 3 of our financial statements in item 8 for further discussion of our assets held for sale and recent sales of underutilized assets and facilities and note 12 for further discussion of our change order settlement . 22 efforts to r educe our reliance on the offshore oil and gas sector โ we are pursuing several initiatives to reduce our reliance on the fabrication of structures and marine vessels associated with the offshore oil and gas sector . fabrication of onshore modules , piping systems and structures - we continue to focus our business development efforts on the fabrication of modules , piping systems and other structures for onshore refining , petrochemical , lng and industrial fabrication facilities . story_separator_special_tag 23 review alternative strategies for the company โ on november 4 , 2019 , we announced the completion of our previously announced review of alternative strategies that began in the second quarter 2019. the review was designed to objectively evaluate alternative strategies for the company , including possible merger or sale transactions , among other things . ba sed on this process , our board of directors determined that the interests of our shareholders were best served if the company remains independent and the board focuses on executing our existing business plan , which includes the efforts referenced above , am ong other things . operating outlook we continue to respond to the competitive environment within our industry and actively compete for additional opportunities . our focus remains on securing profitable new project awards and backlog in the near-term and generating operating income and cash flows in the longer-term . however , our success , including achieving the aforementioned initiatives , will be determined by , among other things : the level of fabrication opportunities in our traditional offshore markets and the new markets we are pursuing , including refining , petrochemical , lng and industrial facilities and offshore wind developments ; the level of new build marine vessel activity within , and outside of , the oil and gas sector ; our ability to secure new project awards through competitive bidding and or alliance and partnering arrangements ; our ability to execute projects within our cost estimates and successfully manage them through completion ; our ability to hire and retain key personnel and craft labor to execute our projects ; the successful integration of our fabrication division and services division and closure of our jennings yard ; and our ability to resolve our dispute with a customer related to the construction of two mpsvs ( see note 8 of our financial statements in item 8 and โ legal proceedings โ in item 3 for further discussion of the dispute ) . in addition , although we have recently experienced improved utilization of our facilities , in the near-term : ( i ) the utilization of our shipyard division will be impacted by delays in construction activities for our three research vessel projects and disruptions caused by the closure of our jennings yard , and ( ii ) the utilization of our newly integrated fabrication & services division will be impacted by the delay in timing of new project awards . our near-term results may also be impacted by costs associated with investments in key personnel and process improvement efforts to support our aforementioned initiatives . in addition , our gross profit for both divisions will be impacted in the near-term as certain projects within our backlog are in a loss position and a majority of our remaining backlog is at , or near , break-even gross profit . specifically , due to previous new project awards bid at competitive pricing and the project charges in 2019 , approximately 15 % of our backlog is in a loss position and 70 % of our backlog is at , or near , break-even ( including our three research vessel projects and three towing , salvage and rescue ship projects ) . accordingly , this backlog will result in future revenue with no gross profit . see note 2 of our financial statements in item 8 and โ results of operations โ below for further discussion of our project charges and losses on projects . new awards and backlog new project awards represent expected revenue values of commitments received during a given period , including scope growth on existing commitments . a commitment represents authorization from our customer to begin work or purchase materials pursuant to a written agreement , letter of intent or other form of authorization . backlog represents the unrecognized revenue for our new project awards and may differ from the value of future performance obligations for our contracts required to be disclosed under topic 606 and presented in note 2 of our financial statements in item 8. in general , a performance obligation is a contractual obligation to construct and or transfer a distinct good or service to a customer . the transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when , or as , the performance obligation is satisfied . backlog includes our performance obligations at december 31 , 2019 , plus signed contracts that are temporarily suspended or under protest that may not meet the criteria to be reported as future performance obligations under topic 606 but represent future work that we believe will be performed . we believe that backlog , a non-gaap financial measure , provides useful information to investors . new project awards and backlog may vary significantly each reporting period based on the timing of our major new contract commitments . projects in our backlog are generally subject to delay , suspension , termination , or an increase or decrease in scope at the option of the customer ; however , the customer is required to pay us for work performed and materials purchased through the date of termination , suspension , or decrease in scope . depending on the size of the project , the delay , suspension , termination or increase or reduction in scope of any one contract could significantly impact our backlog and change the expected amount and timing of revenue recognized . 24 a reconciliation of our remaining performance obligatio ns under topic 606 ( the most comparable gaap measure as presented in note 2 of our financial statements in item 8 ) to our reported backlog is provided below ( in thousands ) .
| results of operations comparison of 2019 and 2018 ( in thousands , except for percentages ) : in the comparative tables below , percentage changes that are not considered meaningful ( generally when the 2018 period amount is immaterial or when the percentage change is significantly greater than 100 % ) are shown below as `` nm `` ( not meaningful ) . consolidated replace_table_token_6_th revenue - revenue for 2019 and 2018 was $ 303.3 million and $ 221.2 million , respectively , representing an increase of 37.1 % . the increase was primarily due to : increased revenue for our shipyard division of $ 62.8 million , primarily due to progress on our research vessel projects and towing , salvage and rescue ship projects , offset partially by lower revenue for our harbor tug projects and the 2018 period including revenue on our two mpsv contracts which were suspended during the first quarter 2018 ; and increased revenue for our fabrication division of $ 29.6 million , primarily due to progress on our paddle wheel riverboat project , forty-vehicle ferry projects and offshore jacket and deck project , offset partially by the 2018 period including revenue associated with our petrochemical modules project that was completed during 2018 ; offset partially by , decreased revenue for our services division of $ 6.5 million , primarily due to lower fabricated products and construction services revenue , offset partially by higher onshore maintenance revenue . see note 8 of our financial statements within item 8 for further discussion of our mpsv dispute . gross loss - gross loss for 2019 and 2018 was $ 17.0 million ( 5.6 % of revenue ) and $ 7.2 million ( 3.3 % of revenue ) , respectively .
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the rights may be redeemed in whole , but not in part , at a price of $ 0.001 per right ( payable in cash , common stock or other consideration deemed appropriate by the board of directors ) by the board of directors only until the earlier story_separator_special_tag safe harbor statement under the private securities litigation reform act of 1995 our reports , filings and other public announcements contain certain statements that describe our management 's beliefs concerning future business conditions , plans and prospects , growth opportunities and the outlook for our business and the electric transmission industry based upon information currently available . such statements are โ forward-looking โ statements within the meaning of the private securities litigation reform act of 1995. wherever possible , we have identified these forward-looking statements by words such as โ will , โ โ may , โ โ anticipates , โ โ believes , โ โ intends , โ โ estimates , โ โ expects , โ โ projects โ and similar phrases . these forward-looking statements are based upon assumptions our management believes are reasonable . such forward-looking statements are subject to risks and uncertainties which could cause our actual results , performance and achievements to differ materially from those expressed in , or implied by , these statements , including , among others , the risks and uncertainties listed in this report under โ item 1a risk factors โ and in our other reports filed with the sec from time to time . because our forward-looking statements are based on estimates and assumptions that are subject to significant business , economic and competitive uncertainties , many of which are beyond our control or are subject to change , actual results could be materially different and any or all of our forward-looking statements may turn out to be wrong . forward-looking statements speak only as of the date made and can be affected by assumptions we might make or by known or unknown risks and uncertainties . many factors mentioned in our discussion in this report will be important in determining future results . consequently , we can not assure you that our expectations or forecasts expressed in such forward-looking statements will be achieved . except as required by law , we undertake no obligation to publicly update any of our forward-looking or other statements , whether as a result of new information , future events , or otherwise . overview vericel corporation is a leader in advanced cell therapies for the sports medicine and severe burn care markets , and a developer of patient-specific expanded cell therapies for use in the treatment of patients with severe diseases and conditions . we currently have two fda marketed autologous cell therapy products in the united states . maci ยฎ ( autologous cultured chondrocytes on porcine collagen membrane ) is an autologous cellularized scaffold product indicated for the repair of symptomatic , single or multiple full-thickness cartilage defects of the knee with or without bone involvement in adults that was approved by the fda on december 13 , 2016. the first shipment and implantation of maci occurred on january 31 , 2017. at the end of the second quarter of 2017 , we removed maci 's predecessor , carticel ยฎ ( autologous cultured chondrocytes ) , from the market . carticel is an autologous chondrocyte implant indicated for the repair of symptomatic cartilage defects of the femoral condyle ( medial , lateral or trochlea ) , caused by acute or repetitive trauma , in patients who have had an inadequate response to a prior arthroscopic or other surgical repair procedure ( e.g. , debridement , microfracture , drilling/abrasion arthroplasty , or osteochondral allograft/autograft ) . we also market epicel ยฎ ( cultured epidermal autografts ) , a permanent skin replacement hud for the treatment of patients with deep-dermal or full-thickness burns comprising greater than or equal to 30 percent of tbsa . manufacturing we have a cell-manufacturing facility in cambridge , massachusetts which is used for u.s. manufacturing and distribution of maci and epicel , and also was used for manufacturing of maci for the summit study conducted for approval in europe and the u.s. throughout 2016 and early 2017 , we also operated a centralized cell manufacturing facility in ann arbor , michigan . the ann arbor facility previously supported the open label extension portion of the ixcell-dcm clinical trial conducted in the united states and canada . product portfolio our approved and marketed products include two approved autologous cell therapy products : maci , a third generation autologous implant for the repair of symptomatic , full-thickness cartilage defects of the knee in adult patients and epicel ( cultured epidermal autografts ) , a permanent skin replacement for full thickness burns in adults and pediatrics with greater than or equal to 30 % of tbsa also currently marketed in the u.s. we also own carticel ( autologous cultured chondrocytes ) , a first-generation product for aci which is no longer marketed in the u.s. our product candidate portfolio included ixmyelocel-t , a patient-specific multicellular therapy for the treatment of advanced heart failure due to dcm . on september 29 , 2017 , the fda indicated we would be required to conduct at least one additional phase 3 clinical study to support a bla for ixmyelocel-t. given the expense required to conduct further development and our focus on growing our existing commercial products and becoming profitable , at this time we have no current plans to initiate or fund a phase 3 trial on our own , but instead are seeking a partner to fund further development . 48 carticel and maci carticel , a first-generation aci product for the treatment and repair of cartilage defects in the knee , was the first fda-approved autologous cartilage repair product . carticel was replaced at the end of the second quarter of 2017 by maci , which was approved on december 13 , 2016 by the fda . story_separator_special_tag ict license agreement on may 10 , 2017 , we announced that we had entered into a license agreement ( license agreement ) with ict , a leading cell therapy company and developer of car-t cell therapy for cancer treatment , for the development and distribution of our product portfolio in greater china , south korea , singapore , and other countries in asia . as discussed in note 15 , we received $ 5.2 million ( gross of withholding tax ) , of which $ 4.0 million was allocated to the warrant based on the fair value on the date of grant as described in note 11 of the consolidated financial statements , and the remaining $ 1.2 million was allocated as consideration for the license agreement . in accordance with multiple-element arrangement accounting , we allocated the payment among the multiple deliverables . story_separator_special_tag development expenses and general , selling and administrative expenses is summarized in the following table : replace_table_token_8_th the increase in stock-based compensation expense is due primarily to fluctuations in stock prices which impacts the fair value of the options awarded and the expense recognized in the period . liquidity and capital resources we are currently focused on utilizing our technology to identify , develop and commercialize innovative therapies that enable the body to repair and regenerate damaged tissues and organs to restore normal structure and function . since the acquisition in 2014 of the ctrm business of sanofi , the sales of carticel , maci and epicel therapies have constituted nearly all of our product sales revenues . with the approval of maci and replacement of carticel with maci , we expect the sales of maci and epicel therapies will constitute nearly all of our product sales revenues . additionally , we are focusing significant resources to grow our commercial business . we have raised significant funds in order to complete our product development programs , and complete clinical trials needed to market and commercialize our products . to date , we have financed our operations primarily through public and private sales of our equity securities , funds from the svb-mid-cap facility and funds from our at-the-market sales agreement ( atm agreement ) with cowen . while we believe that , based on our current cash on hand , we are in a position to sustain operations through at least march 2019 , if actual results differ from our projections , we may need to access additional capital . on october 10 , 2016 we entered into an atm agreement with cowen as sales agent to sell , from time to time , our common stock , no par value per share ( atm shares ) , having an aggregate sale price of up to $ 25.0 million , through an โ at the market offering โ program . the atm shares are issued pursuant to our shelf registration statement on form s-3 ( file no . 333-205336 ) . we filed a prospectus supplement , dated october 10 , 2016 , with the securities and exchange commission in connection with the offer and sale of the atm shares sold under the atm agreement . during the year ended december 31 , 2017 , we raised net proceeds of $ 7.2 million ( net of $ 0.3 million in commission and issuance costs ) and sold 1,983,023 shares of common stock . we are obliged to pay 3 % of the gross proceeds to cowen as a commission . as of december 31 , 2017 , approximately $ 16.7 million of net capacity remained under the atm agreement . our cash totaled $ 26.9 million at december 31 , 2017 . the primary uses of cash included $ 13.2 million for our operations and working capital requirements . this use of funds was attributed largely to our operating loss due to an increase in expenditures for sales and marketing initiatives and investment in research and development activities in 2017 , reduced by noncash charges including $ 2.7 million in stock compensation expense and $ 1.6 million in depreciation and amortization expense . working capital requirements increased due to $ 1.4 million in accounts payable primarily related to timing of payments and a $ 1.2 million increase in accounts receivable as a result in the increase of days sales outstanding related to the change in reimbursement and patient support service providers . the change in cash used for investing activities is the result of property plant and equipment purchases of $ 1.5 million primarily for manufacturing upgrades and leasehold improvements through december 31 , 2017 . the change in cash used for investing activities is the result of material property plan and equipment purchases of $ 1.4 million primary for purchases in connection with the integration of the ctrm business through december 31 , 2016 . the change in cash provided from financing activities is the result of proceeds of $ 8.2 million from the issuance of common stock primarily due to sale of common shares under the at-the-market sales agreement and the exercise of stock options , net increase in debt of $ 6.4 million as a result of the modified debt agreement , and proceeds of $ 4.0 million upon the issuance of warrants in conjunction with a license agreement . 53 the change in cash provided from financing activities is the result of the december 2016 equity raise as well as atm activity in 2016 , all of which did not occur in the year ended december 31 , 2015 . on december 6 , 2017 , we replaced the existing term loan and revolving line of credit agreement with svb and midcap financial services , or midcap , which provide access to up to $ 25.0 million . the updated debt financing consists of a $ 15.0 million term loan which was drawn at the closing and up to $ 10.0 million of a revolving line of credit .
| results of operations net loss our net loss for the year ended december 31 , 2017 totaled $ 17.3 million which includes a loss on extinguishment of debt of $ 0.9 million . our net loss for the year ended december 31 , 2016 totaled $ 19.6 million which includes a $ 2.6 million impairment of intangible asset charge related to the write-off of the commercial use rights primarily due to carticel 's replacement with maci . our net loss for the year ended december 31 , 2015 totaled $ 16.3 million . replace_table_token_1_th net revenues net revenues ( comprised of gross revenue from sales net of provision for cash discounts ) increased for the year ended december 31 , 2017 compared to december 31 , 2016 primarily due to an increase in cartilage implants as a result of the maci launch and a significant increase in burn centers utilizing epicel while also executing price increases . in addition , we recognized license revenue in connection with the granting of product licenses . see further details of the product license revenue in note 4 of the consolidated financial statements . cash discounts for the years ended december 31 , 2015 and 2016 were $ 0.9 million and $ 0.5 million , respectively , and were not material in 2017. net revenues increased for the year ended december 31 , 2016 compared to december 31 , 2015 primarily due to higher average price we charged for carticel in 2016 offset by the closure of marrow donation , llc in 2015 . 50 net revenues for the years ended december 31 , 2017 , 2016 and 2015 are shown below . replace_table_token_2_th seasonality .
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our actual results could differ materially from those anticipated by our management in these forwardโlooking statements as a result of various factors , including those discussed in this form 10-k and in our registration statement on form s-1 , particularly under the heading โ risk factors. โ overview legacy housing corporation builds , sells and finances manufactured homes and โ tiny houses โ that are distributed through a network of independent retailers and companyโowned stores and are sold directly to manufactured housing communities . we are the fourth largest producer of manufactured homes in the united states as ranked by number of homes manufactured based on information available from the manufactured housing institute and ibts for the second quarter of 2018. with current operations focused primarily in the southern united states , we offer our customers an array of quality homes ranging in size from approximately 390 to 2,667 square feet consisting of 1 to 5 21 bedrooms , with 1 to 3 1 / 2 bathrooms . our homes range in price , at retail , from approximately $ 22,000 to $ 95,000. during 2018 , we sold 3,950 home sections ( which are entire homes or single floors that are combined to create complete homes ) and in 2017 , we sold 3,274 home sections . we commenced operations in 2005 and have experienced strong sales growth and increased our equity holders ' capital at a compound annual growth rate of approximately 28 % between 2009 and 2018. the company has one reportable segment . all of our activities are interrelated , and each activity is dependent and assessed based on how each of the activities of company supports the others . for example , the sale of manufactured homes includes providing transportation and consignment arrangements with dealers . we also provide financing options to the customers to facilitate such sale of homes . in addition , the sale of homes is directly related to financing provided by us . accordingly , all significant operating and strategic decisions by the chief operating decisionโmaker , the executive chairman of the board , are based upon analyses of our company as one segment or unit . we believe our company is one of the most vertically integrated in the manufactured housing industry , allowing us to offer a complete solution to our customers , from manufacturing customโmade homes using quality materials and distributing those homes through our expansive network of independent retailers and companyโowned distribution locations , to providing tailored financing solutions for our customers . our homes are constructed in the united states at one of our three manufacturing facilities in accordance with the construction and safety standards of the u.s. department of housing and urban development ( โ hud โ ) . our factories employ highโvolume production techniques that allow us to produce , on average , approximately 75 home sections , or 62 fullyโcompleted homes depending on product mix , in total per week . we use quality materials and operate our own component manufacturing facilities for many of the items used in the construction of our homes . each home can be configured according to a variety of floor plans and equipped with such features as fireplaces , central air conditioning and stateโofโtheโart kitchens . our homes are marketed under our premier โ legacy โ brand name and currently are sold primarily across 15 states through a network of 114 independent retail locations , 12 companyโowned retail locations and through direct sales to owners of manufactured home communities . our 12 companyโowned retail locations , including ten heritage housing stores and two tiny house outlet stores exclusively sell our homes . during 2018 , approximately 56 % of our manufactured homes were sold in texas , followed by 13 % in georgia , 11 % in louisiana , and 4 % in oklahoma . during 2017 , 62 % of our manufactured homes were sold in texas , followed by 8 % in georgia , 8 % in colorado , 5 % in oklahoma , and 4 % in louisiana . we plan to deepen our distribution channel by using a portion of the net proceeds from the ipo to expand our companyโowned retail locations in new and existing markets . we offer three types of financing solutions to our customers . we provide floor plan financing for our independent retailers , which takes the form of a consignment arrangement between the retailer and us . we also provide consumer financing for our products which are sold to endโusers through both independent and companyโowned retail locations , and we provide financing solutions to manufactured housing community owners that buy our products for use in their manufactured housing communities . our ability to offer competitive financing options at our retail locations provides us with several competitive advantages and allows us to capture sales which may not have otherwise occurred without our ability to offer consumer financing . factors affecting our performance we believe that the growth of our business and our future success depend on various opportunities , challenges , trends and other factors , including the following : ยท consistent with our longโterm strategy of conservatively deploying our capital to achieve above average rates of return , we intend to expand our retail presence in the geographic markets we now serve , particularly in the southern united states . each retail center requires between $ 1,000,000 and $ 2,000,000 to acquire the location , situate an office , provide inventory , and provide the initial working capital . we expect to open 8 to 12 additional retail centers by the end of 2020 . ยท we also expect to provide financing solutions to a select group of our manufactured housing communityโowner customers in a manner that includes developing new sites for products in or near urban 22 locations where there is a shortage of sites to place our products . story_separator_special_tag at each reporting period , the fair value of the collateral is adjusted to the lower of the amount recorded at repossession or the estimated sales price less estimated costs to sell , based on current information . allowance for loan lossesโmhp notes mhp notes are stated at amounts due from customers net of allowance for loan losses . we determine the allowance by considering several factors including the aging of the past due balance , the customer 's payment history , and our previous loss history . we establish an allowance reserve composed of specific and general reserve amounts that are deemed to be uncollectible . historically we have not experienced any losses on the mhp notes . inventories inventories consist of raw materials , workโinโprocess , and finished goods and are stated at the lower of cost or net realizable value . raw materials cost approximates the firstโin firstโout method . finished goods and workโinโprocess are based on a standard cost system that approximates actual costs using the specific identification method . estimates of the lower of cost and net realizable value of inventory are determined by comparing the actual cost of the product to the estimated selling prices in the ordinary course of business based on current market and economic conditions , less reasonably predictable costs of completion , disposal , and transportation of the inventory . we evaluate inventory based on historical experience to estimate our inventory not expected to be sold in less than a year . we classify our inventory not expected to be sold in one year as nonโcurrent . property , plant and equipment property , plant and equipment are carried at cost less accumulated depreciation . depreciation expense is calculated using the straightโline method over the estimated useful lives of each asset . estimated useful lives for significant classes of assets are as follows : buildings and improvements , 30 to 39 years ; vehicles , 5 years ; machinery and equipment , 7 years ; and furniture and fixtures , 7 years . repair and maintenance charges are expensed as incurred . expenditures for major renewals or betterments which extend the useful lives of existing property , plant , and equipment are capitalized and depreciated . we periodically evaluate the carrying value of longโlived assets to be held and used and when events and circumstances warrant such a review . the carrying value of longโlived assets is considered impaired when the anticipated undiscounted cash flow from such assets is less than its carrying value . in that event , a loss is recognized based on the amount by which the carrying value exceeds the fair value of the longโlived assets . fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved . losses on longโlived assets to be disposed of are determined in a similar manner , except that the fair values are based primarily on independent appraisals and preliminary or definitive contractual arrangements less costs to dispose . 24 revenue recognition direct sales revenue from homes sold to independent retailers that are not financed and not under a consignment arrangement are generally recognized upon execution of a sales contract and when the home is shipped , at which time title passes to the independent retailer and collectability is reasonably assured . these types of homes are generally either paid for prior to shipment or floor plan financed through a third party lender by the independent retailer through standard industry arrangements , which can include repurchase agreements . commercial sales revenue from homes sold to mobile home parks under commercial loan programs involving funds provided by our company is recognized when the home is shipped , at which time title passes to the customer and a sales and financing contract is executed , down payment received , and collectability is reasonably assured . consignment sales we provide floor plan financing for independent retailers , which takes the form of a consignment arrangement . sales under a consignment agreement are recognized as revenue when we enter into a sales contract and receive full payment for cash sales , and title passes ; or , upon execution of a sales and financing contract , with a down payment received from and upon delivery of the home to the final individual customer , at which time title passes and collectability is reasonably assured . for homes sold to customers through independent retailers under consignment arrangements and financed by us , a percentage of profit is paid to the independent retailer up front as a commission for sale and also reimburses certain direct expenses incurred by the independent retailer for each transaction . such payments are recorded as cost of product sales in our statement of operations . retail store sales revenue from direct retail sales through companyโowned retail locations are generally recognized when the customer has entered into a legally binding sales contract , and payment received , the home is delivered at the customer 's site , title has transferred , and collection is reasonably assured . retail sales financed by us are recognized as revenue upon the execution of a sales and financing contract with a down payment received and upon delivery of the home to the final customer , at which time title passes and collectability is reasonably assured . revenue is recognized net of sales taxes . product warranties we provide retail home buyers with a oneโyear warranty from the date of purchase on manufactured inventory . product warranty costs are accrued when the covered homes are sold to customers . product warranty expense is recognized based on the terms of the product warranty and the related estimated costs . factors used to determine the warranty liability include the number of homes under warranty and the historical costs incurred in servicing the warranties . the accrued warranty liability is reduced as costs are incurred and warranty liability balance is included as part of accrued liabilities in our balance sheet . story_separator_special_tag expense associated with the corporate reorganization , was 23.1
| results of operations the following discussion should be read in conjunction with the information set forth in the financial statements and the accompanying notes appearing elsewhere in this form 10-k. 25 comparison of years ended december 31 , 2018 and 2017 ( in thousands ) replace_table_token_4_th we were a partnership in 2017 and , therefore a passโthrough entity with respect to taxes . however , the pro forma tax provision for 2017 reflects pro forma income tax expense of $ 9.4 million and pro forma net income of $ 16.9 million as if we had been taxed as a corporation in 2017. product sales primarily consist of direct sales , commercial sales , consignment sales and retail store sales . product sales increased $ 29.4 million , or 26.8 % , in 2018 as compared to 2017. this change was driven by a 17.0 % increase in volume of homes sold , as well as a series of price increases . direct sales , including sales as a subcontractor operating under a contract with fema to provide housing for victims of hurricane harvey , increased $ 15.0 million to $ 33.6 million in 2018 from $ 18.6 million in 2017. commercial sales increased $ 10.0 million to $ 33.1 million in 2018 from $ 23.1 million in 2017. likewise , our companyโowned retail stores sales increased $ 2.8 million to $ 13.2 million in 2018 from $ 10.4 million in 2017. the remaining increase of $ 1.6 million is primarily related to sales of used product and miscellaneous parts . net revenue attributable to our factoryโbuilt housing consisted of the following in 2018 and 2017 : replace_table_token_5_th in 2018 , our net revenue per product sold increased in part because of increased sales to manufactured home communities and increased sales through our companyโowned stores , all of which carry higher margins .
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the company 's common stock equivalents , as calculated in accordance with the treasury-stock method , are shown in the following table ( in thousands ) : june 30 , 2014 2013 2012 options outstanding to purchase common stock and unvested restricted stock 8,486 7,703 6,442 common stock equivalents under treasury stock method 1,820 2,149 2,194 the company 's common stock equivalents have not been included in the net loss per share calculation because their effect is anti-dilutive due to the company 's net loss position . stock-based compensation as of june 30 , 2014 , the company is authorized to grant future awards under one employee share-based compensation plan , which is the immunogen , inc. 2006 employee , director and consultant 79 story_separator_special_tag overview since our inception , we have been principally engaged in the development of novel , antibody-drug conjugates , or adc 's , for the treatment of cancer using our expertise in cancer biology , monoclonal antibodies , highly potent cytotoxic , or cell-killing , agents , and the design of linkers that enable these agents to remain stably attached to the antibodies while in the blood stream and released in their fully active form after delivery to a cancer cell . an anticancer compound made using our adc technology consists of a monoclonal antibody that binds specifically to an antigen target found on the surface of cancer cells with one of our proprietary cell-killing agents attached to the antibody using one of our engineered linkers . its antibody component enables an adc compound to bind specifically to cancer cells that express its target antigen , the highly potent cytotoxic agent serves to kill the cancer cell , and the engineered linker controls the release and activation of the cytotoxic agent inside the cancer cell . with some adc compounds , the antibody component also has anticancer activity of its own . our adc technology is designed to enable the creation of highly effective , well-tolerated anticancer products . all of the adc compounds currently in clinical testing contain either dm1 or dm4 as the cytotoxic agent . both dm1 and dm4 , collectively dmx , are our proprietary derivatives of a cytotoxic agent called maytansine . we also use our expertise in antibodies and cancer biology to develop `` naked , '' or non-conjugated , antibody anticancer product candidates . we have used our proprietary adc technology in conjunction with our in-house antibody expertise to develop our own anticancer product candidates . we have also entered into agreements that enable companies to use our adc technology to develop and commercialize product candidates to specified targets . under the terms of our agreements , we are generally entitled to upfront fees , milestone payments , and royalties on any commercial product sales . in addition , under certain agreements we are compensated for research and development activities performed at our collaborative partner 's request at negotiated prices which are generally consistent with what other third parties would charge . we are compensated to manufacture preclinical and clinical materials and deliver cytotoxic agent material at negotiated prices which are generally consistent with what other third parties would charge . currently , our partners include amgen , bayer healthcare , biotest , cytomx , lilly , novartis , roche and sanofi . we expect that substantially all of our revenue for the foreseeable future will result from payments under our collaborative arrangements . details for some of our major and recent collaborative agreements can be found in this form 10-k under item 1. business . to date , we have not generated revenues from commercial sales of internal products and we expect to incur significant operating losses for the foreseeable future . as of june 30 , 2014 , we had approximately $ 142.3 million in cash and cash equivalents compared to $ 195 million as of june 30 , 2013. we anticipate that future cash expenditures will be partially offset by collaboration-derived proceeds , including milestone payments , royalties and upfront fees . accordingly , period-to-period operational results may fluctuate dramatically based upon the timing of receipt of the proceeds . we believe that our established collaborative agreements , while subject to specified milestone achievements , will provide funding to assist us in meeting obligations under our collaborative agreements while also assisting in providing funding for the development of internal product candidates and technologies . however , we can give no assurances that such collaborative agreement funding will , in fact , be realized in the time frames we expect , or at all . should we or our partners not meet some or all of the terms and conditions of our various collaboration agreements , we may be required to secure alternative financing arrangements , find additional partners and or defer or limit some or all of our research , development and or clinical projects . however , we can not provide assurance that any such opportunities presented by additional partners or alternative financing arrangements will be entirely available to us , if at all . 45 critical accounting policies we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the u.s. the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to our collaborative agreements , clinical trial accruals , inventory and stock-based compensation . we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates . we believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we enter into licensing and development agreements with collaborative partners for the development of monoclonal antibody-based anticancer therapeutics . story_separator_special_tag 2009-13 , `` revenue arrangements with multiple 47 deliverables '' on july 1 , 2010 , we determined that our licenses lacked stand-alone value and were combined with other elements of the arrangement and any amounts associated with the license were deferred and amortized over a certain period , which we refer to as our period of substantial involvement . the determination of the length of the period over which to defer revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period . historically our involvement with the development of a collaborator 's product candidate has been significant at the early stages of development , and lessens as it progresses into clinical trials . also , as a drug candidate gets closer to commencing pivotal testing our collaborators have sought an alternative site to manufacture their products , as our facility does not produce pivotal or commercial drug product . accordingly , we generally estimate this period of substantial involvement to begin at the inception of the collaboration agreement and conclude at the end of non-pivotal phase ii testing . we believe this period of substantial involvement is , depending on the nature of the license , on average six and one-half years . quarterly , we reassess our periods of substantial involvement over which we amortize our upfront license fees and make adjustments as appropriate . in the event a collaborator elects to discontinue development of a specific product candidate under a development and commercialization license , but retains its right to use our technology to develop an alternative product candidate to the same target or a target substitute , we would cease amortization of any remaining portion of the upfront fee until there is substantial preclinical activity on another product candidate and its remaining period of substantial involvement can be estimated . in the event that a development and commercialization license were to be terminated , we would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue , but was classified as deferred revenue , at the date of such termination . subsequent to the adoption of asu no . 2009-13 , we determined that our research licenses lack stand-alone value and are considered for aggregation with the other elements of the arrangement and accounted for as one unit of accounting . upfront payments on development and commercialization licenses may be recognized upon delivery of the license if facts and circumstances dictate that the license has stand-alone value from the undelivered elements , which generally include rights to future technological improvements , research services , delivery of cytotoxic agents and the manufacture of preclinical and clinical materials . we recognize revenue related to research services that represent separate units of accounting as they are performed , as long as there is persuasive evidence of an arrangement , the fee is fixed or determinable , and collection of the related receivable is probable . we recognize revenue related to the rights to future technological improvements over the estimated term of the applicable license . we may also provide cytotoxic agents to our collaborators or produce preclinical and clinical materials for them at negotiated prices which are generally consistent with what other third parties would charge . we recognize revenue on cytotoxic agents and on preclinical and clinical materials when the materials have passed all quality testing required for collaborator acceptance and title and risk of loss have transferred to the collaborator . arrangement consideration allocated to the manufacture of preclinical and clinical materials in a multiple-deliverable arrangement is below our full cost , and our full cost is not expected to ever be below our contract selling prices for our existing collaborations . during the fiscal years ended june 30 , 2014 , 2013 and 2012 , the difference between our full cost to manufacture preclinical and clinical materials on behalf of our collaborators as compared to total amounts received from collaborators for the manufacture of preclinical and clinical materials was $ 2.3 million , $ 755,000 , and $ 85,000 , respectively . the majority of our costs to produce these preclinical and clinical materials are fixed and then allocated to each batch based on the number of batches produced during the period . therefore , our costs to produce these materials are significantly impacted by the number of batches produced during the period . the volume of preclinical and clinical materials we produce is directly related to the number of clinical trials we and our collaborators are preparing for or currently have underway , the speed of enrollment in those trials , the dosage schedule of each 48 clinical trial and the time period such trials last . accordingly , the volume of preclinical and clinical materials produced , and therefore our per-batch costs to manufacture these preclinical and clinical materials , may vary significantly from period to period . we may also produce research material for potential collaborators under material transfer agreements . additionally , we perform research activities , including developing antibody specific conjugation processes , on behalf of our collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development . we record amounts received for research materials produced or services performed as a component of research and development support revenue . we also develop conjugation processes for materials for later stage testing and commercialization for certain collaborators . we are compensated at negotiated rates and may receive milestone payments for developing these processes which are recorded as a component of research and development support revenue . our development and commercialization license agreements have milestone payments which for reporting purposes are aggregated into three categories : ( i ) development milestones , ( ii ) regulatory milestones , and ( iii ) sales milestones . development milestones are typically payable when a product candidate initiates or advances into different clinical trial phases .
| results of operations revenues our total revenues for the year ended june 30 , 2014 were $ 59.9 million compared with $ 35.5 million and $ 16.4 million for the years ended june 30 , 2013 and 2012 , respectively . the $ 24.4 million increase in revenues in fiscal year 2014 from fiscal year 2013 is attributable to an increase in license and milestone fees , royalty revenue and clinical materials revenue , partially offset by a decrease in research and development support revenue , all of which are discussed below . the $ 19.1 million increase in revenues in fiscal year 2013 from fiscal year 2012 is attributable to all revenue categories . revenue from license and milestone fees for the year ended june 30 , 2014 increased approximately $ 15.3 million to $ 39.5 million from $ 24.2 million in the year ended june 30 , 2013. revenue from license and milestone fees for the year ended june 30 , 2012 was $ 9.2 million . included in license and milestone fees for the year ended june 30 , 2014 is $ 7.8 million of license revenue earned upon the execution of a development and commercialization license by lilly , two $ 5 million regulatory milestones achieved under our collaboration agreement with roche , $ 18.2 million of license revenue earned upon the execution of two development and commercialization licenses and a one-year extension of the original term of the multi-target agreement by novartis , and $ 2.2 million of revenue from amgen related to a modification of an existing arrangement .
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contingent consideration is valued using significant inputs that are not observable in the market which are defined as level 3 inputs pursuant to fair value measurement accounting . the company believes its estimates and assumptions are reasonable , however , there is significant judgment involved . changes in the fair value of contingent assets and liabilities may result from changes in discount periods . the company reflects changes in fair value due to probability changes story_separator_special_tag the following information should be read in conjunction with the audited consolidated financial information and the notes thereto included in this annual report on form 10-k. in addition to historical information , the following discussion and other parts of this annual report contain forward-looking statements that involve risks and uncertainties . you should not place undue reliance on these forward-looking statements . actual events or results may differ materially due to competitive factors and other factors discussed in item 1a . `` risk factors `` and elsewhere in this annual report . these factors may cause our actual results to differ materially from any forward-looking statement . see the section titled `` cautionary statement concerning forward-looking statements '' that appears at the beginning of this annual report . overview we are an industry leader in providing service assurance and security solutions that are used by customers worldwide to assure their digital business services against disruption . service providers and enterprises , including local , state and federal government agencies , rely on our solutions to achieve the visibility necessary to optimize network performance , ensure the delivery of high-quality , mission-critical applications and services , gain timely insight into the end user experience and protect the network from attack . with our offerings , customers can quickly , efficiently and effectively identify and resolve issues that result in downtime , interruptions to services , poor service quality or compromised security , thereby driving compelling returns on their investments in their network and broader technology initiatives . our operating results are influenced by a number of factors , including , but not limited to , the mix and quantity of products and services sold , pricing , costs of materials used in our products , growth in employee-related costs , including commissions , and the expansion of our operations . factors that affect our ability to maximize our operating results include , but are not limited to , our ability to introduce and enhance existing products , the marketplace acceptance of those new or enhanced products , continued expansion into international markets , development of strategic partnerships , competition , successful acquisition integration efforts , and our ability to achieve expense reductions and make improvements in a highly competitive industry . results overview total revenue for the fiscal year ended march 31 , 2019 was primarily impacted by lower spending by customers in the service provider customer segment for both service assurance and ddos solutions , and the timing of the divestiture of the hnt tools business in mid-september 2018. our gross profit percentage remained flat during the fiscal year ended march 31 , 2019 as compared with the fiscal year ended march 31 , 2018 . 30 net loss for the fiscal year ended march 31 , 2019 was $ 73.3 million , as compared with net income for the fiscal year ended march 31 , 2018 of $ 79.8 million , resulting in an increase in net loss of $ 153.1 million . the increase in net loss was primarily due to a $ 78.9 million decrease in the income tax benefit , a $ 35.9 million impairment charge of certain intangible assets related to the hnt tools business , a $ 13.5 million increase in restructuring charges due to the voluntary separation program , a $ 13.5 million increase in interest expense due to additional amounts drawn down on the credit facility as well as an increase in the average interest rate on the credit facility , and a $ 9.5 million loss on the divestiture of the hnt tools business during the twelve months ended march 31 , 2019 . this increase was partially offset by a net $ 9.0 million decrease in employee-related expenses as a result of a decrease in headcount partially offset by an increase in incentive compensation . at march 31 , 2019 , we had cash , cash equivalents , and marketable securities of $ 487.0 million . this represents an increase of $ 39.2 million over the previous fiscal year ended march 31 , 2018 . this increase was primarily due to $ 149.8 million in cash provided by operations during the fiscal year ended march 31 , 2019 , partially offset by $ 50.0 million used to repay long-term debt , $ 23.4 million used for capital expenditures , $ 14.5 million used to repurchase shares of our common stock , and $ 11.9 million used for tax withholdings on restricted stock units . use of non-gaap financial measures we supplement the united states generally accepted accounting principles ( gaap ) financial measures we report in quarterly and annual earnings announcements , investor presentations and other investor communications by reporting the following non-gaap measures : non-gaap total revenue , non-gaap product revenue , non-gaap service revenue , non-gaap gross profit , non-gaap income from operations , non-gaap operating margin , non-gaap earnings before interest and other expense , income taxes , depreciation and amortization ( ebitda ) from operations , non-gaap net income , and non-gaap net income per share ( diluted ) . non-gaap revenue ( total , product and service ) eliminates the gaap effects of acquisitions by adding back revenue related to deferred revenue revaluation , as well as revenue impacted by the amortization of acquired intangible assets . non-gaap gross profit includes the aforementioned revenue adjustments and also removes expenses related to the amortization of acquired intangible assets , share-based compensation , certain expenses relating to acquisitions including depreciation costs , compensation for post-combination services and business development and integration costs and adds back transitional service agreement income . story_separator_special_tag training services include on-site and classroom training . training revenues are recognized upon delivery of the training . generally , our contracts are accounted for individually . however , when contracts are closely interrelated and dependent on each other , it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts . bundled arrangements are concurrent customer purchases of a combination of our product and service offerings that may be delivered at various points in time . we allocate the transaction price among the performance obligations in an amount that depicts the relative standalone selling prices ( ssp ) of each obligation . judgment is required to determine the ssp for each distinct performance obligation . we use a range of amounts to estimate ssp when we sell each of the products and services separately based on the element 's historical pricing . we also consider our overall pricing objectives and practices across different sales channels and geographies , and market conditions . generally , we have established ssp for a majority of our service elements based on historical standalone sales . in certain instances , we have established ssp for services based upon an estimate of profitability and the underlying cost to fulfill those services . further , for certain service engagements , we consider quoted prices as part of multi-element arrangements of those engagements as a basis for establishing ssp . ssp has been established for product elements as the average or median selling price the element was recently sold for , whether sold alone or sold as part of a multiple element transaction . we review sales of the product elements on a quarterly basis and update , when appropriate , ssp for such elements to ensure that it reflects recent pricing experience . our products are distributed through our direct sales force and indirect distribution channels through alliances with resellers and distributors . revenue arrangements with resellers and distributors are recognized on a sell-in basis ; that is , when control of the product transfers to the reseller or distributor . we record consideration given to a reseller or distributor as a reduction of revenue to the extent we have recorded revenue from the reseller or distributor . with limited exceptions , our return policy does not allow product returns for a refund . returns have been insignificant to date . in addition , we have a history of successfully collecting receivables from our resellers and distributors . marketable securities we measure the fair value of our marketable securities at the end of each reporting period . fair value is defined as the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date . marketable securities are recorded at fair value and have been classified as level 1 or 2 within the fair value hierarchy . fair values determined by level 1 inputs utilize quoted prices ( unadjusted ) in accessible active markets for identical assets or liabilities . fair values determined by level 2 inputs utilize data points that are observable such as quoted prices , interest rates and yield curves . valuation of goodwill , intangible assets and other acquisition and divestiture accounting items we amortize acquired definite-lived intangible assets over their estimated useful lives . goodwill and other indefinite-lived intangible assets are not amortized but subject to annual impairment tests ; more frequently if events or circumstances occur that would indicate a potential decline in their fair value . we perform the assessment annually during the fourth quarter and on an interim basis if potential impairment indicators arise . we have identified two reporting units : ( 1 ) service assurance and ( 2 ) security . to test impairment , we first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the intangible asset is impaired . if based on our qualitative assessment it is more likely than not that the fair value of the intangible asset is less than its carrying amount , quantitative impairment testing is required . however , if we conclude otherwise , quantitative impairment testing is not required . during fiscal year 2019 , we performed a quantitative analysis for goodwill . we determined the fair value of the reporting unit 's goodwill using established income and market valuation approaches . goodwill was estimated to be recoverable as of january 31 , 2019. indefinite-lived intangible assets are tested for impairment at least annually , or on an interim basis if an event occurs or circumstances change that would , more likely than not , reduce the fair value of the indefinite-lived intangible assets below its carrying value . to test impairment , we first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible is impaired . if based on our qualitative assessment we conclude that it is more likely than not that the fair value of the indefinite-lived asset is greater than its carrying amount , quantitative impairment testing is not required . we completed our annual impairment test of the indefinite-lived intangible asset at january 31 , 2019 using the qualitative step 0 assessment . no impairment indicators were observed as of january 31 , 2019 . 34 we completed two acquisitions and one divestiture during the three-year period ended march 31 , 2019. the acquisition method of accounting requires an estimate of the fair value of the assets and liabilities acquired as part of these transactions .
| results of operations comparison of years ended march 31 , 2019 and 2018 revenue product revenue consists of sales of our hardware products and licensing of our software products . service revenue consists of customer support agreements , consulting , training and stand-ready software as a service offerings . during the fiscal years ended march 31 , 2019 and 2018 , no direct customer or indirect channel partner accounted for more than 10 % of our total revenue . replace_table_token_7_th product . the 10 % , or $ 53.1 million , decrease in product revenue compared with the same period last year was primarily due to a decrease in revenue from service provider customers for both the service assurance and security offerings , as well as lower enterprise-related product revenue tied to the divestiture of the hnt tools business . service . the 5 % , or $ 23.7 million , decrease in service revenue compared to the same period last year was primarily due to lower professional services revenue , a reduction of support renewals on non-core product lines , as well as the divestiture of the hnt tools business . total revenue by geography is as follows : replace_table_token_8_th united states revenue decrease d 5 % , or $ 28.6 million , primarily due to declines in both service assurance and cybersecurity products , as well as the divestiture of the hnt tools business . international revenue decreased 12 % , or $ 43.8 million , primarily due to declines in both service assurance and cybersecurity products , as well as the divestiture of the hnt tools business . 36 cost of revenue and gross profit cost of product revenue consists primarily of material components , manufacturing personnel expenses , packaging materials , overhead and amortization of capitalized software , acquired developed technology and core technology . cost of service revenue consists primarily of personnel , material , overhead and support costs . replace_table_token_9_th product .
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the following table presents the computations of basic and diluted earnings ( loss ) per share for the periods indicated : replace_table_token_38_th f-10 the diluted loss per share for the year ended december 31 , 201 8 did not include the antidilutive effect of 216,238 shares of unvested shares of restricted stock and performance share units . other significant accounting policies the company 's other significant accounting policies are described in the following notes : investments in agency mbs , subsequent measurement note 4 investments story_separator_special_tag story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:12pt ; text-indent:4.54 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > fannie mae and freddie mac commenced their โ single security initiative โ on june 3 , 2019. the single security initiative is a joint initiative of fannie mae and freddie mac , under the direction of the federal housing finance committee , to develop a common mbs ( referred to as a โ uniform mbs โ or โ umbs โ ) to facilitate the combination of the separate tba markets of each of the respective gses into a single , larger and more liquid market . existing freddie mac pass-through mbs issued prior to june 3 , 2019 have a 45-day delay remittance cycle , in which principal and interest payments are remitted to holders 45 days after such payments are due on the underlying mortgage loans , while fannie mae mbs have a 55-day delay remittance cycle . as a means to conform existing freddie mac mbs to fannie mae mbs , freddie mac began offering holders of existing freddie mac mbs the option to exchange their 45-day delay mbs for a 55-day delay โ mirror โ mbs which is ultimately collateralized by the same pool of loans as the original 45-day delay mbs for which it was exchanged . for each 45-day mbs that a holder elects to exchange , at the time of the exchange , freddie mac will provide an upfront cash payment to the holder as compensation for the prospective 10-day monthly payment delay . we may elect in the future to exchange some , or potentially all , of our existing freddie mac 45-day delay mbs for mirror 55-day delay mbs , depending upon our evaluation of the economics of the compensation payment , among other considerations . any exchanges of freddie mac mbs that we may ultimately elect to perform are not expected to materially impact our financial performance or operations . in january 2014 , the consumer financial protection bureau ( โ cfpb โ ) final rule became effective for a qualified mortgage as mandated by the dodd-frank wall street reform and consumer protection act , commonly referred to as the โ qm rule. โ a qualified mortgage is a mortgage that meets certain requirements for lender protection and secondary trading . in general , a qualified mortgage ( i ) contains less risky loan features , such as interest-only periods , negative amortization or balloon payments , ( ii ) has limits on origination points and fees , ( iii ) has certain legal protection for lenders , and ( iv ) has debt-to-income ratio limits . however , the qm rule contained an exemption from the debt-to-income ratio limits for mortgages eligible for purchase by either fannie mae or freddie mac , commonly referred to as the โ qm patch , โ which is set to expire on january 10 , 2021. on july 25 , 2019 , the cfpb announced that it plans to allow the qm patch to expire on its scheduled expiration date . however , on january 17 , 2020 , the director of the cfpb issued a letter to members of congress stating that the cfpb intends to propose replacing the debt-to-income ratio limit requirement of a qualified mortgage with an alternative measure of a borrower 's ability to repay , and the cfpb may extend the qm patch beyond its scheduled expiration date to accommodate the implementation of any proposed rulemaking . if the qm patch were to expire , it is expected that the number of mortgage loans eligible to be purchased by fannie mae or freddie mac would decrease which could result in a decrease in the gse 's market share while also potentially increasing the market share of non-agency mbs issuers . on march 27 , 2019 , president trump issued a memorandum directing the secretary of the treasury to develop a plan for administrative and legislative reforms to achieve the following housing reform goals : ( i ) ending the conservatorships of fannie mae and freddie mac upon the completion of specific reforms ; ( ii ) facilitating competition in the housing finance market ; ( iii ) establishing regulation of the gses in order to safeguard the safety and soundness of gses and minimizes the risks they pose to the financial stability of the united states ; and ( iv ) providing that the federal government is properly compensated for any explicit or implicit support it provides the gses or the secondary housing finance market . on september 5 , 2019 , the u.s. treasury released its plan of recommended legislative and administrative reforms to the housing finance system to achieve the goals outlined in the presidential memorandum . since the release of the u.s. treasury 's plan of recommended reforms to the housing finance system , there have been preliminary actions taken to advance the goals in the plan of recapitalizing and ending the government conservatorship of the gses . first , on september 27 , 2019 , the fhfa and u.s. treasury entered into an agreement that permits fannie mae and freddie mac to retain up to $ 25 billion and $ 20 billion , respectively , in capital . story_separator_special_tag million mortgage loan investment that bears interest at one-month libor plus a spread of 4.25 % with a libor floor of 2.00 % . the loan matures on december 30 , 2021 with a one-year extension available at the option of the borrower . under the terms of the loan agreement , if the administrative agent of the loan determines that libor can not be determined and libor has been succeeded by an alternative floating rate index ( i ) that is commonly accepted by market participants as an alternative to libor as determined by the administrative agent , ( ii ) that is publicly recognized by isda as an alternative to libor , and ( iii ) for which isda has approved an amendment to hedge agreements generally providing such floating rate index as a standard alternative to libor , then the administrative agent would use such alternative floating rate index as the fallback rate . if the administrative agent determines that no alternative rate index is available , then the fallback interest rate would be based on the prime rate plus an applicable spread . as of december 31 , 2019 , we had 1,200,000 shares of 8.250 % series c fixed-to-floating rate cumulative redeemable preferred stock ( โ series c preferred stock โ ) outstanding with a liquidation preference of $ 30.0 million . the series c preferred stock is entitled to receive a cumulative cash dividend ( i ) from and including the original issue to , but excluding , march 30 , 2024 at a fixed rate of 8.250 % per annum of the $ 25.00 per share liquidation preference , and ( ii ) from and including march 30 , 2024 , at a floating rate equal to three-month libor plus a spread of 5.664 % per annum of the $ 25.00 liquidation preference . under the terms of our articles of incorporation , if the publication of libor is not available , the current fallback is for the company to obtain quotations for what 38 libor should be from major banks in the interbank market . if we are unable to obtain such quotations , we are required to appoint an independent calculation agent , which will determine libor based on sources it deems reasonable in i ts sole discretion . if the calculation agent is unable or unwilling to determine libor , then the libor in effect for future dividend payments would be libor in effect for the immediately preceding dividend payment period . notwithstanding the foregoing paragraph , if we determine that libor has been discontinued , we will appoint an independent calculation agent to determine whether there is an industry accepted substitute or successor base rate to three-month libor . if the calculation agent determines that there is an industry accepted substitute or successor base rate , the calculation agent shall use such substitute or successor base rate . if the calculation agent determines that there is not an accepted substitute or successor base rate , then the calculation agent will follow the original fallback language in the previous paragraph . at this time , it is not possible to predict the effect of any such changes , any establishment of alternative reference rates or any other reforms to libor that may be implemented in the u.k. or elsewhere . uncertainty as to the nature of such potential changes , alternative reference rates or other reforms may adversely affect the market for or value of any securities on which the interest or dividend is determined by reference to libor , loans , derivatives and other financial obligations or on our overall financial condition or results of operations . more generally , any of the above changes or any other consequential changes to libor or any other โ benchmark โ as a result of international , national or other proposals for reform or other initiatives or investigations , or any further uncertainty in relation to the timing and manner of implementation of such changes , could have a material adverse effect on the value of and return on any securities based on or linked to a โ benchmark. โ portfolio overview the following table summarizes our mortgage investment portfolio at fair value as of december 31 , 2019 and 2018 ( dollars in thousands ) : replace_table_token_6_th ( 1 ) represents the fair value of the agency mbs which underlie our tba forward purchase and sale commitments executed as dollar roll transactions . in accordance with gaap , our tba forward purchase and sale commitments are reflected on the consolidated balance sheets as a component of โ derivative assets , at fair value โ and โ derivative liabilities , at fair value , โ with a collective net asset carrying value of $ 438 as of december 31 , 2018. agency mbs investment portfolio our specified agency mbs consisted of the following as of december 31 , 2019 ( dollars in thousands ) : replace_table_token_7_th 39 replace_table_token_8_th the actual annualized prepayment rate for the company 's agency mbs was 10.66 % for the year ended december 31 , 2019 compared to 9.42 % for the year ended december 31 , 2018. as of december 31 , 2019 , the company 's agency mbs was comprised of securities specifically selected for their relatively lower propensity for prepayment , which includes approximately 74 % in specified pools of low balance loans while the remainder includes specified pools of loans originated in certain geographical areas , loans refinanced through the u.s. government sponsored home affordable refinance program or with other characteristics selected for their relatively lower propensity for prepayment . our agency mbs investment portfolio may also include net long tba positions , which are primarily the result of executing sequential series of โ dollar roll โ transactions that are settled on a net basis . in accordance with gaap , we account for our net long tba positions as derivative instruments . as of december 31 , 2019 , we did not have any net long tba agency positions .
| of financial condition and results of operations overview we are an investment firm that focuses on acquiring and holding a levered portfolio of mortgage investments . our mortgage investments generally consist of agency mbs and mortgage credit investments . our agency mbs consist of residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by either a gse , such as fannie mae and freddie mac , or by a u.s. government agency , such as ginnie mae . our mortgage credit investments may include investments in mortgage loans secured by either residential or commercial real property or mbs collateralized by such mortgage loans , which we refer to as non-agency mbs . the principal and interest of our mortgage credit investments are not guaranteed by a gse or u.s. government agency . we believe we leverage prudently our investment portfolio , as we seek to increase potential returns to our shareholders . we fund our investments primarily through short-term financing arrangements , principally through repurchase agreements . we enter into various hedging transactions to mitigate the interest rate sensitivity of our cost of borrowing and the value of our fixed-rate mortgage investment portfolio . we intend to elect to be taxed as a reit under the internal revenue code upon filing our tax return for our taxable year ended december 31 , 2019. as a reit we are required to distribute annually 90 % of our reit taxable income ( subject to certain adjustments ) . so long as we continue to qualify as a reit , we will generally not be subject to u.s. federal or state corporate income taxes on our taxable income that we distribute to our shareholders on a timely basis . at present , it is our intention to distribute 100 % of our taxable income , although we will not be required to do so .
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this discussion and analysis contains forward-looking statements that are based on our management 's current beliefs and assumptions , which statements are subject to substantial risks and uncertainties . our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors , including those discussed in โ risk factors โ included in part i , item 1a of this report . please also see โ cautionary note regarding forward looking statements โ at the beginning of this report . overview lantronix , inc. , which we refer to herein as the company , lantronix , we , our , or us , is a global provider of software as a service ( โ saas โ ) , engineering services , and hardware for edge computing , the internet of things ( โ iot โ ) , and remote environment management ( โ rem โ ) . lantronix enables its customers to provide reliable and secure solutions while accelerating their time to market . lantronix 's products and services dramatically simplify operations through the creation , development , deployment , and management of customer projects at scale while providing quality , reliability and security . we conduct our business globally and manage our sales teams by three geographic regions : the americas ; europe , middle east , and africa ( โ emea โ ) ; and asia pacific japan ( โ apj โ ) . references to โ fiscal 2020 โ refer to the fiscal year ended june 30 , 2020 and references to โ fiscal 2019 โ refer to the fiscal year ended june 30 , 2019 . 21 products and solutions we organize our products and solutions into three product lines : iot , rem , and other . refer to โ products and solutions โ included in part i , item 1 of this report , which is incorporated herein by reference , for further discussion . impact of covid-19 in order to protect our employee population and comply with local directives , most of our employees transitioned to remote working arrangements commencing in march 2020 and still continuing through the date hereof . to facilitate the increased data traffic associated with remote access , we have upgraded some of our information technology systems . we have also made changes relating to videoconferencing by providing most of our employees with a new videoconferencing and collaboration platform to accommodate better remote collaboration and communication . to date , remote working has not had a significant adverse impact on our financial results or our operations , including , financial reporting and disclosure controls and procedures . we do not believe that our productivity has been substantially affected by working remotely . however , we recognize that a certain degree of employee enthusiasm , teamwork , creativity , encouragement and support is normally generated by being present at a physical location , and we believe that prolonged remote working may have a negative impact over time on our business and on employee productivity . we may have to take further actions that we determine are in the best interests of our employees or as required by federal , state , or local authorities . supply chain and shipping the covid-19 epidemic continues to challenge our supply chain , and if prolonged , may have an adverse impact on our ability to produce and ship our products . in early january 2020 , we began to anticipate some supply chain issues . to mitigate , we built-up our inventory position . this increased inventory helped alleviate some , but not all , of the impact of subsequent shutdowns that occurred in china during the period . however , there were instances where we were unable to fulfill orders , resulting in revenue decline and causing us to miss our initial revenue target . our supply chain still faces significant challenges . most of our manufacturing is performed in malaysia , thailand and china . our major contract manufacturer in malaysia is not at full capacity because of temporary local stay-at-home orders , and we expect to experience supply constraints if the partial shutdown of this contract manufacturer is prolonged or expanded . similar issues could arise with either one or both of our major contract manufacturers in thailand and china , although as of the date of this report we have not been informed of any issues . our ability to ship products has also been affected by the impact that covid-19 has had and continues to have on air travel . most of our products are shipped via air freight . with the reduction of air travel , shipping costs have increased , and shipping delays have occurred and may continue to occur . we are attempting to mitigate both production and shipping risks by asking our contract manufacturers to expedite orders where possible , and otherwise taking and shipping products from our contract manufacturers as soon as they are available . we have also had to sell into the united states products in inventory that were manufactured in china for our non-u.s. markets , thus incurring tariffs in the united states and negatively impacting our profits . our ability to manufacture products is also dependent on the availability of certain raw materials and components that our contract manufacturers purchase in china , and our sales are subject to demand for certain of our products that are purchased by our customers for assembly in china into our customers ' end-products . if a resurgence of covid-19 and associated shutdowns were to occur in china , this would likely have an adverse impact on our ability to manufacture and sell our products due to related shortages of materials and components and delays in customer orders . depending on the severity of any such future shutdowns , we could experience a materially diminished ability to produce products or longer lead times . this would result in delayed or reduced revenue from the affected orders in production and potentially higher operating costs . story_separator_special_tag these contracts generally include performance obligations in which control is transferred over time because the customer either simultaneously receives and consumes the benefits provided or our performance on the contract creates or enhances an asset that the customer controls . these contracts typically provide services on the following basis : ยท time & materials ( โ t & m โ ) โ services consist of revenues from software modification , consulting implementation , training and integration services . these services are set forth separately in the contractual arrangements such that the total price of the customer arrangement is expected to vary depending on the actual time and materials incurred based on the customer 's needs . ยท fixed price โ arrangements to render specific consulting and software modification services which tend to be more complex . performance obligations for t & m contracts qualify for the `` right to invoice '' practical expedient within the revenue guidance . under this practical expedient , we may recognize revenue , over time , in the amount to which we have a right to invoice . in addition , we are not required to estimate variable consideration upon inception of the contract and reassess the estimate each reporting period . we determined that this method best represents the transfer of services as , upon billing , we have a right to consideration from a customer in an amount that directly corresponds with the value to the customer of our performance completed to date . we recognize revenue on fixed price contracts , over time , using the proportion of our actual costs incurred ( generally labor hours expended ) to the total costs expected to complete the contract performance obligation . we determined that this method best represents the transfer of services as the proportion closely depicts the efforts or inputs completed towards the satisfaction of a fixed price contract performance obligation . from time to time , we may enter into contracts with customers that include promises to transfer multiple performance obligations that may include sales of products , professional engineering services and other product qualification or certification services . determining whether the promises in these arrangements are considered distinct performance obligations , that should be accounted for separately versus together , often requires judgment . we consider performance obligations to be distinct when the customer can benefit from the promised good or service on its own or by combining it with other resources readily available and when the promised good or service is separately identifiable from other promised goods or services in the contract . in these arrangements , we allocate revenue on a relative standalone selling price basis by maximizing the use of observable inputs to determine the standalone selling price for each performance obligation . additionally , estimating standalone selling prices for separate performance obligations within a contract may require significant judgment and consideration of various factors including market conditions , items contemplated during negotiation of customer arrangements and internally-developed pricing models . changes to performance obligations that we identify , or the estimated selling prices pertaining to a contract , could materially impact the amounts of earned and unearned revenue that we record . 24 allowance for doubtful accounts we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . our evaluation of the collectability of customer accounts receivable is based on various factors . in cases where we are aware of circumstances that may impair a specific customer 's ability to meet its financial obligations subsequent to the original sale , we will record an allowance against amounts due based on those particular circumstances . for all other customers , we estimate an allowance for doubtful accounts based on the length of time the receivables are past due , our bad debt collection experience and general industry conditions . if a major customer 's credit-worthiness deteriorates , or our customers ' actual defaults exceed our estimates , our financial results could be impacted . inventory valuation we value inventories at the lower of cost ( on a first-in , first-out basis ) or net realizable value , whereby we make estimates regarding the market value of our inventories , including an assessment of excess and obsolete inventories . we determine excess and obsolete inventories based on an estimate of the future sales demand for our products within a specified time horizon , which is generally 12 months . the estimates we use for demand are also used for near-term capacity planning and inventory purchasing . in addition , specific reserves are recorded to cover risks for end-of-life products , inventory located at our contract manufacturers , deferred inventory in our sales channel and warranty replacement stock . if actual product demand or market conditions are less favorable than our estimates , additional inventory write-downs could be required , which would increase our cost of revenue and reduce our gross margins . warranty reserve the standard warranty periods we provide for our products typically range from one to five years . we establish reserves for estimated product warranty costs at the time revenue is recognized based upon our historical warranty experience , and for any known or anticipated product warranty issues . our warranty obligations are impacted by a number of factors , including historical warranty costs , actual product failure rates , service delivery costs , and the use of materials . if our actual results are different from our assumptions , increases or decreases to warranty reserves could be required , which could impact our cost of revenue and gross margins . restructuring charges we recognize costs and related liabilities for restructuring activities when they are incurred . our restructuring charges are primarily comprised of employee separation costs , asset impairments and contract exit costs .
| summary for fiscal 2020 , our net revenue increased by approximately $ 12,988,000 , or 27.7 % , as compared to fiscal 2019. we incurred a net loss for fiscal 2020 of $ 10,738,000 , compared to a net loss of $ 408,000 for fiscal 2019 , which was driven primarily by a $ 10,677,000 , or 39.9 % , increase in operating expenses , partially offset by a $ 627,000 , or 2.4 % , increase in gross profit . fiscal 2020 operating expenses included approximately $ 8,162,000 of costs related to our acquisitions of intrinsyc and maestro and our efforts to integrate and take advantage of synergies of the combined companies . 27 net revenue the following tables present our net revenue by product lines and by geographic region : replace_table_token_1_th replace_table_token_2_th iot net revenue from our iot product line increased in fiscal 2020 across all regions compared to fiscal 2019 due to the addition of sales of products and services obtained through the acquisitions of ( i ) maestro wireless solutions limited and its subsidiaries ( โ maestro โ ) on july 5 , 2019 and ( ii ) intrinsyc technologies corporation ( โ intrinsyc โ ) on january 16 , 2020. net revenue related to products and services from the acquisitions contributed approximately 33 % to 38 % of net sales for fiscal 2020. we also saw growth in unit sales of our sgx , a newer product family , primarily in the americas region . the overall increase in iot net revenues was partially offset by decreases in unit sales of ( i ) our xport , uds , and premierwave en product families across all regions , ( ii ) our xport pro family , mostly in the americas and ( iii ) our large-scale integration chips in the emea region .
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as a result of the fda acceptance of the company 's nda for hetliozย for the treatment of non-24 in july 2013 , the company incurred a $ 3.0 million milestone obligation under the license agreement with bms , which is included in research and development expense in the consolidated statement of operations for the year ended 2013. as a result of the fda approval of the nda for hetlioz ย in january 2014 , the company is obligated to make a milestone payment of $ 8.0 million in the first quarter of 2014. the company will be obligated to make future milestone payments to bms of up to $ 25.0 million in the event that sales of hetliozย reach a certain agreed upon sales threshold . additionally , the company would be obligated to make royalty payments based on net sales of hetliozย which , as a percentage of net sales , are in the low teens . the company is story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with ยselected consolidated financial dataย and our consolidated financial statements and related notes appearing 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 include historical information and other information with respect to our plans and strategy for our business and contain forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including but not limited to those set forth under the ยrisk factorsย section of this report and elsewhere in this annual report on form 10-k. overview we are a biopharmaceutical company focused on the development and commercialization of products for the treatment of central nervous system disorders . we believe that each of our products will address a large market with significant unmet medical needs . our product portfolio includes hetliozย ( tasimelteon ) , a product for the treatment of non-24-hour sleep-wake disorder ( non-24 ) and for which a new drug application ( nda ) was approved by the u.s. food and drug administration ( fda ) in january 2014 , fanapt ยฎ , a product for the treatment of schizophrenia , the oral formulation of which is currently being marketed and sold in the u.s. by novartis pharma ag ( novartis ) , and vly-686 , a small molecule neurokinin-1 receptor ( nk-1r ) antagonist . in january 2014 , the fda approved the nda for hetliozย for the treatment of non-24 . as a result of achieving this regulatory milestone , we will incur additional milestone obligations in the first quarter of 2014 , including an $ 8.0 million cash milestone obligation under our license agreement with bms that will be capitalized as an intangible asset and amortized over the expected patent life of hetliozย in the u.s. and a $ 2.0 million milestone obligation under a regulatory consulting agreement that will be charged to research and development expense . we expect the u.s. commercial launch of hetliozย to occur in the second quarter of 2014. in january 2013 , we reported top-line results of the phase iib/iii clinical study ( magellan ) in major depressive disorder ( mdd ) , investigating the efficacy and safety of hetliozย as a monotherapy in the treatment of patients with mdd . the clinical study did not meet the primary endpoint of change from baseline in the hamilton depression scale ( hamd-17 ) after eight weeks of treatment as compared to placebo . as a result , all activities have been discontinued related to the mdd indication for hetliozย . we incurred $ 23.9 million in research and development costs for the year ended december 31 , 2013 directly attributable to our development of hetliozย . we continue to explore the regulatory path and commercial opportunity for fanapt ยฎ oral formulation outside of the u.s. and canada . we incurred $ 0.5 million in research and development costs for the year ended december 31 , 2013 directly attributable to our development of fanapt ยฎ . in the second half of 2013 , we initiated a proof of concept study for vly-686 in treatment resistant pruritus in atopic dermatitis . we incurred $ 2.6 million in research and development costs for the year ended december 31 , 2013 directly attributable to our development of vly-686 . since we began operations in march 2003 , we have devoted substantially all of our resources to the in-licensing and clinical development of our products . our ability to generate meaningful product revenue and achieve profitability largely depends on our ability to successfully commercialize hetliozย in the u.s. , on our ability , alone or with others , to complete the development of our products , and to obtain the regulatory approvals for and to manufacture , market and sell our products , and on novartis ' ability to successfully commercialize fanapt ยฎ in the u.s. the results of our operations will vary significantly from year-to-year and quarter-to-quarter and depend on a number of factors , including risks related to our business , risks related to our industry , and other risks which are detailed in ยrisk factorsย reported in item 1a of part i of this annual report on form 10-k. 43 revenues our revenues are derived primarily from our amended and restated sublicense agreement with novartis and include an upfront payment , product sales and future milestone and royalty payments . revenues are considered both realizable and earned when the following four conditions are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) the arrangement fee is fixed or determinable , ( iii ) delivery or performance has occurred , and ( iv ) collectability is reasonably assured . story_separator_special_tag accrued liabilities include professional service fees , such as lawyers and accountants , contract service fees , such as those under contracts with clinical monitors , data management organizations and investigators in conjunction with clinical trials , fees to contract manufacturers in conjunction with the production of clinical materials , and fees for marketing and other commercialization activities . pursuant to our assessment of the services that have been performed on clinical trials and other contracts , we recognize these expenses as the services are provided . our assessments include , but are not limited to : ( i ) an evaluation by the project manager of the work that has been completed during the period , ( ii ) measurement of progress prepared internally and or provided by the third-party service provider , ( iii ) analyses of data that justify the progress , and ( iv ) our judgment . in the event that we do not identify certain costs that have begun to be incurred or we under- or over-estimate the level of services performed or the costs of such services , our reported expenses for such period would be too low or too high . revenue recognition . our revenues are derived primarily from our amended and restated sublicense agreement with novartis and include an upfront payment , product revenue and future milestone and royalty revenues . revenue related to the upfront payment is being recognized ratably from the date the amended and restated sublicense agreement became effective ( november 2009 ) through the expected life of the u.s. patent for fanapt ยฎ , which we expect to last until november 2016 ( see subsequent events footnote for further information ) . this includes the hatch-waxman extension that extends patent protection for drug compounds for a period of five years to compensate for time spent in development , for which fanapt ยฎ has qualified . we recognize revenue related to fanapt ยฎ royalties and commercial and development milestones as they are realizable and earned , and product revenue upon delivery of our products to novartis . employee stock-based compensation . we use the black-scholes-merton option pricing model to determine the fair value of stock options . the determination of the fair value of stock options on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include the expected stock price volatility over the expected term of the awards , actual and projected employee stock option exercise behaviors , risk-free interest rate and expected dividends . expected volatility rates are based on the historical volatility of our publicly traded common stock and other factors . the weighted average expected term of stock options granted is based on the simplified method as the options meet the ยplain vanillaย criteria required by authoritative guidance . significant changes in the market price of the company 's common stock in recent years has made historical data less reliable for the purpose of estimating future vesting , exercise , and employment behavior . the simplified method provided a more reasonable approach for estimating the weighted average expected term for options that were granted in 2013. the risk-free interest rates are based on the u.s. treasury yield for a period consistent with the expected term of the option in effect at the time of the grant . we have not paid dividends to our stockholders since our inception ( other than a dividend of preferred share purchase rights which was declared in september 2008 ) and do not plan to pay dividends in the foreseeable future . employee stock-based compensation expense for a period is also affected by the expected forfeiture rate for the respective option grants . if our estimates of the fair value of these equity instruments or expected forfeitures are too high or too low , it would have the effect of overstating or understating expenses . 46 employee stock-based compensation expense related to stock-based awards for the years ended december 31 , 2013 , 2012 and 2011 , was comprised of the following : replace_table_token_4_th income taxes . on a periodic basis , we evaluate the realizability of our deferred tax assets and liabilities and will adjust such amounts in light of changing facts and circumstances , including but not limited to future projections of taxable income , the reversal of deferred tax liabilities , tax legislation , rulings by relevant tax authorities and tax planning strategies . settlement of filing positions that may be challenged by tax authorities could impact our income taxes in the year of resolution . in assessing the realizability of 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 . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences becomes deductible or the net operating losses ( nols ) and credit carryforwards can be utilized . when considering the reversal of the valuation allowance , we consider the level of past and future taxable income , the reversal of deferred tax liabilities , the utilization of the carryforwards and other factors . revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly from period to period . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all of the deferred tax assets will not be realized . the fact that we have historically generated nols serves as strong evidence that it is more likely than not that deferred tax assets will not be realized in the future .
| results of operations we anticipate that our results of operations will fluctuate for the foreseeable future due to several factors , including our and our partners ' ability to successfully commercialize our products , any possible payments made or received pursuant to license or collaboration agreements , progress of our research and development efforts , the timing and outcome of clinical trials and related possible regulatory approvals . our limited operating history makes predictions of future operations difficult or impossible . since our inception , we have incurred significant losses resulting in an accumulated deficit of $ 311.4 million as of december 31 , 2013. our total stockholders ' equity was $ 44.1 million as of december 31 , 2013 , and reflects net proceeds of $ 48.5 million from the public offering of common stock completed in august 2013. year ended december 31 , 2013 compared to year ended december 31 , 2012 revenues . total revenues increased by $ 1.2 million , or 3.5 % , to $ 33.9 million for the year ended december 31 , 2013 compared to $ 32.7 million for the year ended december 31 , 2012. revenues for both annual periods include licensing revenue of $ 26.8 million representing amortization of deferred revenue from straight-line recognition of the up-front license fee of $ 200.0 million received from novartis for fanapt ยฎ in 2009. revenues for the year ended december 31 , 2013 included royalty revenue of $ 7.1 million from novartis based on quarterly sales of fanapt ยฎ by novartis compared to $ 5.9 million for the year ended december 31 , 2012 . 47 intangible asset amortization . intangible asset amortization was $ 1.5 million for both the year ended december 31 , 2013 and the year ended december 31 , 2012. intangible amortization relates to the capitalized intangible asset of $ 12.0 million resulting from the fanapt ยฎ milestone payment to novartis in 2009. research and development expenses .
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document 10.30.2 * amendment , dated december 12 , 2017 , to executive change-in-control severance agreement , dated january 4 , 2017 , by and between mueller water products and j. scott hall . incorporated by reference to exhibit 10.1 to mueller water products , inc. form 8-k ( file no . 001-32892 ) filed december 13 , story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto that appear elsewhere in this annual report . overview organization on october 3 , 2005 , walter energy acquired all outstanding shares of capital stock representing the mueller co. and anvil businesses and contributed them to its u.s. pipe business to form the company . in june 2006 , we completed an initial public offering of common stock and in december 2006 , walter energy distributed to its shareholders all of its equity interests in the company , completing our spin-off . we subsequently sold our u.s. pipe and anvil businesses . unless the context indicates otherwise , whenever we refer to a particular year , we mean our fiscal year ended or ending september 30 in that particular calendar year . business we operate our business through two segments , infrastructure , formerly referred to as mueller co. , and technologies , formerly referred to as mueller technologies . we estimate approximately 60 % of the company 's 2018 net sales were for repair and replacement directly related to municipal water infrastructure spending , approximately 30 % were related to residential construction activity and less than 10 % were related to natural gas utilities . we expect our primary end markets , repair and replacement of water infrastructure , driven by municipal spending , and new water infrastructure installation , driven by residential construction , to grow in 2019. we expect the residential construction market to be the faster growing . infrastructure municipal spending in 2018 was relatively strong compared with the prior year and economic forecasts predict this trend will continue . according to the u.s. bureau of economic analysis , state and local tax receipts for the quarter ended september 30 , 2018 were up year-over-year and , according to the u.s. department of labor , the trailing twelve-month average consumer price index for water and sewerage rates at september 30 , 2018 increased 3.2 % . however , water conservation efforts , particularly in areas impacted by recent drought conditions , have resulted in lower overall receipts for some u.s. water utilities . the year-over-year percentage change in housing starts is a key indicator of demand for infrastructure 's products sold in the residential construction market . in september 2018 , zelman & associates forecasted a 6 % increase in housing starts for calendar 2019 compared to the prior year . in november 2018 , blue chip economic indicators forecasted a 3 % increase in housing starts for calendar 2019 compared to the prior year . technologies the municipal market is the key end market for technologies . the businesses in technologies are project-oriented and depend on customer adoption of their technology-based products and services . we entered 2019 with a backlog of $ 20.6 million at mueller systems , largely for ami products . consolidated overall in 2019 for mueller water products , we expect year-over-year net sales percentage growth between 4 % and 6 % . we expect adjusted operating income to increase between 7 % and 9 % and for productivity improvements to help increase operating margin . 23 index to financial statements story_separator_special_tag 2017 increased to $ 826.0 million from $ 800.6 million in the prior year due primarily to higher shipment volumes of $ 15.4 million and $ 10.3 million in net sales related to the acquisition of singer valve gross profit for 2017 decreased to $ 267.9 million from $ 268.9 million in the prior year . gross margin decreased 120 basis points to 32.4 % in 2017 from 33.6 % in the prior year due primarily due to a discrete warranty charge of $ 9.8 million at technologies . sg & a for 2017 increased to $ 155.4 million from $ 149.5 million in the prior year primarily due to the addition of singer valve . sg & a as a percentage of net sales increased to 18.8 % in 2017 from 18.7 % in the prior year . 26 index to financial statements in june 2016 , our u.s. pension plan completed a pension benefit settlement program . lump-sum distributions to fully settle existing obligations were offered to all vested participants who are no longer working for us and not yet receiving benefits . approximately 75 % of these participants accepted the offer . as a result , the plan disbursed $ 58.5 million and we recorded a non-cash pension settlement charge of $ 16.6 million . interest expense , net declined $ 1.4 million in 2017 compared to the prior year as a result of interest income earned on the cash proceeds form the sale of anvil . interest expense associated with the term loan decreased due to the repricing we completed in february 2017 , which reduced the applicable interest rate spread by 75 basis points . the components of interest expense , net are provided below . replace_table_token_6_th income tax expense was $ 24.2 million for both 2017 and 2016 , but the effective income tax rate decreased to 30.8 % in 2017 from 34.9 % in the prior year primarily due to increased domestic manufacturing deductions and excess tax benefits related to stock compensation . segment analysis infrastructure net sales for 2017 increased to $ 739.9 million from $ 715.7 million in the prior year . story_separator_special_tag replace_table_token_7_th we collected $ 78.9 million more from customers in 2018 than in 2017 , which is relatively consistent with the $ 90 million increase in net sales in 2018 compared with 2017 . 28 index to financial statements capital expenditures were $ 55.7 million during 2018 and $ 40.6 million during 2017 . we estimate 2019 capital expenditures will be $ 56 million to $ 60 million . we expect our capital expenditures will be higher over the next several years as we invest more in our machinery , equipment and facilities for product introductions , enhanced productivity and maintenance . income tax payments were lower during 2018 compared to the prior year primarily due to the change in the federal tax rates and the timing of quarterly payments in 2017. we expect the effective tax rate in 2019 to be between 25 % and 27 % . in 2015 , we announced the authorization of a stock repurchase program for up to $ 50.0 million of our common stock . the program does not commit us to any particular timing or quantity of purchases , and we may suspend or discontinue the program at any time . in 2017 , we announced an increase in the authorization of this program to $ 250 million . we acquired 2,573,475 and 4,581,227 shares of our common stock in 2018 and 2017 , respectively . at september 30 , 2018 , we had remaining authorization of $ 160.0 million to repurchase shares of our common stock . on november 5 , 2018 , we announced we had signed an agreement to acquire krausz industries , a manufacturer of pipe couplings , grips and clamps for approximately $ 140 million in cash , subject to post-closing adjustments . we expect to close this transaction in december . we anticipate our existing cash , cash equivalents and borrowing capacity combined with our expected operating cash flows will be sufficient to meet our anticipated operating expenses , acquisition payments , capital expenditures and debt service obligations as they become due through september 30 , 2019 . however , our ability to make these payments will depend partly upon our future operating performance , which will be affected by general economic , financial , competitive , legislative , regulatory , business and other factors beyond our control . abl agreement at september 30 , 2018 , the abl agreement consisted of a revolving credit facility for up to $ 175 million of revolving credit borrowings , swing line loans and letters of credit . the abl agreement permits us to increase the size of the credit facility by an additional $ 150 million in certain circumstances . we may borrow up to $ 25 million through swing line loans and may have up to $ 60 million of letters of credit outstanding . borrowings under the abl agreement bear interest at a floating rate equal to libor plus a margin ranging from 125 to 150 basis points , or a base rate , as defined in the abl agreement , plus a margin ranging from 25 to 50 basis points . at september 30 , 2018 , the applicable libor-based margin was 125 basis points . we pay a commitment fee for any used borrowing capacity under the abl agreement of 25 basis points per annum . the abl agreement terminates on july 13 , 2021 . the abl agreement is subject to mandatory prepayments if total outstanding borrowings under the abl agreement are greater than the aggregate commitments under the revolving credit facility or if we dispose of overdue accounts receivable in certain circumstances . the borrowing base under the abl agreement is equal to the sum of ( a ) 85 % of the value of eligible accounts receivable and ( b ) the lesser of ( i ) 70 % of the value of eligible inventory or ( ii ) 85 % of the net orderly liquidation value of the value of eligible inventory , less certain reserves . prepayments can be made at any time with no penalty . substantially all of our u.s. subsidiaries are borrowers under the abl agreement and are jointly and severally liable for any outstanding borrowings . our obligations under the abl agreement are secured by a first-priority perfected lien on all of our u.s. inventory , accounts receivable , certain cash and other supporting obligations . borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $ 17.5 million and 10 % of the loan cap as defined in the abl agreement . the abl agreement contains customary negative covenants and restrictions on our ability to engage in specified activities , such as : limitations on other debt , liens , investments and guarantees ; restrictions on dividends and redemptions of our capital stock and prepayments and redemptions of debt ; and restrictions on mergers and acquisition , sales of assets and transactions with affiliates . 29 index to financial statements 5.5 % senior unsecured notes on june 12 , 2018 , we privately issued $ 450.0 million of 5.5 % senior unsecured notes ( โ notes โ ) , which mature in june 2026 and bear interest at 5.5 % , paid semi-annually . substantially all of our u.s. subsidiaries guarantee the notes , which are subordinate to borrowings under the abl . based on quoted market prices , the outstanding notes had a fair value of $ 452.3 million at september 30 , 2018 . an indenture securing the notes ( โ indenture โ ) contains customary covenants and events of default , including covenants that limit our ability to incur debt , pay dividends , and make investments .
| results of operations year ended september 30 , 2018 compared to year ended september 30 , 2017 replace_table_token_3_th consolidated analysis net sales for 2018 increased 10.9 % to $ 916.0 million from $ 826.0 million in the prior year due primarily to higher shipment volumes in both infrastructure and technologies as well as higher pricing in infrastructure . gross profit was $ 289.9 million for 2018 and $ 267.9 million in the prior year . gross margin declined 80 basis points to 31.6 % in 2018 from 32.4 % in the prior year primarily due to higher material costs in the current year and the net effect of warranty charges at technologies . selling , general and administrative expenses ( โ sg & a โ ) increased 7.3 % to $ 166.7 million for 2018 from $ 155.4 million in the prior year , but declined 60 basis points to 18.2 % of net sales from 18.8 % of net sales in the prior year . the increase in sg & a was primarily due to personnel-related expenses and the acquisition of singer valve . 24 index to financial statements other charges for 2018 consisted primarily of costs of our previously announced strategic reorganization and expenses related to our former u.s. pipe and anvil segments . in 2018 , we also recorded a gain on the sale of a property in burlington , new jersey that we had retained in the sale of u.s. pipe . for 2017 , other charges consisted primarily of costs of our previously announced strategic reorganization and costs associated with the acquisition of singer valve . interest expense , net declined $ 1.3 million in 2018 from the prior year as a result of interest income earned on the cash proceeds from the sale of anvil and higher interest rates . interest expense associated with the term loan decreased due to the replacement of the term loan with the 5.5 % senior notes in june 2018.
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our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of various factors including the factors we describe under `` special note regarding forward-looking statements '' , `` risk factors '' and elsewhere in this annual report on form 10-k. references in the following discussion to `` we '' , `` our '' , `` us '' , `` dps '' or `` the company '' refer to dr pepper snapple group , inc. and all entities included in our audited consolidated financial statements . cadbury plc and cadbury schweppes plc are hereafter collectively referred to as `` cadbury '' , unless otherwise indicated . kraft foods inc. acquired cadbury on february 2 , 2010. on october 1 , 2012 , kraft foods , inc. spun-off its north american grocery business to its shareholders and changed its name to mondelฤz international , inc. ( `` mondelฤz '' ) . the periods presented in this section are the years ended december 31 , 2012 , 2011 and 2010 , which we refer to as `` 2012 `` , `` 2011 `` and `` 2010 `` , respectively . overview we are a leading integrated brand owner , manufacturer and distributor of non-alcoholic beverages in the united states ( `` u.s. '' ) , canada and mexico with a diverse portfolio of flavored carbonated soft drinks ( `` csds '' ) and non-carbonated beverages ( `` ncbs '' ) , including ready-to-drink teas , juices , juice drinks and mixers . our brand portfolio includes popular csd brands such as dr pepper , sunkist soda , 7up , a & w , canada dry , crush , squirt , peรฑafiel and schweppes , and ncb brands such as snapple , mott 's , hawaiian punch , clamato , rose 's and mr & mrs t mixers . our largest brand , dr pepper , is a leading flavored csd in the u.s. according to the nielsen company . we have some of the most recognized beverage brands in north america , with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers . we operate as an integrated brand owner , manufacturer and distributor through our three segments . we believe our integrated business model strengthens our route-to-market and provides opportunities for net sales and profit growth through the alignment of the economic interests of our brand ownership and our manufacturing and distribution businesses through both our direct store delivery ( `` dsd '' ) system and our warehouse direct ( `` wd '' ) delivery system . our integrated business model enables us to be more flexible and responsive to the changing needs of our large retail customers and allows us to more fully leverage our scale and reduce costs by creating greater geographic manufacturing and distribution coverage . we operate primarily in the u.s. , mexico and canada and we also distribute our products in the caribbean . in 2012 , 89 % of our net sales were generated in the united states , 4 % in canada and 7 % in mexico and the caribbean . trends affecting our business we believe the key trends influencing the north american liquid refreshment beverage market include : changes in economic factors . we believe changes in economic factors could impact consumers ' purchasing power which may result in a decrease in purchases of our premium beverages and single-serve packages . increased health consciousness . we believe the main beneficiaries of this trend include diet and low calorie drinks , ready-to-drink teas and bottled waters . changes in lifestyle . we believe changes in lifestyle will continue to drive increased sales of single-serve beverages , which typically have higher margins . growing demographic segments in the u.s. we believe marketing and product innovations that target fast growing population segments , such as the hispanic community in the u.s. , will drive further market growth . product and packaging innovation . we believe brand owners and bottling companies will continue to create new products and packages , such as beverages with new ingredients and new premium flavors , and innovative convenient packaging that address changes in consumer tastes and preferences . changing retailer landscape . as retailers continue to consolidate , we believe retailers will support consumer product companies that can provide an attractive portfolio of products , a strong value proposition and efficient delivery . 23 volatility in the costs of raw materials . the costs of a substantial portion of the raw materials used in the beverage industry are dependent on commodity prices for aluminum , resin , corn , diesel , natural gas , pulp and other commodities . commodity price volatility has exerted pressure on industry margins and operating results . seasonality the beverage market is subject to some seasonal variations . our beverage sales are generally higher during the warmer months and also can be influenced by the timing of holidays as well as weather fluctuations . segments we report our business in three operating segments : the beverage concentrates segment reflects sales of our branded concentrates and syrup to third party bottlers primarily in the u.s. and canada . most of the brands in this segment are csd brands . the packaged beverages segment reflects sales in the u.s. and canada from the manufacture and distribution of finished beverages and other products , including sales of our own brands and third party brands , through both dsd and wd . the latin america beverages segment reflects sales in the mexico and caribbean markets from the manufacture and distribution of concentrates , syrup and finished beverages . segment results are based on management reports . net sales and segment operating profit ( `` sop '' ) are the significant financial measures used to assess the operating performance of our operating segments . volume in evaluating our performance , we consider different volume measures depending on whether we sell beverage concentrates or finished beverages . story_separator_special_tag the decrease was primarily driven by $ 21 million of higher marketing investments and increased costs for our commodities , led by flavors . these decreases were partially offset by the benefit of higher net sales . volume ( bcs ) . volume ( bcs ) was flat for the year ended december 31 , 2012 , as compared with the year ago period . our core 5 brands de creased approximately 1 % compared to the prior year as a result of high single-digit de clines in sunkist soda , and sun drop and low single-digit de creases in 7up and a & w , partially offset by a mid single-digit in crease in canada dry . crush had a mid single-digit de cline . dr pepper volume was flat due to increases in regular dr pepper and dr pepper ten , which launched in the fourth quarter of 2011 , offset by declines in cherry and diet . packaged beverages the following table details our packaged beverages segment 's net sales and sop for the years ended december 31 , 2012 and 2011 ( in millions ) : replace_table_token_6_th volume . total sales volume de creased 2 % for the year ended december 31 , 2012 , compared with the year ended december 31 , 2011 , driven by lower ncb volumes . within csds , volume was flat for the year ended december 31 , 2012 , compared with the year ended december 31 , 2011 . volume for our core 5 brands in creased 1 % , led by a high single-digit increase in canada dry , mid single-digit increase in sunkist soda , as a result of flavor expansion , and a low single-digit increase in a & w . sun drop experienced a double-digit decrease primarily due to cycling the national launch of the brand in the prior year , while 7up had a mid single-digit decrease . dr pepper volumes de creased 1 % for the year ended december 31 , 2012 , as decreased volume in base dr pepper was partially offset by growth of dr pepper ten , which launched in the fourth quarter of 2011. squirt increased 2 % , while our other brands , which include welch 's , decreased 2 % for the year ended december 31 , 2012 . within ncbs , volume de creased 5 % . hawaiian punch de clined 17 % as a result of price increases , while mott 's de creased 7 % as a result of net pricing increases and lower promotional activity . these decreases were partially offset by a 12 % in crease in our water category , led by vita coco and deja blue , and a 2 % in crease in snapple due to package and flavor innovation . net sales . net sales in creased $ 66 million for the year ended december 31 , 2012 , compared with the year ended december 31 , 2011 . net sales increased due to favorable mix and net pricing increases for csds , mott 's and hawaiian punch . these increases were partially offset by a decrease in our sales volumes . sop . sop in creased $ 20 million for the year ended december 31 , 2012 , compared with the year ended december 31 , 2011 . significant factors included the benefit of higher net sales partially offset by higher labor and benefit costs . other positive factors that impacted sop included ongoing productivity improvements , lower distribution fees , which were primarily a result of lower ncb volumes , and the favorable comparison of the abc litigation recorded in the prior year . these positive factors were partially offset by higher costs for our commodities , increased manufacturing costs and an increase in our last-in , first out ( `` lifo '' ) provision . the higher costs for our commodities , which impacted the increase in our lifo provision , were led by apples , flavors , apple juice concentrate and pet . 29 latin america beverages the following table details our latin america beverages segment 's net sales and sop for the years ended december 31 , 2012 and 2011 ( in millions ) : replace_table_token_7_th volume . sales volume in creased 2 % for the year ended december 31 , 2012 , as compared with the year ended december 31 , 2011 , as volume increased in virtually all of our brands except aguafiel . the in crease in volume was led by a 5 % increase in peรฑafiel as a result of package innovations , an 11 % in crease in crush , a 14 % in crease in clamato and a double-digit in crease in dr pepper due to targeted marketing programs . these increases in sales volume were partially offset by a 9 % de crease in aguafiel as a result of lower promotional activity . net sales . net sales de creased $ 2 million for the year ended december 31 , 2012 , compared with the year ended december 31 , 2011 . net sales decreased as a result of $ 21 million of unfavorable foreign currency translation and a $ 7 million reclassification for certain transportation allowances to our customers from sg & a expenses to net sales . these decreases were partially offset by increased sales volumes , favorable product mix and price increases . sop . sop in creased $ 8 million , or approximately 19 % , for the year ended december 31 , 2012 , compared with the year ended december 31 , 2011 , primarily due to the impact of favorable product mix , price increases , increased sales volumes and ongoing productivity improvements . these increases were partially offset by approximately $ 9 million of unfavorable foreign currency effects , higher logistics costs , increased cost for our commodities , led by sweeteners and flavors , and higher marketing investments .
| results of operations executive summary โ 2012 financial overview and recent developments net sales totaled $ 5,995 million for the year ended december 31 , 2012 , an in crease of $ 92 million , or 2 % , from the year ended december 31 , 2011 . net income for the year ended december 31 , 2012 was $ 629 million , compared to $ 606 million for the year ended december 31 , 2011 , an in crease of $ 23 million , or 4 % . diluted earnings per share was $ 2.96 for the year ended december 31 , 2012 and $ 2.74 for the year ended december 31 , 2011 . the diluted earnings per share for the year ended december 31 , 2012 increased by 8 % . during 2012 , our board of directors ( our `` board '' ) declared dividends of $ 1.36 per share on outstanding common stock , as compared to $ 1.21 per share on outstanding common stock during 2011 . dividends declared per share for the year ended december 31 , 2012 increased by 12 % . during the three and twelve months ended december 31 , 2012 , we repurchased 3.2 million and 9.5 million shares , respectively , of our common stock valued at approximately $ 138 million and $ 400 million , respectively . on october 26 , 2012 , standard & poor 's ( `` s & p '' ) affirmed our debt rating of bbb and revised its outlook to positive from stable . on november 20 , 2012 , the company completed the issuance of $ 500 million aggregate principal amount of senior unsecured notes consisting of $ 250 million aggregate principal amount of 2.00 % senior notes due january 15 , 2020 ( the `` 2020 notes '' ) and $ 250 million aggregate principal amount of 2.70 % senior notes due november 15 , 2022 ( the `` 2022 notes '' ) .
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the following tables summarize in a condensed presentation the impact of the adoption of asc 606 on the company 's previously reported consolidated balance sheet as of december 31 , 2017 , the consolidated statements of operations and comprehensive income for the years ended december 31 , 2017 and 2016 , and the consolidated statements of cash flows for the years ended december 31 , 2017 and 2016 . 86 nuvasive , inc. consolidated balance sheet ( in thousands ) as of december 31 , 2017 as reported adjustments as adjusted accounts receivable , gross $ 212,709 $ 537 [ a ] $ 213,246 allowances on accounts receivable ( 13,669 ) 643 [ b ] ( 13,026 ) inventory , net 247,245 ( 107 ) [ c ] 247,138 other current assets 112,705 โ 112,705 total current assets 558,990 1,073 560,063 remaining other assets 1,080,077 โ 1,080,077 total assets $ 1,639,067 $ 1,073 $ 1,640,140 accounts payable and accrued liabilities 75,076 691 [ d ] 75,767 accrued payroll and related expenses 55,582 36 [ e ] 55,618 other current liabilities 30,010 โ 30,010 total current liabilities 160,668 727 161,395 deferred and story_separator_special_tag financial condition and results of operations as noted earlier , this annual report , including the following discussion and analysis , may contain forward-looking statements that involve risks , uncertainties , assumptions and other factors which , if they do not materialize or prove correct , could cause our results to differ from historical results or those expressed or implied by such forward-looking statements . please review this annual report and the following discussion and analysis in light of the forward-looking statements provisions outlined at the outset of part i. you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes to those statements included in this annual report . overview we are a leading medical device company in the global spine surgery market , focused on developing minimally disruptive surgical products and procedurally integrated solutions for spine surgery . our currently marketed product portfolio is focused on applications for spine fusion surgery , including ancillary products and services used to aid in the surgical procedure . our procedurally integrated solutions use innovative , technological advancements and a minimally disruptive surgical platform called maximum access surgery , or mas , to provide surgical efficiency , operative reliability , and procedural versatility . for the year ended december 31 , 2018 , we generated global revenues of $ 1.1 billion , including sales in over 50 countries . our principal product offering includes the mas platform which combines three categories of solutions that collectively minimize soft tissue disruption during spine fusion surgery , provide maximum visualization and are designed to enable safe and reproducible outcomes for the surgeon and the patient . the platform includes our proprietary software-driven nerve detection and avoidance systems , and intraoperative monitoring , or iom , services and support offered by nuvasive clinical services ; maxcess , an integrated split-blade retractor system ; and a wide variety of specialized implants and biologics . many of our products , including the individual components of our mas platform can also be used in open or traditional spine surgery . our spine surgery product line offerings , which include products for the thoracolumbar and the cervical spine , are primarily used to enable surgeon access to the spine to perform restorative and fusion procedures in a minimally disruptive fashion . to assist with surgical procedures , we offer a platform called integrated global alignment , or iga , in which products and computer assisted technology under our mas platform help achieve more precise spinal alignment . our mas platform and its related offerings are designed to provide a unique and comprehensive solution for the safe and reproducible minimally disruptive surgical treatment of spine disorders by enabling surgeons to access the spine in a manner that affords both direct visualization and detection and avoidance of critical nerves along with intraoperative reconciliation . the fundamental difference between our mas platform , which is sometimes referred to in the industry as โ minimally invasive surgery โ or โ mis โ , is the ability to customize safe and reproducible access to the spine while allowing surgeons to continue to use instruments that are familiar to them and effective during surgery . accordingly , the mas platform does not force surgeons to reinvent or learn new approaches that add complexity and undermine safety , ease of use and or efficacy . we have dedicated and continue to dedicate significant resources toward training spine surgeons around the world ; both those who are new to our mas and other product platforms , as well as ongoing education for mas-trained surgeons attending advanced courses . an important ongoing objective of ours has been to maintain a leading position in access and nerve avoidance , as well as to pioneer and remain the ongoing leader in minimally invasive spine surgery . our mas platform , with the unique advantages provided by our neuromonitoring systems , enables innovative lateral procedures , including a procedure known as extreme lateral interbody fusion , or xlif , in which surgeons access the spine for a fusion procedure from the side of the patient 's body , rather than from the front or back . it has been demonstrated clinically that xlif and other procedures facilitated by our mas platform decrease trauma and blood loss , and lead to faster overall patient recovery times compared to open spine surgery . we offer a range of implants for spinal surgery , which include our porous titanium and polyetheretherketone , or peek , implants under our advanced materials science portfolio , fixation devices such as customizable rods , plates and screws , bone allograft in patented saline packaging , allogeneic and synthetic biologics , and disposables used in iom . story_separator_special_tag specifically , revenue from the sale of implants and disposables is generally recognized at an amount that reflects the expected consideration upon notice that our products have been used in a surgical procedure or upon shipment to a third-party customer assuming control of the products . revenue from neuromonitoring services is recognized in the period the service is performed for the amount of consideration expected to be received . revenue from the sale of instrument sets is generally recognized upon receipt of a purchase order and the subsequent shipment to a customer who assumes control . in certain cases , we offer the ability for customers to lease instrumentation primarily on a non-sales type basis . instrument sales and leasing revenue represent an immaterial amount of our total revenue . revenue associated with products holding rights of return or trade-in are recognized when we conclude there is not a risk of significant revenue reversal in future periods for the expected consideration in the transaction . our costs incurred associated with sales contracts with customers are deferred over the performance obligation period and recognized in the same period as the related revenue , with the exception of contracts that complete within one year or less , in which case the associated costs are expensed as incurred . allowance for doubtful accounts and sales return reserve we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . the allowance for doubtful accounts is reviewed quarterly and is estimated based on the aging of account balances , collection history and known trends with current customers and in the economy in general . as a result of this review , the allowance is adjusted on a specific identification basis for significant accounts and a general reserve approach for non-significant accounts . we also review the overall quality and age of those invoices not specifically identified . in determining the provision for invoices not specifically reviewed , we analyze historical collection experience and current economic trends . an increase to the allowance for doubtful accounts results in a corresponding charge to sales , marketing and administrative expenses . if the historical data used to calculate the allowance provided for doubtful accounts does not reflect our future ability to collect outstanding receivables or if the financial condition of customers were to deteriorate , resulting in impairment of their ability to make payments , an increase in the provision for doubtful accounts may be required . we maintain a relatively large customer base that mitigates the risk of concentration with any one particular customer . historically , our reserves have been adequate to cover losses . in addition , we establish a liability for estimated sales returns and a reserve for price adjustments that are recorded as a reduction to revenue . the liability and reserve are maintained to account for future product returns and price adjustments of products sold in the current period . this reserve is reviewed quarterly and is estimated based on an analysis of our historical experience and expected future trends . historically , our reserves have been adequate to account for returns and pricing adjustments . inventory net inventory as of december 31 , 2018 consisted of $ 259.4 million of finished goods , $ 5.0 million of work in progress , and $ 8.8 million of raw materials . net inventory as of december 31 , 2017 consisted of $ 232.3 million of finished goods , $ 9.8 million of work in progress , and $ 5.0 million of raw materials . finished goods include specialized implants and disposables and are stated at the lower of cost or market determined by utilizing a standard cost method , which includes assessment of capitalized variances , which approximates the weighted average cost . work in progress and raw materials represent the underlying material , and labor for work in progress , that ultimately yield finished goods upon completion and are stated at lower of cost or market . we review the components of our inventory on a periodic basis for excess and obsolescence and adjust inventory to its net realizable value as necessary . excess and obsolete inventory we provide an inventory reserve for estimated obsolescence and excess inventory based upon historical turnover and assumptions about future demand for our products and market conditions . our allograft products have shelf lives ranging from two to five years and are subject to demand fluctuations based on the availability and demand for alternative products . our inventory , which consists primarily of disposables and specialized implants , is at risk of obsolescence following the introduction and development of new or enhanced products . our estimates and assumptions for excess and obsolete inventory are reviewed and updated on a quarterly basis . the estimates we use for demand are also used for near-term capacity planning and inventory purchasing and are consistent with our revenue forecasts . increases in the reserve for excess and obsolete inventory result in a corresponding charge to cost of products sold . historically our reserves have been adequate to cover losses . a stated goal of our business is to focus on continual product innovation and to obsolete our own products . while this provides a competitive edge , it also results in the risk that our products and related capital instruments will become obsolete prior to sale or to the end of their anticipated useful lives . 47 fair value of financial instruments a sc topic 820 , fair value measurements and disclosures , defines fair value and requires us to establish a framework for measuring fair value and disclosure about fair value measurements . the framework requires the valuation of assets and liabilities subject to fair value measurements using a three tiered approach and fair value measurement be classified and disclosed in one of the following three categories . inputs to valuation techniques are observable or unobservable . observable inputs reflect market data obtained from independent sources , while unobservable inputs reflect our market assumptions .
| results of operations revenue replace_table_token_4_th our spinal hardware product line offerings include our implants and fixation products . our surgical support product line offerings include iom services , disposables and biologics , all of which are used to aid spinal surgery . the continued adoption of minimally invasive procedures for spine has led to the expansion of our procedure volume . in addition , increased market acceptance in our international markets contributed to the increase in revenues for the periods presented . we expect continued adoption of our innovative minimally invasive procedures and deeper penetration into existing accounts and international markets as our sales force executes on our strategy of selling the full mix of our products and services . however , the continued consolidation and increased purchasing power of our hospital customers and group purchasing organizations , the continued existence of physician-owned distributorships , continued changes in the public and private insurance markets regarding reimbursement , and ongoing policy and legislative changes in the united states have created less predictability in the lumbar portion of the spine market . although the market for procedurally-integrated spine surgery solutions should continue to grow over the long term , economic , political and regulatory influences are subjecting our industry to significant changes that may slow the growth rate of the spine surgery market . our growth in revenue in 2019 is expected to come primarily from market share gains in the shift toward less invasive spinal surgery , revenue from new products and services , and international growth . our total revenues increased $ 75.0 million in 2018 compared to 2017 and $ 64.6 million in 2017 compared to 2016 , representing total revenue growth of 7 % in both years . to date , foreign currency fluctuations have not materially impacted our overall revenues as a percentage of growth year over year .
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net ( losses ) gains net ( losses ) gains may include net realized and unrealized gains or losses relating to bonds , loans , derivatives , other assets , real estate and other investments as well as gains or losses realized by the company in connection with the extinguishment of debt obligations . the company recognized net losses for the year ended december 31 , 2020 , compared to net gains reported for the year ended december 31 , 2019 , primarily due to nonrecurring gains of $ 28.6 million that were recognized in 2019 in connection with the sale or redemption of bond investments . other interest expense other interest expense for the year ended december 31 , 2020 , increased compared to that reported for the year ended december 31 , 2019 , primarily due to the recognition of a full year of interest expense in 2020 associated with advances on the company 's revolving credit facility . the increase in interest expense was partially offset by a reduction in interest expense associated with subordinated debt that was attributable to a decrease in three-month libor . impairment losses impairment losses for the year ended december 31 , 2020 , were attributable to the company 's equity investment in the sf venture , which was determined to be other-than-temporarily impaired at june 30 , 2020 , and december 31 , 2020. operating expenses operating expenses include management fees and reimbursable expenses payable to our external manager , general and administrative expense , professional fees and other miscellaneous expenses . 29 table 7 summarizes operating expenses for the periods presented . table 7 : operating expenses replace_table_token_7_th โ operating expenses for the year ended december 31 , 2020 , increased compared to that reported for the year ended december 31 , 2019 , primarily due to : ( i ) an increase in the amount of compensation-related expense reimbursements that were payable to the external manager as the reimbursement cap increased by $ 1.0 million for 2020 ; ( ii ) an increase in general and administrative expense associated with director fees that stemmed from the addition of two independent directors during the first quarter of 2020 and our former chief executive officer becoming a non-employee director during the third quarter of 2020 ; and ( iii ) an increase in legal and consulting fees associated with business strategy and related matters . income tax benefit income tax benefit for the year ended december 31 , 2020 , decreased compared to that reported for the year ended december 31 , 2019 , primarily due to a decrease in the magnitude of recognized releases of the dta valuation allowance . 30 liquidity and capital resources โ liquidity liquidity is a measure of our ability to meet potential short-term ( within one year ) and long-term cash requirements , including ongoing commitments to repay borrowings , fund and maintain our current and future assets and other general business needs . our sources of liquidity include : ( i ) cash and cash equivalents ; ( ii ) cash flows from operating activities ; ( iii ) cash flows from investing activities ; and ( iv ) cash flows from financing activities . summary of cash flows table 8 provides a consolidated view of the change in cash , cash equivalents and restricted cash of the company for the periods presented . at december 31 , 2020 and december 31 , 2019 , $ 17.6 million and $ 4.3 million , respectively , of amounts presented below represented restricted cash . table 8 : net increase in cash , cash equivalents and restricted cash โ โ โ โ โ โ for the year ended ( in thousands ) โ december 31 , 2020 cash , cash equivalents and restricted cash at beginning of period $ 12,805 net cash provided by ( used in ) : โ โ โ operating activities โ โ 17,967 investing activities โ โ ( 21,232 ) financing activities โ โ 36,721 net increase in cash , cash equivalents and restricted cash โ โ 33,456 cash , cash equivalents and restricted cash at end of period โ $ 46,261 โ โ โ โ โ โ โ for the year ended ( in thousands ) โ december 31 , 2019 cash , cash equivalents and restricted cash at beginning of period $ 33,878 net cash provided by ( used in ) : โ โ โ operating activities โ โ 8,901 investing activities โ โ ( 114,662 ) financing activities โ โ 84,688 net decrease in cash , cash equivalents and restricted cash โ โ ( 21,073 ) cash , cash equivalents and restricted cash at end of period โ $ 12,805 โ operating activities cash flows from operating activities include , but are not limited to , interest income on our investments , and income distributions from our investments in unconsolidated funds and ventures . net cash flows provided by operating activities during the year ended december 31 , 2020 , increased $ 9.1 million compared to such net cash flows during the year ended december 31 , 2019. this net increase was primarily driven by ( i ) a $ 18.7 million increase in distributions received from the company 's investment in the solar ventures and ( ii ) a $ 1.3 million decline in interest expense associated with the subordinated debt that was primarily attributable to a decrease in three-month libor ( the weighted average interest pay rate on the outstanding debt was 2.9 % and 4.4 % for the years ended december 31 , 2020 and december 31 , 2019 , respectively ) . story_separator_special_tag at december 31 , 2020 and december 31 , 2019 , $ 4.0 million and $ 6.8 million , respectively , of this debt relates to financing that was obtained to complete the purchase of the company 's 11.85 % ownership interest in sawhf . this debt , which is denominated in south african rand , has a maturity date of december 24 , 2021 , and requires the company to pay interest based upon the johannesburg interbank agreed rate ( โ jibar โ ) plus a fixed spread of 5.15 % . at december 31 , 2020 , the interest rate on this debt was 8.7 % . at december 31 , 2020 and december 31 , 2019 , $ 4.3 million and $ 1.5 million , respectively , of the notes payable and other debt relates to debt obligations to the morrison grove management , llc principals ( โ mgm principals โ ) . this debt bears interest at 5.0 % . the $ 2.8 million debt obligation amortizes over its contractual life and is due to mature on january 1 , 2026. the $ 1.5 million debt obligation is interest only until march 31 , 2026 and then amortizes in three equal installments until its maturity date of january 1 , 2027. on june 1 , 2020 , the company entered into a $ 10.0 million construction loan that is secured by our direct investment in real estate that is in the process of development . the initial advance from this debt was $ 9.3 million and $ 0.5 million of capacity has been reserved for interest payments . the total amount advanced by the lender will not exceed 65 % of the value of the pledged real estate plus 75 % of the total development allowable hard costs incurred by the borrower . the loan is prepayable at any time without penalty , with all net proceeds realized from the sale of any portion of the real property required to be used to repay the outstanding upb of the loan . construction draws may not exceed a total principal sum of $ 11.1 million over the life of the facility , with the maximum outstanding upb at any point in time not to exceed $ 10.0 million . the contractual maturity date of this facility is june 1 , 2023 , although the facility is subject to three extension options ( at the discretion of the borrower and lender ) : ( i ) the first extension term would expire on november 1 , 2023 ; ( ii ) the second extension term would expire on may 1 , 2024 and ( iii ) the final amortized term would expire three years after the initial term , first extension term and second extension term , as applicable . amounts drawn from this debt facility are repayable on an interest only basis at a rate of 4.85 % with all outstanding principal due at maturity during the initial term , first extension term and second extension term . however , during the final extension term the debt bears interest at a rate of three-month libor plus 3.0 % per annum , subject to a 5.0 % floor with principal amortization required monthly over the three-year extension term . obligations associated with this debt are guaranteed by the company . at december 31 , 2020 , this debt obligation had a carrying value of $ 9.4 million . asset related debt asset related debt is debt that finances interest-bearing assets of the company . the interest expense associated with this debt is included within โ net interest income โ on the company 's consolidated statements of operations . 33 bond related debt on june 5 , 2020 , the company entered into a trs agreement involving our infrastructure bond , which was sold concurrently to our trs counterparty . proceeds received in connection with the conveyance of such bond investment were reported as a secured borrowing . the trs agreement has a maturity date of june 6 , 2022 , and requires the company to pay interest based upon the securities industry and financial markets association index rate , subject to a 0.5 % floor , plus a spread of 2.0 % , which , at december 31 , 2020 , was 2.5 % . these payment terms are used to accrue interest expense related to the secured borrowing that was recognized upon conveyance of the company 's bond investment . additionally , as required under the terms of the trs agreement , the company pledged cash collateral of $ 10.0 million representing 37.5 % of the referenced bond 's upb . at december 31 , 2020 , this debt obligation had a upb of $ 23.3 million . additionally , under the terms of the trs , the company 's trs counterparty is entitled to share in 10 % of the increase in fair value , if any , of the infrastructure bond between the trade and termination dates of the trs agreement . for reporting purposes , this provision is treated as a freestanding derivative instrument that is reported on a fair value basis . non-bond related debt at december 31 , 2019 , the company had a debt obligation to mgm principals with a upb of $ 3.5 million . upon the full redemption of the hunt note on january 3 , 2020 , this asset related debt obligation to the mgm principals was reclassified to notes payable and other debt . covenant compliance at december 31 , 2020 and december 31 , 2019 , the company was in compliance with all covenants under its debt arrangements . off-balance sheet arrangements at december 31 , 2020 and december 31 , 2019 , the company had no off-balance sheet arrangements . other contractual commitments the company is committed to make additional capital contributions to certain of its investments in partnerships and ventures . refer to notes to consolidated financial statements - note 3 , โ investments in partnerships , โ for more information .
| summary of financial performance โ net worth common shareholders ' equity ( โ book value โ ) increased $ 8.8 million in 2020 to $ 289.9 million at december 31 , 2020. this change was driven by $ 8.4 million of comprehensive income and $ 0.4 million of other increases in common shareholders ' equity . book value per share increased $ 1.38 , or 2.9 % , in 2020 to $ 49.81 at december 31 , 2020. book value adjusted to exclude the carrying value of our net dtas ( โ adjusted book value โ ) increased $ 7.4 million in 2020 to $ 230.8 million at december 31 , 2020. this change was driven by $ 7.1 million of โ net income from continuing operations before income taxes โ and $ 0.3 million of other increases in book value . adjusted book value per share increased $ 1.17 , or 3.0 % , in 2020 to $ 39.66 at december 31 , 2020. refer to โ use of non-gaap measures โ for more information regarding the reconciliation of adjusted book value and adjusted book value per share to our most comparable gaap measures . comprehensive income we recognized comprehensive income of $ 8.4 million during the year ended december 31 , 2020 , which included $ 8.4 million of net income and $ 0.0 million of other comprehensive income . in comparison , we recognized $ 70.9 million of comprehensive income during the year ended december 31 , 2019 , which consisted of $ 101.0 million of net income and $ 30.1 million of other comprehensive loss . the $ 8.4 million of comprehensive income recognized during the year ended december 31 , 2020 , was primarily driven by strong returns on renewable energy investments . refer to โ consolidated results of operations , โ for more information .
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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 elsewhere in this prospectus , particularly under the section titled ยrisk factors.ย 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 negatively 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 entirely 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 . this visibility enables us to better manage and invest in our business . recurring revenue , which is comprised of recurring fees and interest income on funds held for clients , increased from $ 52.5 million in fiscal 2012 to $ 72.8 million in fiscal 2013 , representing a 39 % year-over-year increase . story_separator_special_tag recurring fees attributable to our cloud-based payroll and hcm solutions accounted for approximately 93 % , 92 % and 92 % of our total revenues during the years ended june 30 , 2012 , 2013 and 2014 , 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 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 costs for software developed for internal use , which are then all amortized as a cost of recurring revenues . we amortized $ 2.7 million , $ 3.1 million and $ 2.2 million of capitalized internal-use software costs in fiscal 2012 , 2013 and 2014 , respectively . cost of implementation services and other cost of implementation services and other consists almost entirely of employee-related expenses 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 , benefits and bonuses . 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 software development expenses qualifying for capitalization , are expensed as incurred . we capitalize a portion of our development costs related to internal-use software . the timing of our capitalized development projects may affect the amount of development costs expensed in any given period . the table below sets forth the amounts of capitalized and expensed research and development expenses for each of fiscal 2012 , 2013 and 2014. replace_table_token_10_th we expect to grow our research and development efforts as we continue to broaden our product offerings and extend our technological leadership by investing in the development of new technologies and introducing them to new and existing clients . we expect research and development expenses to continue to increase in absolute dollars but to vary as a percentage of total revenue on a period-to-period basis . 36 general and administrative general and administrative expenses consist primarily of other employee-related costs , including wages , benefits , stock-based compensation and bonuses for our administrative , finance , accounting , and human resources departments . additional expenses include consulting and professional fees , insurance and other corporate expenses . we expect our general and administrative expenses to increase in absolute dollars as a result of our operation as a public company .
| results of operations the following table sets forth our statements of operations data for each of the periods indicated . replace_table_token_11_th 37 the following table sets forth our statements of operations data as a percentage of revenue for each of the periods indicated . replace_table_token_12_th comparison of fiscal years ended june 30 , 2012 , 2013 and 2014 revenues replace_table_token_13_th recurring fees recurring fees for the year ended june 30 , 2014 increased by $ 29.1 million , or 41 % , to $ 100.4 million from $ 71.3 million for the year ended june 30 , 2013. recurring fees increased primarily as a result of the continued growth of our client base in fiscal 2014 , as well as increased revenue per client . our client count at june 30 , 2014 increased by 24 % to approximately 8,500 from approximately 6,850 at june 30 , 2013. recurring fees for the year ended june 30 , 2013 increased by $ 20.1 million , or 39 % , to $ 71.3 million from $ 51.2 million for the year ended june 30 , 2012. recurring fees increased primarily as a result of the continued growth of our client base in fiscal 2013 , as well as increased revenue per client . our client count at june 30 , 2013 increased by 25 % to approximately 6,850 from approximately 5,500 at june 30 , 2012. interest income on funds held for clients interest income on funds held for clients for the year ended june 30 , 2014 increased by $ 0.1 million , or 8 % , to $ 1.6 million from $ 1.5 million for the year ended june 30 , 2013. interest income increased primarily as a result of an increased average daily balance of funds held due to the addition of new clients to our client base partially offset by declining interest crediting rates during fiscal 2014 .
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we estimate forfeitures at the time of grant and revise , if necessary , in subsequent periods if actual forfeitures differ significantly from initial estimates story_separator_special_tag overview of business ; operating environment and key factors impacting fiscal 2012 and 2013 results the following management 's discussion and analysis ( โ md & a โ ) is intended to help the reader understand our results of operations and financial condition . md & a is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes . in the discussion below , our fiscal year ended june 29 , 2012 is referred to as โ fiscal 2012 โ or โ 2012 โ ; fiscal year ended july 1 , 2011 as โ fiscal 2011 โ or โ 2011 โ and fiscal year ended july 2 , 2010 as โ fiscal 2010 โ or โ 2010 . โ we generate revenue by designing , developing , manufacturing and supporting a range of wireless networking products , solutions and services for mobile and fixed communications service providers , private network operators , government agencies , transportation and utility companies , public safety agencies and broadcast system operators across the globe . our products include point-to-point ( ptp ) digital microwave transmission systems designed for first/last mile access , middle mile/backhaul , and long distance trunking applications . we also provide network management software solutions to enable operators to deploy , monitor and manage our systems , third party equipment such as antennas , routers , and multiplexers , necessary to build and deploy a wireless transmission network , and a full suite of turnkey support services . 26 we work continuously to improve our established brands and to create new products that meet our customers ' evolving needs and preferences . our fundamental business goal is to generate superior returns for our stockholders over the long term . we believe that increases in revenue , operating profits and earnings per share are the key measures of financial performance for our business . our strategic focus in the next fiscal year will be to continue to accelerate innovation and optimize our product portfolio , improve costs and operational efficiencies , grow our revenue and create a sustainable , profitable business model . to do this , we have examined our products , markets , facilities , development programs , and operational flows to ensure we are focused on what we do well and what will differentiate us in the future . we will continue working to streamline management processes to attain the efficiency levels required by the markets in which we do business . seasonality is a factor that impacts our business . our fiscal third quarter revenue and orders have historically been lower than the revenue and orders in the immediately preceding second quarter because many of our customers utilize a significant portion of their capital budgets at the end of their fiscal year . the majority of our customers begin a new fiscal year on january 1 , and capital expenditures tend to be lower in an organization 's first quarter than in its fourth quarter . we anticipate that this seasonality will continue . the seasonality between the second quarter and third quarter may be affected by a variety of factors , including changes in the global economy and other factors . please refer to the section entitled โ risk factors โ in item 1a in this annual report on form 10-k. story_separator_special_tag results of operations , cash flows and financial position . north america our revenue in north america increased $ 4.5 million , or 2.8 % , in fiscal 2012 compared with fiscal 2011. we have seen substantial changes in product mix of our sales in this region from year to year . the bulk of our product revenue in north america now comes from our eclipse product platform , whereas in the first half of fiscal 2011 , our legacy products made up a significant portion of the region 's sales . the revenue growth and product mix changes reflect continued success in transitioning our customer base to the new product platform as well as an increase in our services business from major customers in fiscal 2012. our revenue in north america decreased by $ 14.4 million , or 8.2 % , in fiscal 2011 compared with fiscal 2010. that decline was primarily attributable to reduced sales of our legacy product lines in the first half of fiscal 2011 when compared with the same period in fiscal 2010. fiscal 2011 was a transition year for us as we completed the last deliveries of legacy products and our marketing and selling efforts were focused on our new product platform . early in fiscal 2011 we experienced production issues which slowed the progress in transitioning sales to our new product platform . but by mid-year , we had overcome those issues and the new platform sales increased significantly from the first quarter to the fourth quarter of fiscal 2011. international our international revenue declined $ 12.6 million , or 4.3 % , in fiscal 2012 compared with fiscal 2011. our business in asia and latin america showed improvement for fiscal 2012 from increased orders from network operators . however , our sales in 28 europe and russia were down from fiscal 2011 primarily due to the reduction of business with a major customer in russia , that was offset in part by increased orders and sales to wireless network operators in other european countries . africa continues to be our strongest international sector , where we continue to compete successfully for wireless infrastructure business of large network operators , particularly in west africa . our international revenue increased by $ 1.0 million , or 0.3 % , in fiscal 2011 compared with fiscal 2010. revenue from sales to wireless operators in russia and france were substantially improved in fiscal year 2011 over the previous year . story_separator_special_tag the following table summarizes the significant decreases to our selling and administrative expenses comparing fiscal 2011 with fiscal 2010 : amount ( in millions ) decrease in personnel expenses from reductions in force $ ( 10.9 ) decrease in commissions paid to sales agents ( 4.1 ) decrease from lower expenses incurred on information technology projects ( 3.9 ) decrease in amortization of software costs ( 2.9 ) decrease due to lower expenses incurred as a result of sale of netboss assets ( 1.9 ) decrease in executive severance for former ceo ( 1.8 ) decrease due to absence of rebranding and transitional costs incurred in fiscal 2010 ( 1.3 ) other , net ( 3.9 ) $ ( 30.7 ) restructuring charges during the first quarter of fiscal 2011 , we initiated a restructuring plan ( the โ fiscal 2011 plan โ ) to reduce our operational costs . the fiscal 2011 plan was intended to bring our cost structure in line with the changing business environment of the worldwide microwave radio and telecommunication markets , primarily in north america , europe and asia . activities under the fiscal 2011 plan included the downsizing or closures of our morrisville , north carolina , canada and certain international field offices , and reductions in force to reduce our operating expenses . earlier in fiscal 2009 , we commenced a restructuring plan ( the โ fiscal 2009 plan โ ) to reduce our workforce in the u.s. , france , canada and other locations throughout the world and outsource our san antonio manufacturing operations to a third party in austin , texas . the fiscal 2009 plan has been completed as of the end of fiscal 2011. our restructuring charges by plan for fiscal 2012 , 2011 and 2010 are summarized in the table below : 30 replace_table_token_11_th restructuring charges declined significantly by $ 13.1 million in fiscal 2012 compared with fiscal 2011 , and increased $ 8.3 million in fiscal 2011 compared with fiscal 2010. the changes were due to the completion of fiscal 2009 plan in fiscal 2011 and the fact that major restructuring activities under the fiscal 2011 plan , such as the downsizing of our morrisville , north carolina office , occurred in fiscal 2011. our restructuring expenses consisted primarily of severance and related benefit charges , and to a lesser extent , facilities costs related to obligations under non-cancelable leases for facilities that we ceased to use . as of june 29 , 2012 , we have substantially completed our initiatives under the fiscal 2011 plan and expect to wind down certain remaining restructuring activities under this plan in fiscal 2013. other income ( loss ) , interest income and interest expense replace_table_token_12_th during fiscal 2011 , we incurred $ 4.6 million of loss on the sale of netboss assets . other expenses for fiscal 2012 and 2011 consisted primarily of transactional tax assessments related to certain international entities . other income for fiscal 2010 was related to a gain of $ 1.2 from final settlement of the telsima acquisition purchase price during fiscal 2010. interest expense was primarily related to preference dividends on our $ 8.25 million redeemable preference shares and interest associated with borrowings , term loan and letters of credit under our credit facilities . the $ 8.25 million preference shares were redeemed at their carrying value on january 30 , 2012 , funded by a two-year term loan of $ 8.25 million under our credit facility at a fixed interest rate of 5 % per annum . income taxes replace_table_token_13_th the income tax expense from continuing operations for fiscal year 2012 was $ 1.5 million . the variation between our income tax expense from continuing operations and income tax benefit at the statutory rate of 35 % on our pre-tax loss of $ 14.0 million was primarily attributable to losses in tax jurisdictions in which we can not recognize a tax benefit . the tax expense for fiscal year 2012 of $ 1.5 million was primarily attributable to profitable foreign entities for which we have accrued income taxes . the income tax expense from continuing operations for fiscal year 2011 was $ 14.1 million . the variation between our income tax expense from continuing operations of $ 14.1 million and income tax benefit at the statutory rate of 35 % on our pre-tax loss of $ 44.7 million was primarily due to an $ 11.3 million increase in valuation allowance for singapore deferred tax assets as of the beginning of fiscal 2011 and a $ 1.4 million foreign branch withholding tax accrual . the expense was partially offset by a valuation allowance release of $ 1.6 million on mexico deferred tax assets as of the beginning of fiscal year 2011. the income tax benefit from continuing operations for fiscal 2010 was $ 3.8 million . the variation between our income 31 tax benefit from continuing operations and income tax benefit at the statutory rate of 35 % on our pre-tax loss of $ 112.2 million million was primarily due to a $ 4.4 million one-time benefit recognized for u.s. federal income tax loss carryback under the worker , homeownership and business assistance act of 2009. this benefit was partially offset by a full valuation allowance on all domestic deferred tax assets created in fiscal 2010. the effective tax rate for fiscal 2010 primarily reflected the benefits of earnings and losses of foreign subsidiaries taxed at lower rates and a dividend from a foreign subsidiary .
| operations review during fiscal 2012 , we secured orders and expanded our footprint with our customers in the mobile operator market using our current technology and service capabilities . we believe that there is steady growth in this market and that it will continue growing over the long term as mobile operators build network capacity to address increasing demands for bandwidth , tempered by the global financial and economic environment . in order to significantly expand our mobile operator customer base and displace competitors we plan to bring our next generation of products to market in the next fiscal year . the signs of growth in non-mobile operator market segments exist today , mostly in north america , but increasingly in other parts of the world . typical applications of our products are in utility and public safety networks where the emphasis is on quality , service , reliability and network security . during september 2011 , one of our contract manufacturers in thailand was affected by flooding in that country . our logistics and supply chain staff worked closely with that supplier and jointly were successful in mitigating and minimizing the delivery impact to our customers during the second and third quarters of fiscal 2012. we are now satisfied that this contract manufacturer has recovered from this event and that future deliveries to us will not be affected adversely as a result of the floods . we completed the sale of our former wimax business to eion on september 2 , 2011. the sale of the wimax business was part of our strategic plan to streamline our business and focus our time and resources on growing our core microwave business to better position us for long-term success .
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when used in the following discussion , the words โ anticipates , โ โ believes , โ โ expects , โ โ intends , โ โ plans , โ โ estimates โ 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 โ risk factors. โ 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 . 21 overview creative realities , inc. is a minnesota corporation that provides innovative digital marketing technology solutions to a broad range of companies , individual 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 across approximately fifteen ( 15 ) vertical markets , as well as the related media management and distribution software platforms and networks , device and content 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 ; content creation , production and scheduling programs and systems ; a comprehensive series of recurring maintenance , support , and field service offerings ; 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 . our main operations are conducted directly through creative realities , inc. and our wholly owned subsidiary creative realities canada , inc. , a canadian corporation . our other wholly owned subsidiaries are effectively dormant : creative realities , llc , a delaware limited liability company , conexus world global , llc , a kentucky limited liability company , and allure global solutions , inc. , a georgia corporation . we generate revenue by : โ consulting with our customers to determine the technologies and solutions required to achieve their specific goals , strategies and objectives ; โ designing our customers ' digital marketing experiences , content and interfaces ; โ engineering the systems architecture delivering the digital marketing experiences we design โ both software and hardware โ and integrating those systems into a customized , reliable and effective digital marketing experience ; โ managing the efficient , timely and cost-effective deployment of our digital marketing technology solutions for our customers ; โ delivering and updating the content of our digital marketing technology solutions using a suite of advanced media , content and network management software products ; and โ 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 ; consulting services , 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 . recent developments covid-19 pandemic in january 2020 , an outbreak of a new strain of coronavirus , covid-19 , was identified in wuhan , china . through the first quarter of 2020 , the disease became widespread around the world , and on march 11 , 2020 , the world health organization declared a pandemic . thereafter , state and local authorities in the united states and worldwide have forced many businesses to temporarily reduce or cease operations to slow the spread of the covid-19 pandemic . 22 as a result of the covid-19 pandemic , we experienced rapid and immediate deterioration in our business in each of our key vertical markets . the elective and forced closures of , and implementation of social distancing policies on , businesses across the united states has resulted in materially reduced demand for our services by our customers , as our customers purchase our products and services to engage with their end customers in a physical space through digital technology , particularly in our theater , sports arena and large entertainment markets . the reduced demand has resulted in customer orders being delayed . these conditions resulted in downward revisions of our internal forecasts on current and future projected earnings and cash flows , resulting in a non-cash impairment loss of $ 10,646 recording during the period , and reduced liquidity as described below . while we are experiencing an intense curtail in current customer demand , our long-term outlook for the digital signage industry remains strong . we believe that the digital signage industry will experience rapid consolidation , adding scale and enhancing profitability to those companies that emerge as the enterprise-level providers within our industry after the covid-19 pandemic and consolidations . story_separator_special_tag the credit agreement ( i ) provides a $ 1,000 of availability under a line of credit ( the โ line of credit โ ) , ( ii ) consolidates our existing term and revolving line of credit facilities into a new term loan ( the โ new term loan โ ) having an aggregate principal balance of approximately $ 4,550 ( including a 3.0 % issuance fee capitalized into the principal balance ) , ( iii ) increases the outstanding special convertible term loan ( the โ convertible loan โ ) to approximately $ 2,280 ( including a 3.0 % issuance fee capitalized into the principal balance ) , and ( iv ) extinguishes the outstanding obligations owed with respect to a $ 264 existing disbursed escrow loan in exchange for shares of the company 's common stock ( the โ disbursed escrow conversion shares โ ) , valued at $ 2.718 per share ( the trailing 10-day vwap as reported on the nasdaq capital market as of the date of execution of the credit agreement ) . the line of credit and convertible loan accrue interest at 10 % per year , and the new term loan accrues interest at 8 % per year . see note 8 loans payable for additional information with respect to the credit agreement . 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 . 24 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 our management is responsible for our financial statements and has evaluated the accounting policies to be used in their preparation . our management believes these policies are reasonable and appropriate . the company 's significant accounting policies are described in note 2 summary of significant accounting policies of the company 's consolidated financial statements included within part ii , item 8 of this report . the following discussion identifies those accounting policies that we believe are critical in the preparation of our financial statements , the judgments and uncertainties affecting the application of those policies and the possibility that materially different amounts will be reported under different conditions or using different assumptions . the preparation of financial statements in conformity with gaap requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . our actual results could differ from those estimates . revenue recognition we recognized revenue in accordance with financial accounting standards board ( โ fasb โ ) accounting standards codification ( โ asc โ ) 606 , revenue from contracts with customers ( โ asc 606 โ ) . under asc 606 , we account for revenue using the following steps : โ identify the contract , or contracts , with a customer โ identify the performance obligations in the contract โ determine the transaction price โ allocate the transaction price to the identified performance obligations โ recognize revenue when , or as , we satisfy our performance obligations see note 2 summary of significant accounting policies and note 4 revenue recognition in our consolidated financial statements , included in part ii , item 8 of this report , for a complete discussion of our revenue recognition policies . 25 allowance for doubtful accounts we have not made any material changes in the accounting methodology we use to measure the estimated liability for doubtful accounts during the past two fiscal years . the company 's methodology for calculating the allowance for doubtful accounts consists of ( 1 ) reserving for specific receivables which ( a ) are known to be facing serious financial problems , ( b ) have a trade dispute with the company , or ( c ) are significantly aged and or unresponsive , and ( 2 ) a general reserve for unaged accounts receivable based on a percentage of revenue each period . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to establish the liability for doubtful accounts . however , if actual results are not consistent with our estimates or assumptions , we may be exposed to losses or gains that could be material . goodwill goodwill is evaluated for impairment annually as of september 30 and whenever events or circumstances make it more likely than not that impairment may have occurred . we have no indefinite-lived intangible assets . we test goodwill for impairment by comparing the book value to the fair value at the reporting unit level . we have only one reporting unit , and therefore the entire goodwill is allocated to that reporting unit .
| results of operations note : all dollar amounts reported in results of operations are in thousands , except per-share information . year ended december 31 , 2020 compared to year ended december 31 , 2019 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 . replace_table_token_1_th 27 sales sales decreased by $ 14,141 , or 45 % in 2020 compared to the same period in 2019 driven by reductions in ( 1 ) installation services of $ 4,962 following a significant increase in suspended , delayed , and cancelled customer projects , initiatives , and capital expenditures as a direct result of the covid-19 pandemic , ( 2 ) software development services of $ 8,754 which included nonrecurrence of approximately $ 7,937 of 2019 revenue related to software development and licensing arrangements , and ( 3 ) management services of $ 1,186 related to contracts with customers which were partially or permanently closed during the year . reductions in year over year core digital signage business were partially offset by $ 3,535 of revenue generated from our safe space solutions products and services during the year ended december 31 , 2020 following launch of the suite of products at the end of april 2020. gross profit gross profit decreased $ 5,618 in absolute dollars to $ 8,121 in 2020 from $ 13,739 in 2019 , or 41 % driven by reductions in revenue which were partially offset by an increase in gross margin to 46.5 % in 2020 from 43.5 % in 2019. the increase in gross margin relates to the sales of safe space solutions products and a higher percentage of managed services revenue to consolidated revenue .
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asu 2016-18 story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this annual report on form 10โk . overview we were founded in 1990 as a beauty retailer at a time when prestige , mass , and salon products were sold through distinct channels โ department stores for prestige products , drug stores and mass merchandisers for mass products , and salons and authorized retail outlets for professional hair care products . we developed a unique specialty retail concept that offers all things beauty . all in one place . tm , a compelling value proposition , and a convenient and welcoming shopping environment . we believe our strategy provides us with the competitive advantages that have contributed to our financial performance . we are the largest beauty retailer in the united states and the premier beauty destination for cosmetics , fragrance , skin care products , hair care products , and salon services . we focus on providing affordable indulgence to our guests by combining unmatched product breadth , value , and convenience with a distinctive specialty retail environment and experience . key aspects of our business include : our ability to offer our guests a unique combination of more than 20,000 beauty products across the categories of prestige and mass cosmetics , fragrance , haircare , skincare , bath and body products , and salon styling tools , as well as a full-service salon in every store featuring hair , skin , and brow services ; our focus on delivering a compelling value proposition to our guests across all of our product categories ; and convenience , as our stores are predominantly located in convenient , high-traffic locations such as power centers . the continued growth of our business and any future increases in net sales , net income , and cash flows is dependent on our ability to execute our strategic imperatives : 1 ) acquire new guests and deepen loyalty with existing guests , 2 ) differentiate by delivering a distinctive and personalized guest experience across all channels , 3 ) offer relevant , 28 innovative , and often exclusive products that excite our guests , 4 ) deliver exceptional services in three core areas : hair , skin health , and brows , 5 ) grow stores and e-commerce to reach and serve more guests , 6 ) invest in infrastructure to support our guest experience and growth , and capture scale efficiencies , and 7 ) attract and retain talent that drives a winning culture . we believe that the expanding u.s. beauty products and salon services industry , the shift in distribution channel of prestige beauty products from department stores to specialty retail stores , coupled with ulta beauty 's competitive strengths , positions us to capture additional market share in the industry . comparable sales is a key metric that is monitored closely within the retail industry . our comparable sales have fluctuated in the past and we expect them to continue to fluctuate in the future . a variety of factors affect our comparable sales , including general u.s. economic conditions , changes in merchandise strategy or mix , and timing and effectiveness of our marketing activities , among others . over the long term , our growth strategy is to increase total net sales through increases in our comparable sales , opening new stores , and increasing e-commerce sales . operating profit is expected to increase as a result of our ability to expand merchandise margin and leverage our fixed store costs with comparable sales increases and operating efficiencies offset by incremental investments in people , systems , and supply chain required to support a 1,400 to 1,700 store chain with successful e-commerce and competitive omni-channel capabilities . basis of presentation we have determined the operating segments on the same basis that we use to internally evaluate performance . we have combined our three operating segments : retail stores , salon services , and e-commerce , into one reportable segment because they have a similar class of consumers , economic characteristics , nature of products , and distribution methods . net sales include retail store and e-commerce merchandise sales as well as salon service revenue . we recognize merchandise revenue at the point of sale in our retail stores . e-commerce sales are recognized based on delivery of merchandise to the guest . retail store and e-commerce sales are recorded net of estimated returns . salon service revenue is recognized at the time the service is provided . gift card sales revenue is deferred until the guest redeems the gift card . company coupons and other incentives are recorded as a reduction of net sales . comparable sales reflect sales for stores beginning on the first day of the 14th month of operation . therefore , a store is included in our comparable store base on the first day of the period after one year of operations plus the initial one month grand opening period . non-comparable store sales include sales from new stores that have not yet completed their 13th month of operation and stores that were closed for part or all of the period in either year as a result of remodel activity . remodeled stores are included in comparable sales unless the store was closed for a portion of the current or prior period . comparable sales include the company 's e-commerce business . there may be variations in the way in which some of our competitors and other retailers calculate comparable or same store sales . measuring comparable sales allows us to evaluate the performance of our store base as well as several other aspects of our overall strategy . story_separator_special_tag the fiscal 2015 tax rate included benefits from lower state taxes that did not recur in fiscal 2016. net income net income increased $ 89.8 million , or 28.0 % , to $ 409.8 million in fiscal 2016 compared to $ 320.0 million in fiscal 2015. the increase in net income was primarily due to a $ 362.9 million increase in gross profit , which was partially offset by a $ 210.5 million increase in sg & a expenses and a $ 58.5 million increase in income tax expense . liquidity and capital resources our primary cash needs are for capital expenditures for new , remodeled , and relocated stores , increased merchandise inventories related to store expansion and new brand additions , in-store boutiques ( sets of custom-designed fixtures configured to prominently display certain prestige brands within our stores ) , supply chain improvements , share repurchases , and for continued improvement in our information technology systems . our primary sources of liquidity are cash and cash equivalents , short-term investments , cash flows from operations , including changes in working capital and tax reform , and borrowings under our credit facility . the most significant component of our working capital is merchandise inventories reduced by related accounts payable and accrued expenses . our working capital needs are greatest from august through november each year as a result of our inventory build-up during this period for the approaching holiday season . this is also the time of year when we are at maximum investment levels in our new store class and may not have collected all of the landlord allowances due to us as part of our lease agreements . based on past performance and current expectations , we believe that cash and cash equivalents , short-term investments , cash generated from operations , and borrowings under the credit facility will satisfy the company 's working capital needs , capital expenditure needs , commitments , and other liquidity requirements through at least the next 12 months . the following table presents a summary of our cash flows for fiscal years 2017 , 2016 and 2015 : replace_table_token_11_th 34 operating activities operating activities consist of net income adjusted for certain non-cash items , including depreciation and amortization , non-cash stock-based compensation , realized gains or losses on disposal of property and equipment , and the effect of working capital changes . merchandise inventories were $ 1,096.4 million at february 3 , 2018 , compared to $ 944.0 million at january 28 , 2017 , representing an increase of $ 152.4 million or 16.1 % . average inventory per store increased 5.3 % compared to prior year . the increase in inventory is primarily due to the following : ยท approximately $ 97 million due to the addition of 100 net new stores opened since january 28 , 2017 ; ยท approximately $ 33 million due to the ramp up of the company 's distribution center in dallas , texas ; and ยท approximately $ 22 million due to increased sales , new brand additions , and incremental inventory for in-store prestige brands . deferred rent liabilities were $ 407.9 million at february 3 , 2018 , an increase of $ 41.7 million compared to $ 366.2 million at january 28 , 2017. deferred rent includes deferred construction allowances , future rental increases , free rent , and rent holidays which are all recognized on a straight-line basis over their respective lease term . the increase is primarily due to the addition of 100 net new stores opened since january 28 , 2017 and corporate and supply chain expansion . investing activities we have historically used cash primarily for new , remodeled and refreshed stores , supply chain investments , short-term investments , and investments in information technology systems . investment activities for capital expenditures were $ 440.7 million in fiscal 2017 , compared to $ 373.4 million and $ 299.2 million in fiscal 2016 and 2015 , respectively . capital expenditures increased in fiscal 2017 compared to fiscal 2016 mainly due to our new store program , store refreshes ( prestige boutiques and related in-store merchandising upgrades ) , and information systems investments . purchases of short-term investments were $ 330 million during fiscal 2017 and consist of certificates of deposit with maturities of twelve months or less from the date of purchase . the following table presents a summary of our store activities in fiscal years 2017 , 2016 , and 2015 : replace_table_token_12_th during fiscal 2017 , the average investment required to open a new ulta beauty store was approximately $ 1.6 million , which includes capital investment net of landlord contributions , pre-opening expenses , and initial inventory net of payables . the average investment required to remodel an ulta beauty store was approximately $ 1.1 million in fiscal 2017. the average investment required to refresh an ulta beauty store was approximately $ 0.4 million in fiscal 2017 . 35 capital expenditures for fiscal 2018 ( budget ) , 2017 , 2016 , and 2015 by major category are as follows : replace_table_token_13_th our future investments will depend primarily on the number of new , remodeled , and relocated stores , supply chain investments , and information technology systems that we undertake and the timing of these expenditures . based on past performance and current expectations , we expect to self-fund future capital expenditures . we expect to spend approximately $ 375 million for capital expenditures in fiscal 2018. we embarked on a multi-year supply chain project beginning in fiscal 2014 , which included adding capacity , with distribution centers opened in fiscal 2015 and fiscal 2016 and another distribution center in fiscal 2018 , and system improvements to support expanded omni-channel capabilities . financing activities financing activities in fiscal 2017 , 2016 , and 2015 consist principally of capital stock transactions and our stock repurchase program . purchases of treasury shares represent the fair value of common shares repurchased from plan participants in connection with shares withheld to satisfy minimum statutory tax obligations upon the vesting of restricted stock .
| results of operations our fiscal years are the 52 or 53 week periods ending on the saturday closest to january 31. the company 's fiscal years ended february 3 , 2018 , january 28 , 2017 and january 30 , 2016 were 53 , 52 , and 52 week periods , respectively , and are hereafter referred to as fiscal 2017 , fiscal 2016 , and fiscal 2015. as of february 3 , 2018 , we operated 1,074 stores across 48 states and the district of columbia . the following tables present the components of our consolidated results of operations for the periods indicated : replace_table_token_9_th replace_table_token_10_th fiscal year 2017 versus fiscal year 2016 net sales net sales increased $ 1,029.8 million , or 21.2 % , to $ 5,884.5 million in fiscal 2017 compared to $ 4,854.7 million in fiscal 2016. the sales for the 53 rd week of fiscal 2017 were approximately $ 108.8 million . salon service sales increased $ 36.3 million , or 15.0 % to $ 277.4 million compared to $ 241.1 million in fiscal 2016. excluding the impact of the 53 rd week , salon service sales increased 12.8 % . e-commerce sales increased $ 223.4 million , or 64.7 % , to $ 568.7 million compared 31 to $ 345.3 million in fiscal 2016. excluding the impact of the 53 rd week , e-commerce sales increased 59.9 % . the net sales increases are due to the opening of 100 net new stores in fiscal 2017 and an 11.0 % increase in comparable sales . non-comparable stores , which include stores opened in fiscal 2017 as well as stores opened in fiscal 2016 , which have not yet turned comparable , contributed $ 493.8 million of the net sales increase , while comparable stores contributed $ 536.0 million of the total net sales increase . the 11.0 % comparable sales increase consisted of a 7.1 % increase in retail and salon services and a 59.9 % increase in e-commerce .
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on july 7 , 2015 , the company issued and sold 1,000,000 shares of common stock through cowen and company , llc ( cowen ) , pursuant to an at-the-market ( atm ) sales facility dated april 3 , 2015. the shares were sold at a weighted average price per share of $ 6.0001 , for aggregate gross proceeds of $ 6.0 million . the net offering proceeds to the company were approximately $ 5.8 million after deducting related expenses , including commissions of approximately $ 0.2 million . on may 8 , 2015 , the company issued and sold 2,700,000 shares of common stock through cowen pursuant to the atm facility at a weighted average price per share of $ 6.2503 , for aggregate gross proceeds of $ 16.9 million . the net offering proceeds to the company were approximately $ 16.2 million after deducting related expenses , including commissions of approximately $ 0.5 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 related notes appearing in this annual report . 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 . overview using our proprietary product platform , we have identified and are developing the following three differentiated product candidates : oliceridine ( trv130 ) : we are developing oliceridine as a first-line treatment for patients experiencing moderate to severe acute pain where iv administration is preferred . in january 2016 , we initiated the phase 3 clinical program for this compound with the enrollment of patients in an open label study to evaluate the safety and tolerability of oliceridine in patients with acute moderate-to-severe pain in a variety of clinical settings . we expect to initiate the pivotal phase 3 studies for oliceridine in the second quarter of 2016 following our end of phase 2 meeting with the u.s. food and drug administration , or fda . we have retained all worldwide development and commercialization rights to oliceridine , and plan to commercialize it in the united states for use in acute care settings such as hospitals and ambulatory surgery centers if it receives regulatory approval . in december 2015 and february 2016 , we announced the fda grant of fast track and breakthrough therapy designation , respectively , to oliceridine for the management of moderate-to-severe acute pain . trv027 : we are developing trv027 for the treatment of acute heart failure , or ahf . in early 2014 we initiated a phase 2b clinical trial of trv027 ( blast-ahf ) for the treatment of ahf . enrollment in this 620-patient study is complete and we expect to release top-line data in the second quarter of 2016. allergan plc , or allergan , holds an exclusive option to license trv027 , exercisable at any time through a specified time period after we deliver the data from the blast-ahf study to allergan . trv250 : we are developing trv250 , a g protein biased ligand targeting the delta receptor , as a compound with potential first-in-class mechanism for the treatment of migraine . trv250 also may have utility in a range of other central nervous system indications , and based on target selectivity it is not expected to have the addiction liability of mu opioid drugs like morphine or oxycodone . we have initiated preclinical development activities to support our submission of an investigational new drug application , or ind , to the fda in the second half of 2016. in addition to the above three product candidates , we identified and have completed the phase 1 program for trv734 , an orally administered clinical compound expected to be used for first-line treatment of moderate to severe acute and chronic pain . we intend to continue to focus our efforts for trv734 on securing a worldwide development and commercialization partner for this asset . since our incorporation in late 2007 , our operations have included organizing and staffing our company , business planning , raising capital , and discovering and developing our product candidates . we have financed our operations primarily through private placements and public offerings of our equity securities and debt borrowings . as of december 31 , 2015 , we had an accumulated deficit of $ 182.5 million . our net loss was $ 50.5 million and $ 49.7 million for the years ended december 31 , 2015 72 and 2014 , respectively . our ability to become and remain profitable depends on our ability to generate revenue or sales . we do not expect to generate significant revenue or sales unless and until we or a collaborator obtain marketing approval for and commercialize oliceridine , trv027 , trv250 or trv734 . in september 2014 , we announced we had entered into a $ 35.0 million senior secured tranched term loan credit facility with oxford finance llc and pacific western bank ( formerly square 1 bank ) , of which we have drawn $ 18.5 million as of december 31 , 2015. the facility also provides for an additional term loan tranche of $ 16.5 million that we may opt to draw if we receive positive data from the phase 2 clinical trial of trv027 before december 31 , 2016. we expect to incur significant expenses and operating losses for the foreseeable future as we continue the development and clinical trials of , and seek regulatory approval for , our product candidates . if we obtain regulatory approval for any of our product candidates , we expect to incur significant commercialization expenses . story_separator_special_tag under the license , both we and allergan have the right to terminate the agreement in the event of an uncured material breach or insolvency of the other party . in addition , allergan is permitted to terminate the license agreement without cause at any time upon prior written notice or immediately for product safety reasons . following a termination of the license agreement , all licenses granted to allergan would terminate , and allergan would grant to us an exclusive royalty-bearing license under specified patents and know-how to develop and commercialize reverted licensed products . if not terminated , the license agreement would remain in effect until the expiration of the last royalty term for the last licensed product . senior secured tranched term loan credit facility in september 2014 , we entered into a loan and security agreement with oxford finance llc and pacific western bank , or the lenders , pursuant to which they have agreed to lend us up to $ 35.0 million in a three-tranche series of term loans ( term loans a , b , and c ) . upon initially entering into the agreement , we borrowed $ 2.0 million under term loan a. on april 13 , 2015 , we amended the agreement with the lenders to change the draw period for term loan b. on december 23 , 2015 , we further amended the agreement with the lenders to , among other things , change the draw period for term loan c , modify the interest only period , and modify the maturity date of the loan . in december 2015 , we borrowed the term loan b tranche of $ 16.5 million . subject to the satisfaction of specified conditions related to the results of our phase 2b clinical trial of trv027 , we may now , at our sole discretion , borrow from the lenders an additional $ 16.5 million under term loan c , at any time on or before december 31 , 2016. borrowings accrue interest at a fixed rate of 6.50 % per annum . we are required to make payments of interest only on borrowings under the loan agreement on a monthly basis through and including 74 january 1 , 2017 , which we refer to as the interest only termination date , after which payments of principal in equal monthly installments and accrued interest will be due until the loan matures on march 1 , 2020. both the interest only termination date and the maturity date may be further modified as follows if we meet the conditions related to the phase 2b trial of trv027 by december 31 , 2016 : the interest only termination date will be extended until january 1 , 2018 , and the maturity date will be extended to december 1 , 2020 if we also have received net cash proceeds of at least $ 50.0 million from our existing option and license with allergan or another strategic partnership satisfactory to the lenders . we paid the lenders a facility fee of $ 175,000 in connection with the execution of the original agreement and an amendment fee of $ 20,000 in connection with the execution of the second amendment to the agreement . upon the last payment date of the amounts borrowed under the agreement , we will be required to pay a final payment fee ranging from 6.1 % to 7.0 % of the aggregate amounts borrowed . in addition , if we repay term loan a and term loan b prior to the applicable maturity date , we will pay the lenders a prepayment fee of 3.0 % of the total amount prepaid if the prepayment occurs prior to december 23 , 2016 , 2.0 % percent of the total amount prepaid if the prepayment occurs between december 23 , 2016 and december 23 , 2017 , and 1.0 % percent of the total amount prepaid if the prepayment occurs on or after december 24 , 2017. our obligations are secured by a first priority security interest in substantially all of our assets , other than intellectual property . in addition , we have agreed not to pledge or otherwise encumber our intellectual property , with specified exceptions . we used a placement agent in connection with the agreement . we paid the agent $ 65,000 upon execution of the agreement and $ 87,500 upon our draw of term loan b and will be obligated to pay up to an additional $ 87,500 if we draw on term loan c. in connection with entering into the agreement , we issued to the lenders and placement agent warrants to purchase an aggregate of 7,678 shares of our common stock . these warrants are exercisable immediately and have an exercise price of $ 5.8610 per share . the warrants may be exercised on a cashless basis and will terminate on the earlier of september 19 , 2024 or the closing of a merger or consolidation transaction in which we are not the surviving entity . in connection with draw of term loan b , we issued to the lenders and placement agent additional warrants to purchase an aggregate of 34,961 shares of our common stock . these warrants have substantially the same terms as those noted above , have an exercise price of $ 10.6190 per share and an expiration date of december 23 , 2025. if we draw on term loan c , we will issue additional warrants to purchase shares of our common stock on substantially the same terms as those contained in the initial warrants . the number of shares underlying these additional warrants will depend on the amount of additional borrowings . components of operating results revenue to date , we have derived revenue principally from research grants and collaboration arrangements . in march 2015 , we signed a letter agreement with allergan pursuant to which allergan paid us $ 10.0 million to fund the expansion of an ongoing phase 2b trial of trv027 from 500 patients to 620 patients .
| results of operations comparison of years ended december 31 , 2015 and 2014 replace_table_token_5_th revenue collaboration revenue increased $ 6.3 million for the year ended december 31 , 2015 , as compared to the same period in 2014 , due to our entry into a letter agreement with allergan on march 5 , 2015. under this agreement , allergan paid us $ 10.0 million , which was recorded as deferred revenue , to fund the expansion of the ongoing phase 2b trial of trv027 from 500 patients to 620 patients . the collaboration revenue is being recognized on a straight-line basis through the expected term of the trial . general and administrative expense general and administrative expenses increased by $ 3.4 million , or 36 % , for the year ended december 31 , 2015 compared to the same period in 2014 , primarily as a result of increased headcount and associated salary , bonus and stock compensation expenses , recruiting fees , and market research expenditures . 80 research and development expense research and development expenses increased by $ 3.5 million , or 9 % , from $ 40.5 million for the year ended december 31 , 2014 to $ 44.1 million for the year ended december 31 , 2015. the following table summarizes our research and development expenses : replace_table_token_6_th the increase for the year ended december 31 , 2015 was primarily due to ( i ) increased headcount and associated salary , benefit and bonus expense and ( ii ) increased expenditures during 2015 on oliceridine including expenses associated with the phase 2b abdominoplasty study clinical trial and product development costs , including the cost of clinical trial supplies . these increases were partially offset by decreases in expenditures associated with the phase 1 program for trv734 . liquidity and capital resources we incurred net losses of $ 50.5 million and $ 49.7 million for the years ended december 31 , 2015 and 2014 , respectively .
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most variable lease payments should be excluded except for those that depend on an index or a rate or are in substance fixed payments . a lessee shall classify a lease as a finance lease if it meets any of five listed criteria : 1 ) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term . 2 ) the lease grants the lessee and option to purchase the underlying asset that the lessee is reasonably certain to exercise . 3 ) the lease term is for the major part of the remaining economic life of the underlying asset . 4 ) the present value of the sum of the lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset . 5 ) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term . for finance leases , a lessee shall recognize in the statement of comprehensive income interest on the lease liability separately from amortization of the right-of-use asset . amortization of the right-of-use asset shall be on a straight-line basis , unless another basis is more representative of the pattern in which the lessee expects to consume the right-of-use asset 's future economic benefits . if the lease does not meet any of the five criteria , the lessee shall classify it as an operating lease and shall recognize a single lease cost on a straight-line basis over the lease term . for leases with a term of 12 months or less , a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities . if a lessee makes this election , it should recognize lease expense for such leases generally on a straight-line basis over the lease term . the amendments in this update are to be applied using a modified retrospective approach , as defined , and are effective for public business entities for fiscal years , and for interim periods within those fiscal years , beginning after december 15 , 2018. early application is permitted . the company is currently evaluating the financial statement impact of adopting the new guidance . in august 2015 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2015-14 , revenue from contracts with customers ( topic 606 ) : deferral of the effective date . the amendments in this update defer the effective date of update 2014-09 for all entities by one year . public companies should apply the guidance in update 2014-09 to annual reporting periods beginning after december 31 , 2017 , including interim reporting periods within that reporting period . early adoption is permitted only as of annual reporting periods beginning after december 15 , 2016 , including interim reporting periods within that reporting period . 9. private placement memorandum and subsequent event during 2015 , the company entered into a placement agency agreement with a third party to assist in raising capital . direct costs of this private placement memorandum ( ppm ) will be deferred and reduce the proceeds from the shares sold in the ppm . costs of $ 2,271,637 have been incurred and capitalized related to this ppm as of december 31 , 2015 and are recorded in prepaid expenses , deposits and deferred costs . total amount to be converted to common stock is $ 13,534,426 was recorded as notes payable as of december 31 , 2015. net proceeds to the company were $ 12,242,104 which was converted on early 2016. in february 1 , 2017 , the company announced the completion of its underwritten public offering of 6,500,000 shares of its common stock at a public offering price of $ 3.00 per share . in addition , the underwriters exercised an option to purchase an additional 975,000 shares of common stock at the public offering price , less the underwriting discounts and commissions . all of the shares in the offering were sold by workhorse group , with gross proceeds to workhorse group of approximately $ 22.4 million and net proceeds of approximately $ 20.5 million , after deducting underwriting discounts and commissions and estimated offering expenses . 10. quarterly financial data ( unaudited ) replace_table_token_19_th f- 19 item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures ( a ) evaluation of disclosure controls and procedures our management , with the participation of our principal executive officer and principal financial officer , has evaluated the effectiveness of our disclosure controls and procedures ( as such term is defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the exchange act ) , as of the end of the period covered by this annual report . based on such evaluation , our principal executive officer and principal financial officer have concluded that , as of the end of the period covered by this annual report , our disclosure controls and procedures were effective . ( b ) management 's annual report on internal control over financial reporting the management of the company is responsible for establishing and maintaining adequate internal control over financial reporting , as required by sarbanes-oxley ( sox ) section 404 ( a ) . story_separator_special_tag the company 's internal control over financial reporting is a process designed under the supervision of the company 's principal executive officer and principal financial officer and effected by the company 's board of directors , management and other personnel , to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the company 's consolidated financial statements for external purposes in accordance with united states generally accepted accounting principles . due to its inherent limitations , internal control over financial reporting may not prevent or detect misstatements on a timely basis . also , projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . as of december 31 , 2016 , management assessed the effectiveness of the company 's internal control over financial reporting based on the criteria set forth story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this annual report on form 10-k story_separator_special_tag padding : 0 ; text-indent : 0 '' > the costs and timing of obtaining , enforcing and defending our patent and other intellectual property rights ; and โ expenses associated with any unforeseen litigation . insufficient funds may require us to delay , scale back or eliminate some or all of our research or development programs , limit our sales activities , limit or cease production or negatively impact our operations . for the years ended december 31 , 2016 and 2015 , we maintained an investment portfolio primarily in money market funds , u. s. treasury bills , government-sponsored enterprise securities , and corporate bonds and commercial paper . cash in excess of immediate requirements is invested with regard to liquidity and capital preservation . wherever possible , we seek to minimize the potential effects of concentration and degrees of risk . we will continue to monitor the impact of the changes in the conditions of the credit and financial markets to our investment portfolio and assess if future changes in our investment strategy are necessary . summary of cash flows replace_table_token_5_th cash flows from operating activities our cash flows from operating activities are affected by our cash investments to support the business in research and development , manufacturing , selling , general and administration . our operating cash flows are also affected by our working capital needs to support fluctuations in inventory , personnel expenses , accounts payable and other current assets and liabilities . 29 during the year ended december 31 , 2016 and 2015 , cash used in operating activities was $ 19.1 million and $ 8.2 million . the decrease in operating cash flows in 2016 as compared to 2015 was mainly due to an increase in operating losses , inventory purchases and accounts receivable net of an increase in accounts payable . cash flows from investing activities cash flow from investing activities primarily relates to capital expenditures to support our future growth in operations . during the years ended december 31 , 2016 and 2015 , cash used in investing activities was $ 528 thousand and $ 65 thousand respectively . the increase in investing activities during the year is mainly due to the purchase of the headquarters building in loveland , ohio . cash flows from financing activities during the year ended december 31 , 2016 and 2015 , net cash provided by financing activities was $ 12.4 million and $ 15.5 million , respectively . cash flows from financing activities during the year ended december 31 , 2016 consisted mainly of a decrease of $ 2.7 million for the payment of the navistar note mentioned above and $ 15.0 million of funds received from the conversion of warrants . credit facility presently we have no revolving credit facility established . there is no guarantee that we will be able to enter into an agreement to establish a line of credit or that if we do enter into such agreement that it will be on favorable terms . off-balance sheet arrangements the company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the company 's financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . federal tax credit qualification by the irs the company has been qualified by the irs for a vehicle federal tax credit of up to $ 7,500. the company joins a list of plug-in electric drive motor vehicle manufacturers , including ford motor company , general motors corporation , tesla , toyota , and 13 ev manufacturers in all , qualifying purchasers for up to a $ 7,500 tax credit when purchasing an electric vehicle . additionally , many states offer additional sales tax exemptions and zero emission tax credits of up to $ 5,000 that can also be applied to the purchase . california air resources board approval on february 20 , 2013 the california air resource board ( carb ) approved the medium to heavy duty the company 's commercial truck for sale in the state of california . most other states use this approval for sale of vehicles in their state . critical accounting policies and estimates the following accounting principles and practices of the company are set forth to facilitate the understanding of data presented in the consolidated financial statements : 30 nature of operations we are a technology company focused on providing sustainable and cost-effective solutions to the commercial transportation sector . as an american manufacturer we design and build high performance battery-electric electric vehicles and aircraft that make movement of people and goods more efficient and less harmful to
| overview and 2016 highlights we are a technology company focused on providing sustainable and cost-effective solutions to the commercial transportation sector . as an american manufacturer , we design and build high performance battery-electric electric vehicles and aircraft that make movement of people and goods more efficient and less harmful to the environment . as part of our solution , we also develop cloud-based , real-time telematics performance monitoring systems that enable fleet operators to optimize energy and route efficiency . although we operate as a single unit through our subsidiaries , we approach our development through two divisions , automotive and aviation . our core products , under development and or in manufacture , are the medium duty step van , the light duty pickup , the delivery drone and the manned multicopter . medium-duty electric delivery vans are currently in production and are in use by our customers on u.s. roads . our delivery customers include companies such as ups , fedex express and alpha baking . the success of our value selling equation to fleet buyers of medium-duty vehicles encouraged us to bring this same philosophy to the much higher volume segment of light-duty trucks . our first product offering in the light-duty truck environment is our w-15 range-extended electric pickup truck , which is presently under development . to date , we have received letters of intent for 2,150 w-15 pickup trucks from fleets . we plan on unveiling a working concept version of the w-15 at the advanced clean transportation conference in long beach , ca on may 1 , 2017. workhorse , with our partner vt hackney , is one of five awardees that the united states postal service selected to build prototype vehicles for usps next generation delivery vehicle project . the post office has stated that the number of vehicles to be replaced in the project is approximately 180,000. we are on track to deliver our prototypes to the usps by the september 2017 deadline .
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this distribution was paid on february 23 , 2018 to unitholders of record on february 8 story_separator_special_tag overview this management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements , the notes thereto , and the other financial information appearing elsewhere in this report . the following discussion includes forward-looking statements that involve certain risks and uncertainties . see `` cautionary statement regarding forward-looking statements '' and `` item 1a . risk factors '' in this report . unless the context otherwise requires , references in this report to the `` predecessor '' refer to westlake chemical partners lp predecessor , our predecessor for accounting purposes , and refer to the time periods prior to the completion of our initial public offering on august 4 , 2014 ( the `` ipo '' ) . unless otherwise indicated , references in this report to `` we , '' `` our , '' `` us '' or like terms refer to westlake chemical partners lp ( `` westlake chemical partners lp '' or the `` partnership '' ) , westlake chemical opco lp ( `` opco '' ) and westlake chemical opco gp llc ( `` opco gp '' ) , and references to the partnership for all periods prior to the ipo refer to the predecessor . references to `` westlake '' refer to westlake chemical corporation and its consolidated subsidiaries other than the partnership , opco gp and opco . partnership overview we are a delaware limited partnership formed by westlake to operate , acquire and develop ethylene production facilities and related assets . on august 4 , 2014 , we closed our initial public offering ( the `` ipo '' ) of 12,937,500 common units . in connection with the ipo , we acquired a 10.6 % interest in opco and a 100 % interest in opco gp , which is the general partner of opco . on april 29 , 2015 , we purchased an additional 2.7 % newly-issued limited partner interest in opco for approximately $ 135.3 million , resulting in an aggregate 13.3 % limited partner interest in opco effective april 1 , 2015. on september 29 , 2017 , we completed a secondary public offering of 5,175,000 common units and purchased an additional 5.0 % newly-issued limited partner interest in opco for approximately $ 229.2 million , resulting in an aggregate 18.3 % limited partner interest in opco , effective as of july 1 , 2017. currently , our sole revenue generating asset is our 18.3 % limited partner interest in opco , a limited partnership formed by westlake and us in anticipation of the ipo to own and operate an ethylene production business . we control opco through our ownership of its general partner . westlake retains the remaining 81.7 % limited partner interest in opco as well as a significant interest in us through its ownership of our general partner , 43.8 % of our limited partner units ( consisting of 14,122,230 common units ) and our incentive distribution rights . opco 's assets include ( 1 ) two ethylene production facilities ( `` petro 1 '' and `` petro 2 '' and , collectively , `` lake charles olefins '' ) at westlake 's lake charles , louisiana site ; ( 2 ) one ethylene production facility ( `` calvert city olefins '' ) at westlake 's calvert city , kentucky site ; and ( 3 ) a 200-mile common carrier ethylene pipeline ( the `` longview pipeline '' ) that runs from mont belvieu , texas to westlake 's longview , texas facility . how we generate revenue we generate revenue primarily by selling ethylene and the resulting co-products we produce . in connection with the ipo , opco and westlake entered into an ethylene sales agreement ( the `` ethylene sales agreement '' ) pursuant to which we generate a substantial majority of our revenue . the ethylene sales agreement is a long-term , fee-based agreement with a minimum purchase commitment and includes variable pricing based on opco 's actual feedstock and natural gas costs and estimated other costs of producing ethylene ( including opco 's estimated operating costs and a five-year average of opco 's expected future maintenance capital expenditures and other turnaround expenditures based on opco 's planned ethylene production capacity for the year ) , plus a fixed margin per pound of $ 0.10 less revenue from co-products sales . pursuant to the ethylene sales agreement , westlake 's obligation to pay for the annual minimum commitment ( 95 % of opco 's budgeted ethylene production ) , which is measured at the end of the year , is generally not reduced for the first 45 days of a force majeure event , but is reduced for the portion of a force majeure event extending beyond the 45th day . westlake has an option to take 95 % of volumes in excess of the minimum commitment on an annual basis under the ethylene sales agreement if we produce more than our planned production . under the ethylene sales agreement , the price for the sale of such excess ethylene to westlake is based on a formula similar to that used for the minimum purchase commitment , with the exception of certain fixed costs . in addition , under the ethylene sales agreement , if production costs billed to westlake on an annual basis are less than 95 % of the actual production costs incurred by opco during the contract year , opco is entitled to recover the shortfall in such production costs ( proportionate to the volume sold to westlake ) in the subsequent year ( `` shortfall '' ) . the shortfall is recognized during the period in which the related operating , maintenance or turnaround activities occur . story_separator_special_tag we define mlp distributable cash flow as distributable cash flow attributable to periods subsequent to the date of the ipo less distributable cash flow attributable to westlake 's noncontrolling interest in opco and distributions attributable to the incentive distribution rights holder . mlp distributable cash flow does not reflect changes in working capital balances . we define ebitda as net income before interest expense , income taxes , depreciation and amortization . mlp distributable cash flow and ebitda are non-gaap supplemental financial measures that management and external users of our consolidated financial statements , such as industry analysts , investors , lenders and rating agencies , may use to assess : our operating performance as compared to other publicly traded partnerships ; our ability to incur and service debt and fund capital expenditures ; the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities . we believe that the presentation of mlp distributable cash flow and ebitda provides useful information to investors in assessing our financial condition and results of operations . the gaap measures most directly comparable to mlp distributable cash flow are net income and net cash provided by operating activities . mlp distributable cash flow should not be considered as an alternative to gaap net income or net cash provided by operating activities . mlp distributable cash flow has important limitations as an analytical tool because it excludes some but not all items that affect net income and net cash provided by operating activities . the gaap measures most directly comparable to ebitda are net income and net cash provided by operating activities , but ebitda should not be considered an alternative to such gaap measures . ebitda has important limitations as an analytical tool because it excludes ( 1 ) interest expense , which is a necessary element of our costs and ability to generate revenues because we have borrowed money to finance our operations , ( 2 ) depreciation , which is a necessary element of our costs and ability to generate revenues because we use capital assets and ( 3 ) income taxes , which was a necessary element of the predecessor 's operations . mlp distributable cash flow and ebitda should not be considered in isolation or as a substitute for analysis of our results as reported under gaap . see reconciliations for each of mlp distributable cash flow and ebitda under `` results of operations '' below . factors affecting our business supply and demand for ethylene and resulting co-products we generate a substantial majority of our revenue from the ethylene sales agreement . this contract is intended to promote cash flow stability and minimize our direct exposure to commodity price fluctuations in the following ways : ( 1 ) the cost-plus pricing structure of the ethylene sales agreement is expected to generate a fixed margin of $ 0.10 per pound , adjusting automatically for changes in feedstock costs ; and ( 2 ) westlake is committed to purchase 95 % of the annual planned output , subject to a maximum commitment of 3.8 billion pounds of ethylene per year , with an option to purchase an additional 95 % of actual output in excess of the planned output on a contract year basis . as a result , our direct exposure to commodity price risk is limited to approximately 5 % of our total ethylene production , which is that portion sold to third parties , assuming westlake exercises its option to purchase 95 % of the over production , as well as to our co-products sales . we also have indirect exposure to commodity price fluctuations to the extent such fluctuations affect the ethylene consumption patterns of third-party purchasers . demand for ethylene exhibits cyclical commodity characteristics as margins earned on ethylene derivative products are influenced by changes in the balance between supply and demand , the resulting operating rates and general economic activity . while we believe we have substantially mitigated our indirect exposure to 31 commodity price fluctuations during the term of the ethylene sales agreement through the minimum commitment and the cost-plus based pricing , our ability to execute our growth strategy in our areas of operation will depend , in part , on the demand for ethylene derivatives in the geographical areas served by our ethylene production facilities . recent developments on december 5 , 2017 , the partnership entered into an amendment to the mlp revolver credit agreement , increasing borrowing capacity from $ 300 million to $ 600 million . the partnership intends to use the increased availability in the future to acquire additional interests in opco in the event opco desires to sell such interests to us , for other acquisitions and for general corporate purposes . on september 29 , 2017 , we completed a secondary offering of 5,175,000 common units at a price of $ 22.00 per unit and purchased an additional 5.0 % newly-issued limited partner interest in opco for approximately $ 229.2 million , resulting in an aggregate 18.3 % limited partner interest in opco , effective as of july 1 , 2017. net proceeds to the partnership from the sale of the units was $ 110.7 million , net of underwriting discounts , structuring fees and estimated offering expenses of approximately $ 3.1 million . we used the proceeds from the offering and borrowings under the mlp revolver to fund the purchase of the additional 5 % newly-issued limited partner interest in opco . on august 30 , 2017 , following the cash distribution for the second quarter of 2017 , the requirement under the partnership agreement for the conversion of all subordinated units was satisfied . as a result , effective august 30 , 2017 , the 12,686,115 subordinated units owned by westlake were converted into common units on a one-for-one basis and thereafter participate on terms equal with all other common units in distributions of available cash .
| summary for the year ended december 31 , 2017 , net income was $ 353.1 million on net sales of $ 1,173.0 million . this represents a decrease in net income of $ 0.3 million compared to 2016 net income of $ 353.4 million on net sales of $ 986.7 million . net income in 2017 was slightly lower due to the shortfall of approximately $ 63.5 million recognized in 2016 , decreased capitalized interest on major projects , increased depreciation and amortization expense and higher selling , general and administrative expenses , substantially offset by higher ethylene sales volumes in 2017 as compared to 2016 . net income attributable to westlake chemical partners lp in 2017 was $ 48.7 million as compared to $ 40.9 million in 2016 , an increase of $ 7.8 million , which was primarily due to higher sales volume and a 5 % increase in the partnership 's interest in opco , effective as of july 1 , 2017. net sales for 2017 increased by $ 186.3 million as compared to 2016 mainly due to higher overall sales volumes to westlake and third parties , partially offset by the shortfall of approximately $ 63.5 million recognized during 2016 . income from operations was $ 374.4 million for 2017 as compared to $ 366.4 million in 2016 . income from operations increased mainly as a result of higher sales volumes to westlake and third parties , partially offset by the shortfall of approximately $ 63.5 million recognized during 2016 , and higher depreciation and amortization expense and higher selling , general and administrative expenses in 2017 as compared to 2016 . 2017 compared with 2016 net sales .
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we market and distribute these services through a direct sales force and a small indirect sales channel . ( see item 1. business for more details . ) the following table summarizes the breakdown of our direct and indirect units in service for the periods stated : replace_table_token_6_th the following table sets forth information on our direct units in service by account size for the periods stated : replace_table_token_7_th we provide wireless messaging services to subscribers for a periodic fee . in addition , subscribers either lease a messaging device from us for an additional fixed monthly fee or they own a device , having purchased it either from us or from another vendor . we also sell devices to resellers who lease or resell devices to their subscribers and then sell messaging services utilizing our networks . we derive the majority of our revenues from fixed monthly , or other periodic fees , charged to subscribers for wireless messaging services . such fees are not generally dependent on usage . as long as a subscriber maintains service , operating results benefit from recurring payment of these fees . revenues are generally based upon the number of units in service and the monthly charge per unit . the number of units in service changes 23 based on subscribers added , referred to as gross placements , less subscriber cancellations , or disconnects . the net of gross placements and disconnects is commonly referred to as net gains or losses of units in service . the absolute number of gross placements , as well as the number of gross placements relative to average units in service in a period , referred to as the gross placement rate , is monitored on a monthly basis . disconnects are also monitored on a monthly basis . the ratio of units disconnected in a period to average units in service for the same period , called the disconnect rate , is an indicator of our success at retaining subscribers , which is important to maintain recurring revenues and to control operating expenses . the following table sets forth our gross placements and disconnects for the periods stated : replace_table_token_8_th the following table sets forth information on the direct net disconnect rate by account size for our direct customers for the periods stated : replace_table_token_9_th the other factor that contributes to revenue , in addition to the number of units in service , is the monthly charge per unit . as previously discussed , the monthly charge per unit is dependent on the subscriber 's service , extent of geographic coverage , whether the subscriber leases or owns the messaging device , and the number of units the customer has in the account . the ratio of revenues for a period to the average units in service , for the same period , commonly referred to as arpu , is a key revenue measurement as it indicates whether charges for similar services and distribution channels are increasing or decreasing . arpu by distribution channel and messaging service are monitored regularly . the following table sets forth arpu by distribution channel for the periods stated : replace_table_token_10_th while arpu for similar services and distribution channels is indicative of changes in monthly charges and the revenue rate applicable to new subscribers , this measurement on a consolidated basis is affected by several 24 factors , including the mix of units in service and the pricing of the various components of our services . gross revenues decreased year over year , and we expect future sequential annual revenues to decline in line with recent trends . the change in arpu in the direct distribution channel is the most significant indicator of rate-related changes in our revenues . the reduction in direct arpu during the periods 2009 through 2011 reflects the increasing concentration of customers with a larger number of units-in-service . these larger customers benefit from lower pricing associated with their larger number of units-in-service . we believe that without further price adjustments , arpu would trend lower for both the direct and indirect distribution channels in 2012 and that price increases could mitigate , but not completely offset , the expected declines in both arpu and revenues . the following table sets forth information on direct arpu by account size for the period stated : replace_table_token_11_th software operations software operations are reflected in the consolidated financial statements from march 3 , 2011 , the date of acquisition . the primary business of our software operations is the sale of software , professional services ( consulting and training ) , equipment sales ( to be used in conjunction with the software ) , and post-contract support ( on-going maintenance ) . the software is licensed to end users under an industry standard software license agreement . we recognize operations revenue when the application is installed and operational at the customer location . it consists of software license revenue , professional services revenue , and equipment sales . maintenance revenue is for ongoing support of a software application and is recognized ratably over the period of coverage , typically one year . the maintenance renewal rates for the fourth quarter of 2011 were 99.4 % . maintenance revenues for the year ended december 31 , 2011 included a reduction of $ 6.1 million , required by acquisition accounting to reflect fair value . revenue from software operations is included in product and related sales , net of credits in the consolidated results of operations . the detailed breakout of revenues by component from software operations was as follows : replace_table_token_12_th ( 1 ) software operations revenue reflects results from march 3 , 2011 to december 31 , 2011 . ( 2 ) revenue is net of maintenance revenue reduction required by acquisition accounting to reflect fair value . 25 each month our software operations receive purchase orders from customers ( irrespective of revenue type ) . these purchase orders are reported as bookings . story_separator_special_tag for example , the number or duration of telephone calls to call centers may vary from period to period based on factors other than the number of units in service , which could cause telecommunication expenses to vary regardless of the number of units in service . in addition , certain phone numbers we provide to our customers may have a usage component based on the number and duration of calls to the subscriber 's messaging device . telecommunication expenses do not necessarily vary in direct relationship to units in service . therefore , based on the factors discussed above , efforts are underway to review and reduce telephone circuit inventories . in 2010 , we incurred a non-recurring expense to settle an outstanding litigation . on december 7 , 2010 , we entered into a settlement of the outstanding litigation for a one-time cash payment of $ 2.1 million to nationwide paging , inc. ( ยnationwideย ) . the litigation settlement of $ 2.1 million was paid and recorded in general and administrative expenses in our consolidated statements of operations for the year ended december 31 , 2010. other income on june 8 , 2005 , we signed an asset purchase agreement for the sale of a fcc license for $ 5.0 million ( the ยamds agreementย ) with the predecessor to sensus usa , inc. ( ยsensusย ) , advanced metering data systems , 27 llc ( ยamdsย ) . the $ 5.0 million consisted of a 3-year promissory note for $ 1.5 million and $ 3.5 million payable in the future through revenue sharing fees . on june 2 , 2006 , sensus acquired substantially all of the assets and assumed certain liabilities of amds . due to this change in control , the $ 1.5 million was paid in full . sensus also assumed amds 's obligation to pay the balance of amds 's revenue sharing fees . the revenue sharing fees were recognized in other income when paid by sensus . on august 24 , 2010 , we executed an amendment of agreement to amend and complete the amds agreement with sensus . in place of revenue sharing fees , we agreed to a one-time final payment of $ 2.0 million . the proceeds of $ 2.0 million were recognized in september 2010 in other income . also on august 24 , 2010 , we executed an asset purchase agreement ( ยpurchase agreementย ) with sensus , which called for the sale , transfer , assignment , and delivery of certain fcc licenses to sensus in exchange for $ 8.0 million . we also executed the long term de facto spectrum transfer lease agreements ( ยlease agreementsย ) with sensus for the use of the fcc licenses pending the sale to sensus in exchange for a combined lease payment of $ 0.5 million , which was applied towards the purchase price of $ 8.0 million . both the purchase agreement and the lease agreements required fcc approval . after approval by the fcc on april 11 , 2011 , we received the final payment of $ 7.5 million and recognized the gain on sale as other non-operating income in the second quarter of 2011. the gain on sale of $ 7.5 million was included in the review of the deferred income tax asset valuation allowance and income tax expense for 2011. revenue relating to the lease payment of $ 0.5 million was recognized ratably as earned as part of service , rental , and maintenance revenue throughout the lease period . story_separator_special_tag general and administrative . general and administrative expenses consisted of the following significant items : replace_table_token_21_th as illustrated in the table above , general and administrative expenses for the year ended december 31 , 2011 decreased $ 3.4 million , or 5.7 % , from the same period in 2010 , due primarily to lower bad debt expenses , lower facility rent expenses and lower payroll and related expenses . the decrease was partially offset by higher outside service expenses and stock based compensation expenses . the percentage of expense to revenue decreased for the year ended december 31 , 2011 compared to the same period in 2010 due to the following significant variances : payroll and related ย payroll and related expenses were incurred mainly for employees in customer service , information technology , inventory , collections , finance , and other support functions , as well as executive management . payroll and related expenses decreased $ 0.5 million due primarily to lower payroll and related expenses of $ 4.0 million for wireless operations due to headcount reductions , partially offset by payroll and related expenses for software operations of $ 3.5 million for 30 ftes at december 31 , 2011. total ftes declined by 44 ftes to 175 ftes at december 31 , 2011 from 219 ftes at december 31 , 2010 for wireless operations . payroll and related expenses for the year ended december 31 , 2010 included a net one-time benefit of $ 0.7 million related to forfeitures of the long-term cash awards under the 2009 ltip and the reclassification of payroll and related expenses to intangible assets associated with a non-compete agreement with a former executive . stock based compensation ย stock based compensation expenses consisted primarily of amortization of compensation expense associated with rsus awarded to certain eligible employees for both wireless and software operations and amortization of compensation expense for restricted stock awarded to non-executive members of our board of directors under the equity plan .
| results of operations comparison of the results of operations for the years ended december 31 , 2011 and 2010 replace_table_token_14_th 28 revenues ย wireless service , rental and maintenance revenues consist primarily of recurring fees associated with the provision of messaging services and rental of leased units and is net of a provision for service credits . product and related sales consist primarily of revenues associated with the sale of devices and charges for leased devices that are not returned and are net of anticipated credits . the decrease in revenues reflected the decrease in demand for our wireless services . as indicated above , our total revenues were $ 199.7 million and $ 233.3 million for the years ended december 31 , 2011 and 2010 , respectively . the table below details total service , rental and maintenance revenues , net of service credits for the periods stated : replace_table_token_15_th the table below sets forth units in service and service revenues , the changes in each between 2011 and 2010 and the changes in revenues associated with differences in arpu and the number of units in service : replace_table_token_16_th ( 1 ) amounts shown exclude non-paging and product and related sales . as previously discussed , demand for messaging services has declined over the past several years and we anticipate that it will continue to decline for the foreseeable future , which would result in reductions in service , rental and maintenance revenues due to the lower number of subscribers and related units in service . revenues ย software product and related sales for software operations were $ 43.2 million which reflects software license revenue , professional services revenue , equipment sales , and maintenance revenue . operations revenue from 29 software licenses , professional services , and equipment sales was $ 29.4 million . maintenance revenue was $ 13.8 million . maintenance revenue for software operations is recognized as earned over the maintenance contract period .
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the discussion below contains forward-looking statements and involves numerous risks and uncertainties , including , but not limited to , those described in item 1a . โ risk factors โ . actual results may differ materially from those contained in any forward-looking statements . forward-looking statements speak only as of the date they are made . we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur , and you are urged to review and consider disclosures that we make in this and other reports that discuss factors germane to our business . management 's analysis of business we are in the business of owning and operating fast casual dining concepts , including hooters franchises and other fast casual restaurant and bar concepts domestically and internationally . we own and operate thirteen hooters franchises and several other fast casual restaurant brands , including the american burger company chain and a majority interest in the just fresh restaurant chain . hooters restaurants are casual beach-themed establishments feature music , sports on large flat screens , and a menu that includes seafood , sandwiches , burgers , salads , and of course , hooters original chicken wings and the โ nearly world famous โ hooters girls . american burger company ( โ abc โ ) is a 10-year-old fast casual dining chain consisting of six locations in new york and the carolinas , known for its diverse menu featuring fresh salads , customized burgers , milk shakes , sandwiches , and beer and wine . the just fresh restaurant chain first opened in 1994 and currently operates seven company owned locations in charlotte , north carolina that offer fresh-squeezed juices , gourmet coffee , fresh-baked goods and premium-quality , made-to-order sandwiches , salads and soups . we expect to either own 100 % of the restaurant or franchise location , or partner with a local individual in the countries or regions we target . we based this decision on what we believe to be the successful launch of our south african hooters venture and believe we have aligned partners and operators in various domestic and international markets . we are focused on expanding our hooters , abc , and just fresh operations , and expect to invest in the united states , south africa , brazil , australia and europe . in march 2015 , we acquired burger chain bgr : the burger joint , which consists of twenty locations in the washington , dc metropolitan area . we currently operate a total of forty-six restaurants worldwide . 23 results of operations for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 our results of operations are summarized below : replace_table_token_2_th story_separator_special_tag style= '' margin-bottom : 6pt ; border-bottom : black 1.5pt solid '' > 25 general and administrative expense ( โ g & a โ ) g & a increased 41.2 % to $ 5,976,870 for the year ended december 31 , 2014 from $ 4,233,629 for the year ended december 31 , 2013. as a percentage of restaurant revenue , g & a decreased to 20.6 % for the year ended december 31 , 2014 from 52.0 % in the comparable period of 2013. the improvement in g & a as a percent of revenue is primarily due to the growth through acquisitions that increased that scale of our business and allowed us to more effectively leverage our operating overhead over a larger revenue base . replace_table_token_5_th professional fees increased 48.7 % to $ 1,088,020 for the year ended december 31 , 2014 from $ 731,591 for the year ended december 31 , 2013 as we incurred increased legal and increased accounting fees related to the shareholder lawsuit , acquisition and capital transactions and due to the overall increased scale and complexity of our operations . salary and benefits doubled to $ 1,969,048 for the year ended december 31 , 2014 from $ 990,580 for the year ended december 31 , 2013 primarily due to the addition of restaurant management personnel in connection with our acquisition of additional restaurant businesses during later 2013 and continuing into 2014. at december 31 , 2014 , we employed approximately 739 persons , as compared with approximately 433 as of december 31 , 2013 with the majority of that growth coming from our acquisitions in australia and the united states . consulting and investor relations fees decreased 4.5 % to $ 1,601,913 for the year ended december 31 , 2014 from $ 1,678,231 the year ended december 31 , 2013. the company utilizes outside consultants and investor relations firms in both years in connection with expanding the company 's business and marketing initiatives . non-cash fees paid with common stock and warrants totaled $ 711,891 in 2014 and $ 569,990 in 2013. travel and entertainment increased 40.9 % to $ 297,906 for the year ended december 31 , 2014 from $ 211,442 for the year ended december 31 , 2013 due to the increased geographic scope of the company 's operations . shareholder services and fees increased 38.4 % to $ 121,733 for the year ended december 31 , 2014 from $ 87,943 for the year ended december 31 , 2013 primarily from additional fees for issuances of securities and related filings with the sec . other g & a expenses increased 68.3 % to $ 898,250 for the year ended december 31 , 2014 from $ 533,842 for the year ended december 31 , 2013 primarily due to the growth in the number of restaurants and personnel . we expect the costs associated with the activities of the restaurant business and corporate activities to increase as we continue to grow , but we expect g & a as a percentage of sales to decline as we leverage our overhead across a larger business . story_separator_special_tag in january , a note holder converted to equity $ 500,000 of a note that was payable in less than a year . as we execute our growth plans throughout the balance of 2015 , we intend to carefully monitor the impact of growth on our working capital needs and cash balances relative to the availability of cost-effective debt and equity financing . we believe the capital resources available to us will be sufficient to fund our ongoing operations and to support our operating plans through december 31 , 2015. we may raise additional capital from the issuance of new debt and equity during 2015 to continue to execute our growth plans , although there can be no assurance that we will be able to do so . in the event that such capital is not available , we may have to scale back or freeze our store opening plans , reduce general and administrative expenses and or curtail future acquisition plans to manage our liquidity and capital resources . recent accounting pronouncements in march 2013 , the fasb issued asu 2013-05 , โ foreign currency matters โ ( โ asu 2013-05 โ ) . the amendments in asu 2013-05 resolve the diversity in practice about whether current literature applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity . in addition , the amendments in asu 2013-05 resolve the diversity in practice for the treatment of business combinations achieved in stages ( sometimes also referred to as step acquisitions ) involving a foreign entity . asu 2013-05 is effective prospectively for fiscal years and interim reporting periods within those years , beginning after december 15 , 2013. the adoption of this standard is not expected to have a material impact on the company 's consolidated financial position and results of operations . 28 the fasb has issued asu 2014-08 , reporting discontinued operations and disclosures of disposals of components of an entity , which includes amendments that change the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations . under the new guidance , only disposals representing a strategic shift in operations should be presented as discontinued operations . the guidance is effective for annual periods beginning on or after december 15 , 2014. the adoption of this standard is not expected to have a material impact on the company 's consolidated financial position and results of operations . in august 2014 , the fasb issued asu no . 2014-15 , presentation of financial statements โ going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern . the standard is intended to define management 's responsibility to decide whether there is substantial doubt about an organization 's ability to continue as a going concern and to provide related footnote disclosures . the standard requires management to decide whether there are conditions or events that raise substantial doubt about the entity 's ability to continue as a going concern within one year after the date that the financial statements are issued . the standard provides guidance to an organization 's management , with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations in their footnotes . the standard becomes effective in annual periods ending after december 15 , 2016 , with early application permitted . the adoption of this pronouncement is not expected to have a material impact on the consolidated financial statements . management 's evaluations regarding the company 's ability to continue as a going concern have been disclosed in note 1 of the accompanying consolidated financial statements . in november 2014 , the fasb issued asu no . 2014-17 , โ business combinations ( topic 805 ) : pushdown accounting โ ( โ asu 2014-17 โ ) . asu 2014-17 provides with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity . the acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs . if pushdown accounting is not applied in the reporting period in which the change-in-control event occurs , an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period as a change in accounting principle in accordance with asc topic 250 , โ accounting changes and error corrections โ . if pushdown accounting is applied to an individual change-in-control event , that election is irrevocable . asu 2014-17 also requires an acquired entity that elects the option to apply pushdown accounting in its separate financial statements to disclose information in the current reporting period that enables users of financial statements to evaluate the effect of pushdown accounting . the company has adopted the amendments in asu 2014-17 , effective november 18 , 2014 , as the amendments in the update are effective upon issuance . the adoption did not have an impact on the company 's consolidated financial statements . there are several other new accounting pronouncements issued by fasb which are not yet effective . each of these pronouncements has been or will be adopted , as applicable , by the company . at december 31 , 2014 , none of these pronouncements are expected to have a material effect on the financial position , results of operations or cash flows of the company . critical accounting policies the preparation of consolidated financial statements requires management to use judgment and estimates . the level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed .
| revenue total revenue increased 261.8 % to $ 29,843,434 for the year ended december 31 , 2014 from $ 8,247,487 for the year ended december 31 , 2013. total revenue increased from growth in restaurant sales , gaming revenue and management fees resulting from the increase in store locations owned and operated by the company largely attributable to the acquisitions during 2013 and 2014. revenues from restaurant sales , net increased 253.0 % to $ 28,745,258 for the year ended december 31 , 2014 from $ 8,144,035 for the year ended december 31 , 2013. restaurant sales increased due primarily to growth in the number of store locations owned and operated by the company from 17 stores as of december 31 , 2013 to 26 as of december 31 , 2014. gaming income increased to $ 432,688 for the year ended december 31 , 2014 from $ 0 for the year ended december 31 , 2013. we began earning revenue from gaming machines starting january 31 , 2014 in connection with the acquisition of the hooters restaurant and attached gaming facility in oregon . in addition , on july 1 , 2014 , we began earning revenue from gaming machines located in sydney australia , which revenues will continue until the $ 5 million of debt assumed in connection with the acquisition of the hooters franchise stores in australia is repaid . after that debt has been repaid , our participation in the gaming revenue at the sydney location will decrease from 100 % to 60 % . management fee income increased 543.3 % to $ 665,488 for the year ended december 31 , 2014 from $ 103,452 for the year ended december 31 , 2013. this increase was largely attributable to the company 's august 2014 receipt of a cash distribution on its 3 % equity interest in hoa llc , an operating company that operates domestic hooters restaurants .
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the 17 -year master lease began in december 2013 and provides for a minimum escalator of 3.5 % after 2017. of our total revenues , $ 43,817,000 ( 16 % ) , $ 43,817,000 ( 18 % ) and $ 43,817,000 ( 19 % ) were derived from holiday for the years ended december 31 story_separator_special_tag the following discussion and analysis is based primarily on the consolidated financial statements of national health investors , inc. for the periods presented and should be read together with the notes thereto contained in this annual report on form 10-k. other important factors are identified in โ item 1. business โ and โ item 1a . risk factors โ above . executive overview national health investors , inc. , established in 1991 as a maryland corporation , is a self-managed reit specializing in sale-leaseback , joint-venture , mortgage and mezzanine financing of need-driven and discretionary senior housing and medical investments . our portfolio consists of lease , mortgage and other note investments in independent living facilities , assisted living facilities , entrance-fee communities , senior living campuses , skilled nursing facilities , specialty hospitals and medical office buildings . other investments have included marketable securities and a joint venture structured to comply with the provisions of the reit investment diversification empowerment act of 2007 ( โ ridea โ ) through which we invested in facility operations managed by an independent third-party . we have funded our real estate investments primarily through : ( 1 ) operating cash flow , ( 2 ) debt offerings , including bank lines of credit and term debt , both unsecured and secured , and ( 3 ) the sale of equity securities . portfolio at december 31 , 2017 , we had investments in real estate , mortgage and other notes receivable involving 218 facilities located in 32 states . these investments involve 141 senior housing properties , 72 skilled nursing facilities , 3 hospitals , 2 medical office buildings and other notes receivable . these investments ( excluding our corporate office of $ 1,298,000 ) consisted of properties with an original cost of $ 2,664,605,000 , rented under triple-net leases to 27 lessees , and $ 141,486,000 aggregate carrying value of mortgage and other notes receivable due from 11 borrowers . we classify the properties in our portfolio as either senior housing or medical properties . we further classify our senior housing properties as either need-driven ( assisted living facilities and senior living campuses ) or discretionary ( independent living facilities and entrance-fee communities ) . medical properties within our portfolio include skilled nursing facilities , medical office buildings and specialty hospitals . 25 the following tables summarize our investments in real estate and mortgage and other notes receivable as of december 31 , 2017 ( dollars in thousands ) : replace_table_token_11_th replace_table_token_12_th 26 for the year ended december 31 , 2017 , our tenants who provided more than 3 % of our total revenues were ( parent company , in alphabetical order ) : bickford senior living ; chancellor health care , east lake capital management ; the ensign group ; health services management ; holiday retirement ; national healthcare corporation ; and senior living communities . as of december 31 , 2017 , our average effective annualized rental income was $ 8,242 per bed for snfs , $ 17,031 per unit for alfs , $ 14,345 per unit for ilfs , $ 21,349 per unit for efcs , $ 43,079 per bed for hospitals , and $ 11 per square foot for mobs . areas of focus we are evaluating and will potentially make additional investments in 2018 while we continue to monitor and improve our existing properties . we seek tenants who will become mission-oriented partners in relationships where our business goals are aligned . this approach aims to fuel steady , and thus , enduring growth for those partners and for nhi . within the context of our growth model , we rely on a cost-effective access to debt and equity capital to finance acquisitions that will drive our earnings . there is significant competition for healthcare assets from other reits , both public and private , and from private equity sources . large-scale portfolios continue to command premium pricing , due to the continued abundance of private and foreign buyers seeking to invest in healthcare real estate . this combination of circumstances places a premium on our ability to execute acquisitions and negotiate leases that will generate meaningful earnings growth for our shareholders . we emphasize growth with our existing tenants and borrowers as a way to insulate us from other competition . with lower capitalization rates for existing healthcare facilities , there has been increased interest in constructing new facilities in hopes of generating better returns on invested capital . using our relationship-driven model , we continue to look for opportunities to support new and existing tenants and borrowers with the capital needed to expand existing facilities and to initiate ground-up development of new facilities . we concentrate our efforts in those markets where there is both a demonstrated demand for a particular product type and where we perceive we have a competitive advantage . the projects we agree to finance have attractive upside potential and are expected to provide above-average returns to our shareholders to mitigate the risks inherent with property development and construction . the federal open market committee of the federal reserve announced an increase in its benchmark federal funds rate by 25 basis points on march 15 , 2017 , on june 14 , 2017 , and on december 13 , 2017. the anticipation of past and further increases in the federal funds rate in 2018 has been a primary source of much volatility in reit equity markets . as a result , there will be pressure on the spread between our cost of capital and the returns we earn . story_separator_special_tag in the united states , this group now represents 10 % of the older population and will more than triple from 5.7 million in 2010 to over 19 million by 2050. โ if the growth rate holds steady , from 5.7 million in 2010 , the โ oldest old โ will comprise close to 12 million in the us by 2030. per the aoa , in 2013 the median value of homes owned by older persons was $ 150,000 ( with a median purchase price of $ 63,900 ) compared to a median home value of $ 160,000 for all homeowners . of the 26.8 million households headed by older persons in 2013 , 81 % were homeowners , about 65 % of whom owned their homes free and clear . home ownership provides the elderly with the freedom to choose their lifestyles . equipped with the basics of financial security , many will be economically able to enter the market for senior housing . strong demographic trends provide the context for continued growth in 2018 and the years ahead . we plan to fund any new real estate and mortgage investments during 2018 using operational cash flow , debt , and equity financing . as the weight of additional debt to fund new acquisitions suggests the need to rebalance our capital structure , we will then expect to access the capital markets through an atm or other equity offerings . our disciplined investment strategy implemented through measured increments of debt 28 and equity sets the stage for annual dividend growth and continued low leverage . this discipline combined with a portfolio of diversified , high-quality assets and business relationships with experienced operators continue to be the key drivers of our business plan . critical accounting policies we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states of america . these accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates and cause our reported net income to vary significantly from period to period . if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our consolidated results of operations , liquidity and or financial condition . we consider an accounting estimate or assumption critical if : 1. the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change ; and 2. the impact of the estimates and assumptions on financial condition or operating performance is material . our significant accounting policies and the associated estimates , judgments and the issues which impact these estimates are as follows : valuations and impairments our tenants and borrowers who operate snfs derive their revenues primarily from medicare , medicaid and other government programs . amounts paid under these government programs are subject to legislative and government budget constraints . from time to time , there may be material changes in government reimbursement . in the past , snfs have experienced material reductions in government reimbursement . the long-term health care industry has experienced significant professional liability claims which have resulted in an increase in the cost of insurance to cover potential claims . in previous years , these factors have combined to cause a number of bankruptcy filings , bankruptcy court rulings and court judgments affecting our lessees and borrowers . in prior years , we have determined that impairment of certain of our investments had occurred as a result of these events . we evaluate the recoverability of the carrying values of our properties on a property-by-property basis . on a quarterly basis , we review our properties for recoverability when events or circumstances , including significant physical changes in the property , significant adverse changes in general economic conditions and significant deteriorations of the underlying cash flows of the property , indicate that the carrying amount of the property may not be recoverable . the need to recognize an impairment charge is based on estimated undiscounted future cash flows from a property compared to the carrying value of that property . if recognition of an impairment charge is necessary , it is measured as the amount by which the carrying amount of the property exceeds the fair value of the property . for our mortgage and other notes receivable , we evaluate the estimated collectibility of contractual loan payments and general economic conditions on an instrument-by-instrument basis . on a quarterly basis , we review our notes receivable for ability to realize on such notes when events or circumstances , including the non-receipt of contractual principal and interest payments , significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions , indicate that the carrying amount of the note receivable may not be recoverable . if necessary , impairment is measured as the amount by which the carrying amount exceeds the fair value as measured by the discounted cash flows expected to be received under the note receivable or , if foreclosure is probable , the fair value of the collateral securing the note receivable . the determination of fair value and whether a shortfall in operating revenues or the existence of operating losses is indicative of a loss in value that is other than temporary involves significant judgment . our estimates consider all available evidence including , as appropriate , the present value of the expected future cash flows discounted at market rates , general economic conditions and trends , the duration of the fair value deficiency , and any other relevant factors .
| results of operations the significant items affecting revenues and expenses are described below ( in thousands ) : replace_table_token_21_th 39 financial highlights of the year ended december 31 , 2017 , compared to 2016 were as follows : rental income increased $ 32,774,000 , or 14.1 % , primarily as a result of new investments funded in 2017 and 2016. the increase in rental income included a $ 3,892,000 increase in straight-line rent adjustments . generally accepted accounting principles require rental income to be recognized on a straight-line basis over the term of the lease to give effect to scheduled rent escalators that are determinable at lease inception . generally , future increases in rental income depend on our ability to make new investments which meet our underwriting criteria . interest income from mortgage and other notes decreased $ 671,000 , due to a combination of the continued repayment of our construction loan to timber ridge , interest income received on development loans to bickford senior living and senior living management and the recognition of an unamortized note discount related to a mortgage note which was paid in full during the second quarter . we expect total interest income from our loan portfolio to decrease with the full repayment of our $ 94,500,000 construction loan to timber ridge in january 2018. depreciation expense increased $ 7,648,000 primarily due to new real estate investments completed during 2017 and 2016. interest expense , including amortization of debt discount and issuance costs , increased $ 3,216,000 primarily as a result of an increase in 30-day libor , which is the benchmark for our revolving debt , and the refinancing of $ 75,000,000 in september 2016 to an 8-year note with annual interest at 3.93 % . payroll and related compensation expenses increased $ 2,080,000 due primarily to the addition of new corporate employees and the expense of certain incentive bonuses .
| 7,073 |
this expense was allocated as follows ( in thousands ) : replace_table_token_27_th as of december 31 , story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with the section titled ยselected financial dataย and our audited financial statements and related notes which are included elsewhere in this annual report on form 10-k. our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors , including , but not limited to , those discussed in ยrisk factorsย included elsewhere in this annual report on form 10-k. overview we are a leading provider of on-demand supply chain management solutions , providing integration , collaboration , connectivity , visibility and data analytics to thousands of trading partners worldwide . we provide our solutions through spscommerce.net , a hosted software suite that improves the way suppliers , retailers , distributors and other trading partners manage and fulfill orders . we deliver our solutions to our customers over the internet using a software-as-a-service model . spscommerce.net fundamentally changes how organizations use electronic communication to manage a supply chain by replacing the collection of traditional , custom-built , point-to-point integrations with a ยhub-and-spokeย model whereby a single integration to spscommerce.net allows an organization to connect seamlessly to the entire spscommerce.net network of trading partners . we plan to grow our business by further penetrating the supply chain management market , increasing revenues from our customers as their businesses grow , expanding our distribution channels , expanding our international presence and developing new solutions and applications . we also intend to selectively pursue acquisitions that will add customers , allow us to expand into new regions or industries or allow us to offer new functionalities . on may 18 , 2011 , we purchased substantially all of the assets of direct edi llc , a privately-held provider of cloud-based integration solutions for electronic data interchange , which expanded our base of recurring revenue customers . see note b to our consolidated financial statements included in this annual report on form 10-k for additional information regarding the acquisition of direct edi . for 2011 , 2010 and 2009 , we generated revenues of $ 58.0 million , $ 44.6 million and $ 37.7 million . our fiscal quarter ended december 31 , 2011 represented our 44th consecutive quarter of increased revenues . recurring revenues from recurring revenue customers accounted for 85 % , 83 % and 80 % of our total revenues for 2011 , 2010 and 2009. no customer represented over 2 % of our revenues for 2011 , 2010 or 2009. key financial terms and metrics sources of revenues trading partner integration . our revenues primarily consist of monthly revenues from our customers for our trading partner integration solution . our revenues for this solution consist of a monthly subscription fee and a transaction-based fee . we also receive set-up fees for initial integration solutions we provide our customers . most of our customers have contracts with us that may be terminated by the customer by providing 30 days prior notice . over 90 % of our revenues for 2009 , 2010 and 2011 were derived from trading partner integration . trading partner enablement . our trading partner enablement solution helps organizations , typically large retailers , to implement new integrations with trading partners . this solution ranges from electronic data interchange testing and certification to more complex business workflow automation and results in a one-time payment to us . 29 trading partner intelligence . our trading partner intelligence solution consists of data analytics applications which allow our customers to improve their visibility across , and analysis of , their supply chains . through interactive data analysis , our retailer customers improve their visibility into supplier performance and their understanding of product sell-through . our revenues for this solution primarily consist of a monthly subscription fee . other trading partner solutions . the remainder of our revenues is derived from solutions that allow our customers to perform tasks such as barcode labeling or picking-and-packaging information tracking as well as purchases of miscellaneous supplies . these revenues are primarily transaction-based . cost of revenues and operating expenses overhead allocation . we allocate overhead expenses such as rent , certain employee benefit costs , office supplies and depreciation of general office assets to cost of revenues and operating expenses categories based on headcount . cost of revenues . cost of revenues primarily consists of personnel costs such as wages and benefits related to implementation teams , customer support personnel and application support personnel . cost of revenues also includes our cost of network services , which is primarily data center costs for the locations where we keep the equipment that serves our customers , and connectivity costs that facilitate electronic data transmission between our customers and their trading partners . sales and marketing expenses . sales and marketing expenses consist primarily of personnel costs for our sales , marketing and product management teams , commissions earned by our sales personnel and marketing costs . in order to grow our business , we will continue to add resources to our sales and marketing efforts over time . research and development expenses . research and development expenses consist primarily of personnel costs for development and maintenance of existing solutions . this group also is responsible for enhancing existing solutions and applications as well as internal tools and developing new information maps that integrate our customers to their trading partners in compliance with those trading partners ' requirements . general and administrative expenses . general and administrative expenses consist primarily of personnel costs for finance , human resources and internal information technology support , as well as legal , accounting and other fees , such as credit card processing fees . since becoming a public company in april 2010 , we have incurred additional general and administrative expenses associated with being a public company , including higher legal , audit and insurance fees . other metrics recurring revenue customers . story_separator_special_tag it is possible that , in the future , the estimates of expected customer lives may change and , if so , the periods over which such subscription set-up fees and costs are amortized will be adjusted . any such change in estimated expected customer lives will affect our future results of operations . set-up fees are further broken down as initial set-up fees and add-on set-up fees . add-on set-up fees , which are nonrefundable , and our trading partner integration revenues represent arrangements providing standalone value for our customers . because these revenues are not dependent on the delivery of any future performance and the arrangement includes vsoe for pricing , asu 2009-13 has not impacted how we separate and price these two elements . initial setup fees are nonrefundable upfront fees that do not have standalone value and are not part of the multiple element arrangement . these fees are deferred and recognized over the customer relationship period as discussed above . the recurring monthly fee is comprised of both fixed and transaction based fees that provide standalone value and are recognized as incurred . from time-to-time , we may provide discounts on set-up fees ; however it is not possible to allocate the discount on the set-up fees because the contract period is unknown and the complete value of the deliverables is unknown . variables preventing allocation include the variability of the recurring revenue due to transaction levels and the ability of customers to cancel the contract upon 30 days ' notice . if estimation of the customer relationship became necessary , we would rely on the existing customer relationship period that set-up fees are currently being recognized over , resulting in no change in the revenues recognized . allowance for doubtful accounts we maintain an allowance for doubtful accounts for estimated losses resulting from our customers ' inability to pay us . the provision is based on our historical experience and for specific customers that , in our opinion , are likely to default on our receivables from them . in order to identify these customers , we perform ongoing reviews of all customers that have breached their payment terms , as well as those that have filed for bankruptcy or for whom information has become available indicating a significant risk of non-recoverability . in addition , we have experienced significant growth in the number of our customers , and we have less payment history to rely upon with these customers . we rely on historical trends of bad debt as a percentage of total revenues and apply these percentages to the accounts receivable associated with new customers and evaluate these customers over time . to the extent that our future collections differ from our assumptions based on historical experience , the amount of our bad debt and allowance recorded may be different . income taxes we account for income taxes using the liability method , which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities . under this method , deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized . the realization of the deferred tax assets is evaluated quarterly by assessing the valuation allowance and by adjusting the amount of the allowance , if necessary , based on projections of future taxable income . we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit . for tax positions meeting the more likely than not threshold , the amount recognized in the financial statements is the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement with the relevant tax authority . stock-based compensation stock-based compensation is measured at the grant date , based on the fair value of the award , and is recognized as an expense over the vesting period of the grant . determining the appropriate fair value model and 32 calculating the fair value of stock-based payment awards require the use of highly subjective assumptions , including the expected life of the stock-based payment awards and stock price volatility . we use the black-scholes option pricing model to value our option grants and determine the related compensation expense . the assumptions used in calculating the fair value of stock-based payment awards represent management 's best estimates , but the estimates involve inherent uncertainties and the application of management judgment . as a result , if factors change and we use different assumptions , our stock-based compensation expense could be materially different in the future . we expect to continue to grant stock-based awards in the future , and to the extent that we do , our actual stock-based compensation expense recognized in future periods will likely increase . prior to becoming a public entity , historic volatility was not available for our shares . as a result , we estimated volatility based on a peer group of companies , which collectively provided a reasonable basis for estimating volatility . we intend to continue to consistently use the same group of publicly traded peer companies to determine volatility in the future until sufficient information regarding volatility of our share price becomes available or the selected companies are no longer suitable for this purpose . significant factors used in determining fair value of our common stock the fair value of the shares of common stock that underlie the stock options we have granted has historically been determined by our audit committee or board of directors based upon information available to it at the time of grant .
| results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 the following table presents our results of operations for the periods indicated ( dollars in thousands ) : replace_table_token_9_th due to rounding , totals may not equal the sum of the line items in the table above * percentage is not meaningful 34 revenues . revenues for 2011 increased $ 13.4 million , or 30 % , to $ 58.0 million from $ 44.6 million for 2010. our fiscal quarter ended december 31 , 2011 represented our 44th consecutive quarter of increased revenues . the increase in revenues resulted primarily from a 30 % increase in recurring revenue customers to 16,129 at december 31 , 2011 from 12,399 at december 31 , 2010 , as well as an 8 % increase in average recurring revenues per recurring revenue customer to $ 3,440 from $ 3,176. the increase in average recurring revenues per recurring revenue customer was primarily attributable to increased fees resulting from increased usage of our solutions by our recurring revenue customers . recurring revenues from recurring revenue customers accounted for 85 % of our total revenues for 2011 , compared to 83 % for 2010. we anticipate that the number of recurring revenue customers and the recurring revenues per recurring revenue customer will continue to increase as we increase the number of solutions we offer and increase the penetration of those solutions across our customer base . cost of revenues . cost of revenues for 2011 increased $ 2.7 million , or 22 % , to $ 15.4 million from $ 12.6 million for 2010. the increase in costs was primarily attributable to higher costs of personnel and resale of adapters , as well as increased occupancy , network services , stock-based compensation and depreciation expenses .
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the company denied accenture 's claims , and asserted counterclaims seeking a declaration that our products do not infringe the patents , that the patents are invalid and that the '284 patent is unenforceable . we also asserted counterclaims against accenture for breach of contract and trade secret misappropriation . on story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included in item 8 and the risk factors included in item 1a of part i of this annual report on form 10-k. all information presented herein is based on our fiscal calendar . unless otherwise stated , references in this report to particular years or quarters refer to our fiscal years ended in july and the associated quarters of those fiscal years . we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview we are a leading provider of core system software to the global p & c insurance industry . our solutions serve as the transactional systems-of-record for , and enable the key functions of , a p & c insurance carrier 's business : underwriting and policy administration , claims management and billing . since our inception , our mission has been to empower p & c insurance carriers to transform and improve their businesses by replacing their legacy core systems with our software platform . we derive our revenues from licensing our software applications , providing maintenance support and providing professional services to the extent requested by our customers . our license revenues are primarily generated through annual license fees that recur during the term of our multi-year contracts . these multi-year contracts have an average term of approximately five years and are renewed on an annual or multi-year basis . in certain cases , when required by a customer , we license our software on a perpetual license basis . in addition , certain of our multi-year term licenses provide the customer with the option to purchase a perpetual license at the end of the initial contract term . we generally price our licenses based on the amount of direct written premiums ( โ dwp โ ) that will be managed by our solutions . we typically invoice our customers annually in advance and quarterly in certain cases for both term license and maintenance fees , and we invoice our perpetual license customers either in full at contract signing or on an installment basis and invoice related maintenance fees annually , in advance . to extend our technology leadership position in our market , we intend to continue to focus on product innovation through research and development and aggressively pursue new customers and up-sell additional products within our existing customer base . this will require us to make continued investment in our research and development and sales and marketing functions to capitalize on opportunities for growth . we expect research and development , sales and marketing and general and administrative expenses to continue to increase in absolute dollars for the foreseeable future to support this strategy . research and development and sales and marketing expenses are also expected to increase as a percentage of revenues in future periods as we focus on expanding our technological leadership . we face a number of risks in the execution of our strategy , including reliance on sales to a relatively small number of large customers , variances in the mix amongst our components of revenues , which could result in lower gross margin from services revenues as compared to license and maintenance revenues , and the overall impact of weakening economic conditions on the insurance industry . we believe that our focus on continued product innovation and customer wins and renewals will support the expansion of our license sales and reduce the impact from weakened economic conditions . we sell our core system software primarily through our direct sales force . our sales cycle for new customers is typically 12 to 24 months . product implementations , the primary driver of our services revenues , typically last 6 to 24 months and may take longer . opportunities , challenges & risks since august 2010 , our license revenues from new orders and subsequent annual and , in some cases , quarterly payments have generally been recognized when payment is due from our customers . historically , and to a lesser extent during fiscal years 2013 , 2012 and 2011 , our license revenues from existing orders have been recognized under three methods : under the residual method when payment is due and payable from our customers , under the percentage-of-completion method as we complete customer implementations of our software , or under the zero-gross-margin method as we complete customer implementations of our software . our license revenues accounted for 41 % , 42 % and 43 % of our total revenues during the fiscal years ended july 31 , 2013 , 2012 and 2011 , respectively . our maintenance revenues are generally recognized annually over the committed maintenance term . our maintenance fees are typically priced as a fixed percentage of the associated license fees and generate lower gross margins than our license revenues . our maintenance revenues accounted for 13 % , 13 % and 12 % of our total revenues during the fiscal years ended july 31 , 2013 , 2012 and 2011 , respectively . 28 we generally charge services fees on a time and materials basis and revenues are typically recognized upon delivery of our services . in certain offerings sold as fixed fee arrangements , we recognize services revenues on a proportional performance basis as performance obligations are completed by using the ratio of labor hours to date as an input measure compared to total estimated labor hours for the consulting services . we derive our services revenues primarily from implementation services performed for our customers , revenues related to reimbursable travel expenses and training fees . story_separator_special_tag our ten largest customers accounted for 33 % , 35 % and 41 % of our total revenues for the years ended july 31 , 2013 , 2012 and 2011 , respectively , and we expect this percentage to continue to decrease over time . we count as customers distinct buying entities , which may include multiple national or regional subsidiaries of large , global p & c insurance carriers . key business metrics we use certain key metrics to evaluate and manage our business , including rolling four-quarter recurring revenues from term licenses and total maintenance . in addition , we present select gaap and non-gaap financial metrics that we use internally to manage the business and that we believe are useful for investors . these metrics include adjusted ebitda and operating cash flow . four-quarter recurring revenues we measure four-quarter recurring revenues by adding the total term license revenues and total maintenance revenues recognized in the preceding four quarters ended in the stated period and excluding perpetual license revenues , revenues from perpetual buyout rights and services revenues . this metric allows us to better understand the trends in our recurring revenues because it typically reduces the variations in any particular quarter caused by seasonality , the effects of the annual invoicing of our term licenses and certain effects of contractual provisions that may accelerate or delay revenue recognition in some cases . our four-quarter recurring revenues for each of the nine periods presented were : replace_table_token_6_th adjusted ebitda we believe adjusted ebitda , a non-gaap measure , is useful , in addition to other financial measures presented in accordance with gaap , in evaluating our operating performance compared to that of other companies in our industry , as this metric generally eliminates the effects of certain items that may vary for different companies for reasons unrelated to overall operating performance . please refer to item 6 , selected financial data , for further details on why we use this metric and why we believe this metric is useful to our stockholders . the following table provides a reconciliation of net income to adjusted ebitda : replace_table_token_7_th 30 operating cash flows we monitor our cash flows from operating activities , or operating cash flows , as a key measure of our overall business performance , which enables us to analyze our financial performance without the effects of certain non-cash items such as depreciation and amortization and stock-based compensation expenses . additionally , operating cash flows takes into account the impact of changes in deferred revenues , which reflects the receipt of cash payment for products before they are recognized as revenues . our operating cash flows are significantly impacted by changes in deferred revenues , timing of bonus payments and collections of accounts receivable . they were also impacted by the payment of a litigation settlement during the three months ended october 31 , 2011. as a result , our operating cash flows fluctuate significantly on a quarterly basis . operating cash flows were $ 32.5 million , $ 17.1 million and $ 27.7 million for fiscal years 2013 , 2012 and 2011 , respectively . for a further discussion of our operating cash flows , see โ liquidity and capital resourcesโcash flows from operating activities. โ critical accounting policies and estimates our consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the united states and include our accounts and the accounts of our wholly-owned subsidiaries . the preparation of our consolidated financial statements requires our management to make estimates , assumptions and judgments that affect the reported amounts of assets and liabilities and disclosures for contingent assets and liabilities as of the date of the financial statements , and the reported amounts of revenues and expenses during the applicable periods . management bases its estimates , assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances . different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements which , in turn , could change the results from those reported . our management evaluates its estimates , assumptions and judgments on an ongoing basis . the critical accounting policies requiring estimates , assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below . revenue recognition we enter into arrangements to deliver multiple products or services ( multiple-elements ) . we apply software revenue recognition rules and allocate the total revenues among elements based on vendor-specific objective evidence ( โ vsoe โ ) of fair value of each element . we recognize revenue on a net basis excluding taxes collected from customers and remitted to government authorities . revenues are derived from three sources : ( i ) license fees , related to term ( or time-based ) and perpetual software license revenue ; ( ii ) maintenance fees , related to email and phone support , bug fixes and unspecified software updates and upgrades released when , and if available during the maintenance term ; and ( iii ) services fees , related to professional services related to implementation of our software , reimbursable travel and training . revenues are recognized when all of the following criteria are met : persuasive evidence of an arrangement exists . evidence of an arrangement consists of a written contract signed by both the customer and management prior to the end of the period . delivery or performance has occurred . our software is delivered electronically to the customer . delivery is considered to have occurred when we provide the customer access to the software along with login credentials . fees are fixed or determinable . arrangements where a significant portion of the fee is due beyond 90 days from delivery are not considered to be fixed or determinable . revenues from such arrangements are recognized as payments become due , assuming all other revenue recognition criteria have been met .
| results of operations the following tables set forth our results of operations for the periods presented . the data has been derived from the consolidated financial statements contained in this annual report on form 10-k which , in the opinion of our management , reflect all adjustments , consisting only of normal recurring adjustments , necessary to present fairly the financial position and results of operations for the interim periods presented . the operating results for any period should not be considered indicative of results for any future period . 33 replace_table_token_8_th 34 comparison of the fiscal years ended july 31 , 2013 and 2012 revenues please refer to note 1 of notes to consolidated financial statements for a description of our accounting policy related to revenue recognition . replace_table_token_9_th license revenues the $ 26.4 million increase in license revenues during fiscal year 2013 was primarily driven by continued adoption of our policycenter software , increased adoption of our billingcenter and suite software , and increased sales and marketing efforts in north america and europe . replace_table_token_10_th the $ 38.0 million increase in term license revenues during fiscal year 2013 was driven by $ 32.0 million of additional revenues recognized during fiscal year 2013 from new orders , $ 5.8 million of additional revenues recognized upon attainment of the required revenue recognition criteria related to prior year orders during fiscal year 2013 , and $ 2.7 million of revenues recognized due to timing of invoicing and corresponding due dates .
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factors that could cause or contribute to these differences include , but are not limited to , those discussed in โ special note on forward-looking statements โ included in part i of this annual report on form 10-k. description of business kontoor brands , inc. ( `` kontoor , '' the `` company , '' `` we , '' `` us '' or `` our '' ) is a global lifestyle apparel company headquartered in the united states ( `` u.s. '' ) . we completed a spin-off transaction from vf corporation ( `` vf '' or `` former parent '' ) on may 22 , 2019 ( the `` separation '' ) and began to trade as a standalone public company ( nyse : ktb ) on may 23 , 2019. the company designs , manufactures , procures , markets and distributes apparel primarily under the brand names wrangler ยฎ and lee ยฎ . the company 's products are sold in the u.s. through mass merchants , specialty stores , mid-tier and traditional department stores , company-operated stores and online . the company 's products are also sold internationally , primarily in europe and asia , through department , specialty , company-operated , concession retail and independently operated partnership stores and online . fiscal year the company operates and reports using a 52/53 week fiscal year ending on the saturday closest to december 31 of each year . for presentation purposes herein , all references to periods ended december 2020 , december 2019 and december 2018 correspond to the 53-week fiscal year ended january 2 , 2021 and the 52-week fiscal years ended december 28 , 2019 and december 29 , 2018 , respectively . impact of covid-19 in march 2020 , the world health organization categorized the novel coronavirus ( `` covid-19 '' ) as a pandemic , and it continues to affect all parts of the world . the pandemic has resulted in a global economic slowdown which had a meaningful negative impact on our financial condition , cash flows and results of operations during 2020. governments have taken various actions to slow and otherwise control the spread of covid-19 , including the issuance of stay-at-home orders and social distancing guidelines . increased unemployment and economic uncertainty , along with temporary retail store closures and evolving government-imposed restrictions , have resulted in reduced retail store traffic and consumer spending , which has negatively impacted both our wholesale and direct-to-consumer channels . our top priority remains the health and safety of our employees and consumers . actions taken to date include enacting global travel restrictions for all employees , enabling remote-work flexibility , implementing enhanced cleaning and sanitation protocols in all facilities , and closing of facilities , as appropriate . the company 's offices have reopened where permitted by local restrictions and deemed appropriate by management , but many associates continue to work remotely . we continue to implement and monitor safety protocols and health and wellness precautions as we reopen and operate our facilities . there have been limited disruptions in operations at various times during the year due to volume adjustments , social distancing requirements , and government mandated closures and stay-at-home orders , but the company 's manufacturing plants and distribution centers around the world are operating and fulfilling wholesale and direct-to-consumer orders . in addition , a significant portion of the company 's sourced finished products originate from various countries that have been impacted by the pandemic , and we continue to diligently monitor developments and work with these long-standing partners to prioritize production to best align with demand . although we have not experienced significant service disruptions to customers , we have experienced some delays in product availability and continue to work to minimize any impact to our customers . the company took timely actions to strengthen our financial flexibility and preserve adequate liquidity during this uncertain economic situation . these actions included draws on the revolving credit facility and an amendment to the credit agreement providing a temporary relief period ( as discussed in note 10 to the company 's financial statements ) , temporary suspension of the payment of a dividend , targeted reductions in operating expenses and capital expenditures , temporary reduction of certain fees for the board of directors , reduction of payroll costs through restructuring , furloughs and temporary salary reductions , and focused management of working capital , including reduction in finished goods received from owned manufacturing and sourced vendors . while we continue to navigate the uncertain covid-19 environment , due to our improving financial performance and cash flows , we have been able to reverse certain of these actions , such as reinstating our quarterly dividend beginning in the fourth quarter of 2020 , paydown of amounts outstanding under our revolving credit facility and the early termination of the temporary relief period in the amendment to the credit agreement . net revenues and profits across all our segments and geographies decreased significantly due to the impact of covid-19 , beginning late january 2020 in china and mid-march 2020 in the u.s. and europe , as customer retail and owned door closures and governmental stay-at-home orders increased . these negative impacts on operating results continued into the second and third quarters of 2020. we began to see gradual improvement during the third quarter of 2020 , reflecting positive trends in our digital wholesale business and owned e-commerce sites as consumer spending continued to shift towards digital shopping experiences due to the impact of covid-19 . we also saw positive trends in demand resulting from fewer customer store closures and increased retail 27 kontoor brands , inc. 2020 form 10-k store traffic in the second half of the year . the ultimate health and economic impact of the pandemic remains fluid . story_separator_special_tag we anticipate opportunities to further enhance our value-creation ability through investment in our core 28 kontoor brands , inc 2020 form 10-k business . our primary areas of financial focus during 2021 will be to ( i ) continue aggressive pay-down of debt ; ( ii ) provide for a superior dividend payout ; and ( iii ) implement technology solutions to enable global efficiency , including the company 's global erp implementation and information technology infrastructure build-out . highlights of the year ended december 2020 net revenues decreased 18 % to $ 2,097.8 million compared to the year ended december 2019 , driven by decreases in all channels as discussed below . net revenues in 2020 included an approximate 1 % benefit due to sales attributable to the 53rd week . u.s. wholesale revenues decreased 11 % compared to the year ended december 2019 , primarily due to the negative impact of covid-19 and a major u.s. retailer bankruptcy in the second quarter of 2020. these declines were partially offset by growth in our u.s. digital wholesale business as well as new business growth . u.s. wholesale revenues represented 68 % of total revenues in the current year . non-u.s. wholesale revenues decreased 31 % compared to the year ended december 2019 , primarily due to the impact of covid-19 . the decrease was also impacted by planned proactive quality-of-sales programs . non-u.s. wholesale revenues represented 17 % of total revenues in the current year . branded direct-to-consumer revenues decreased 10 % on a global basis compared to the year ended december 2019 , primarily driven by declines in our company-operated retail stores due to temporary store closures and reduced retail store traffic resulting from covid-19 . these declines were partially offset by growth in the digital business through our owned e-commerce sites . branded direct-to-consumer revenues included a 1 % favorable impact from foreign currency and represented 12 % of total revenues in the current year . gross margin increased 180 basis points to 41.2 % compared to the year ended december 2019 , primarily due to lower restructuring and separation costs as compared to the prior year and benefits from planned proactive quality-of-sales programs initiated in 2019. increases were also driven by favorable channel mix and pricing . these improvements were partially offset by deleverage of fixed manufacturing costs resulting from reduced production and provisions for inventory losses resulting from covid-19 . selling , general & administrative expenses as a percentage of revenues increased to 35.3 % compared to 31.5 % for the year ended december 2019 , primarily due to increased costs related to the company 's global erp implementation and information technology infrastructure build-out . the remaining increase as a percentage of net revenues was primarily driven by deleverage of fixed costs on lower revenues as well as higher bad debt expense . these increases were partially offset by lower other restructuring and separation costs compared to the prior year and targeted reductions in operating expenses in response to covid-19 . net income decreased 30 % to $ 67.9 million compared to the year ended december 2019 , primarily due to the business results discussed above . additionally , during 2019 , we recorded a $ 32.6 million ( $ 25.2 million after-tax ) non-cash impairment of the rock & republic ยฎ trademark intangible asset . 29 kontoor brands , inc. 2020 form 10-k story_separator_special_tag net tax benefit related to the finalization of u.s. federal , state and foreign tax return filings . the $ 12.3 million of net discrete tax benefit in 2020 decreased the effective income tax rate by 16.8 % compared to an increase of 2.8 % for discrete items in 2019. without discrete items , the effective income tax rate for the year ended december 2020 decreased 2.0 % , primarily due to changes in our jurisdictional mix of earnings . our effective income tax rate for foreign operations was 12.5 % and 20.1 % for the years ended december 2020 and december 2019 , respectively . 2019 compared to 2018 gross margin decreased 90 basis points . business model changes , restructuring programs and separation costs unfavorably impacted 2019 by approximately 140 basis points . this decrease was partially offset by the impact of favorable channel mix . selling , general and administrative expenses as a percentage of revenues increased 320 basis points . business model changes , restructuring programs and separation costs unfavorably impacted the prior year by approximately 300 basis points . the remaining increase as a percentage of net revenues was primarily driven by deleverage of fixed costs on lower revenues . non-cash impairment of intangible asset reflects a $ 32.6 million impairment of the rock & republic ยฎ trademark recorded during the third quarter of 2019. there were no intangible asset impairments in 2018. the effective income tax rate was 28.5 % for the year ended december 2019 compared to 22.6 % for the year ended december 2018. the 2019 effective income tax rate included a net discrete tax expense of $ 3.8 million , comprised of $ 3.5 million of tax expense primarily related to an increase in unrecognized tax benefits and interest , $ 2.1 million of net tax expense related to recording valuation allowances on beginning balance deferred income tax assets at the date of separation and the impact of a corresponding change in assertion on unremitted earnings , $ 1.9 million of tax expense related to adjustments to tax balances transferred from former parent at the separation and $ 3.7 million of tax benefit related to stock compensation .
| analysis of results of operations consolidated and combined statements of operations the following table presents a summary of the changes in net revenues for the years ended december 2020 and december 2019 : replace_table_token_1_th 2020 compared to 2019 net revenues decreased 18 % due to declines in the wrangler and lee segments , as well as declines in the other category . these declines were primarily due to the impact of covid-19 . the decrease was also impacted by planned proactive quality-of-sales programs initiated in 2019 , the negative impact of a major u.s. retailer bankruptcy in the second quarter of 2020 and planned exits and reduced sales of certain lower margin lines of business . the planned proactive quality-of-sales programs initiated in 2019 included ( i ) the exit of unprofitable points of distribution in india and ( ii ) business model changes actioned by the company which included the exit of unprofitable markets in europe and south america , the transition of the casa region to a licensed model and the discontinuation of certain transactions with vf . these declines were partially offset by growth in the u.s. digital wholesale business , new business and our owned e-commerce sites . net revenues in 2020 included an approximate 1 % benefit due to sales attributable to the 53rd week . 2019 compared to 2018 net revenues decreased 8 % due to declines in the wrangler and lee segments , as well as declines in the other category . these declines were primarily due to proactive quality-of-sales programs initiated in 2019 , including business model changes and exits of select markets , programs and points of distribution , the negative impact of a major u.s. retailer bankruptcy in the fourth quarter of 2018 , reduced sales of certain lower margin lines of business , the discontinuation of manufacturing for vf and a 1 % unfavorable impact from foreign currency .
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the level of expense reflects the company 's emphasis of focusing on improving existing products or developing complimentary products , based on customer needs . for 2004 the fuller brands segment 's focus will continue developing new products to enhance its entry into the retail marketplace and growing television shopping business , stimulate recruitment efforts in its direct selling business , as well as continuing to enhance ctg 's commercial cleaning product offerings to compete in the highly-competitive janitorial sanitation business . in the imaging segment , continued effort will be placed on developing easy-to-use prepackaged , chemical formulations and innovative wrap-around-programs , involving chemistry , paper , and equipment for use in domestic and overseas imaging markets . these efforts are not expected to increase research and development expenses , as a percentage of sales , significantly from prior periods . net interest expense net interest expense ( interest expense less interest income ) increased 3.2 % in 2004 versus 2003. while interest expense declined , due to lower debt levels , interest income declined even greater , due to lower levels of invested cash . net interest expense declined 14.2 % in 2003 versus 2002 , largely because of net debt reduction at the company 's foreign operations and continued lower debt interest rates both domestically and overseas . while cash and equivalents increased in 2003 versus 2002 , lower interest rates on invested cash caused interest income to decline . income taxes in 2004 the company recorded a net tax benefit of ( $ 469,000 ) or ( 12.3 ) % of the pretax loss . the benefit was primarily attributable to domestic losses that were carried back to offset previous year 's earnings resulting in various state and u.s. 15 refundable taxes . the net benefit was reduced somewhat by foreign tax expense , resulting from earnings at cpac europe , italia , and africa . the company 's asian subsidiary continued to enjoy the tax savings from its seven-year tax holiday granted in thailand , which amounted to approximately $ 306,000 ( $ 0.06 per diluted share ) . the tax holiday expires in fiscal 2007. the effective tax rate for income before taxes and cumulative effect of change in accounting principle was 34.1 % in 2003 , as compared to 34.7 % in 2002. the continued reduction in the company 's effective tax rate in 2003 resulted from a lower provision from its italian operation , who received certain tax credits and benefits related to its facility relocation , as well as the utilization of net operating loss carryforwards at its african operation . similar to 2002 , the effective rate shows the benefits of the seven-year tax holiday existing for the company 's asian subsidiary , as well as lower state taxes due to reduced domestic earnings . since the company continues to receive the tax holiday into fiscal 2007 , cpac asia will continue to significantly impact the future effective rate , depending on its profitability . in conjunction with the sfas no . 142 goodwill adjustment recognized by the company in the first quarter of 2003 amounting to $ 10,469,251 , a tax benefit of $ 4,188,000 was recorded . this deferred asset is expected to be realized over the next nine years , as the goodwill is deducted for income tax purposes . at march 31 , 2004 the company has recorded gross deferred tax assets of approximately $ 4,471,000 with no valuation reserve . these deferred tax assets consist primarily of domestic ( u.s. federal and state ) tax benefits for items which have been recognized for financial reporting purposes , but which will be reported on tax returns to be filed in the future and approximately $ 368,000 representing tax-effected foreign net operating loss carryforwards . realization of the domestic portion of the net deferred tax asset is dependent upon profitable operations in the united states during future years . despite domestic pretax losses for the year ended march 31 , 2004 , the company believes they are primarily attributable to the asset impairment and equity in losses from its investment in tura and the imaging restructuring plan and that the company will return to profitability in fiscal 2005. likewise , realization of the deferred tax asset related to the foreign net operating loss carryforward is also dependent on future , foreign income . although realization for both is not assured , the company believes , in following the criteria specified in sfas no . 109 , `` accounting for income taxes '' , that it is more likely than not that such assets will be realized . should the company experience a significant , future , unanticipated impairment or restructuring charge , it is possible that it could be required to record a valuation allowance on a portion or all of the deferred tax assets . net income ( loss ) the company 's income before the cumulative effect of a change in accounting principle for the year ended march 31 , 2004 , decreased $ 5,390,975 as compared to the year ended march 31 , 2003. the imaging restructuring expenses , the increasing losses of tura required to be recognized under the equity method of accounting , the impairment charge related to the company 's investment in tura , and the reduced revenues in both segments contributed to the decline . the company 's income before the cumulative effect of a change in accounting principle for the year ended march 31 , 2003 , decreased $ 1,120,524 or 35.4 % as compared to the proforma net income for 2002 of $ 3,161,959. the proforma net income for 2002 represents net income as if the non-amortization provisions of sfas no . 142 had been applied in the prior year . sales declines , the continuation of investments in sales and marketing programs , and the rebuilding of management teams in both segments contributed to this decline . the company adopted sfas no . story_separator_special_tag in turn , this situation resulted in significant cash flow problems and operating losses that continued through april of 2004 ; and the strength of the euro is expected to continue over the next few operating periods . in may 2004 , the company met with the primary lending institution for tura to discuss the financial condition and cash flow problems . while tura was granted an extension until september 30 , 2004 on the maturity date of its working capital line of credit , the ability for tura to meet its normal day to day operating expenses appears conditional on obtaining future capital infusions . although the company has the option of increasing its ownership stake to 51 % by october 2004 , it is unwilling to commit to further investment at this time . it will continue to monitor tura 's financial condition to determine if operating and economic improvements appear forthcoming . after recognition of approximately $ 595,000 and $ 180,000 of equity losses , including $ 160,000 and $ 145,000 of excess purchase price amortization for the years ended march 31 , 2004 and 2003 , respectively , the company believes that the ability of tura to generate sufficient future cash flows is uncertain . tura 's financial statements show current liabilities exceeding current assets , certain debt obligations having covenant violations , and operating losses continuing through tura 's first quarter . the company believes tura 's current financial decline is other than temporary and has recognized an impairment loss of approximately $ 2,320,000 or $ .047 cents per diluted share for the year ended march 31 , 2004 , reducing the estimated fair market value of the company 's investment at march 31 , 2004 to $ 250,000. the impairment adjustment reduces the previously allocated excess purchase price , leaving a value that the company believes is largely attributable to the supply contracts between the company and tura . the company has exposure to currency fluctuations and occasionally has utilized hedging programs ( primarily forward foreign currency exchange contracts ) to help minimize the impact of these fluctuations on results of operations . at march 31 , 2004 no forward foreign currency exchange contracts were outstanding . the company does not hold or issue derivatives for trading purposes and is not a party to leveraged derivative transactions . on a consolidated basis , foreign currency exchange losses are included in income or expense as incurred and are not material to the results of operations . 17 imaging restructuring during fiscal 2004 , the company completed the shift of its domestic manufacturing of photochemicals from its st. louis , missouri , facility to its cpac imaging manufacturing facility in norcross , georgia . the transfer of the manufacturing fixed assets , as well as the retrofitting of the georgia facility to absorb this production , was largely completed during december 2003. related to this endeavor , the company adopted sfas no . 146 , `` accounting for costs associated with exit or disposal activities '' and has accounted for the employee termination costs and other costs associated with the move under its guidelines . most employees were offered severance packages , which were payable upon rendering service , until termination dates . as of march 31 , 2004 , all of the termination benefit costs have been accrued . the majority of the other associated costs of moving and integrating the two operations had been incurred through the company 's fiscal 2004 third quarter , with some residual costs occurring in fiscal 2004 's fourth quarter . the total expenses incurred in this project were approximately $ 1,275,000. the table below summarizes the total costs accrued and paid under the criteria described in sfas no . 146 for the year ended march 31 , 2004 : replace_table_token_2_th during the third quarter , the company began actively marketing the st. louis facility for sale . as such , the company is accounting for the potential sale in accordance with sfas no . 144 , `` accounting for the impairment or disposal of long-lived assets , '' and has reclassified approximately $ 1,219,000 from `` property , plant , and equipment , net '' to `` assets held for sale . '' depreciation on the reclassified building was suspended beginning in the third quarter of fiscal 2004. the impact was not material . no impairment charge was recorded at march 31 , 2004 , as the fair market value of the property , less costs to dispose , exceeded the recorded cost . the company expects to sell the property in the next three to six months . the company continues to lease a 35,000 square foot warehouse space adjacent to the st. louis manufacturing facility with approximately three years remaining ( original lease was for ten years , with a five-year termination clause ) . the company has not concluded at this time as to whether it will utilize this space for distribution purposes or attempt to sublease it , and as such , has not accrued any lease impairment or termination costs at march 31 , 2004. liquidity and capital resources the company has historically financed its operations and acquisitions with internally generated cash flows , supplemented with outside borrowings . the following table summarizes cpac , inc. 's consolidated cash flow information ( in thousands ) : replace_table_token_3_th 18 net cash provided by ( used in ) operating activities consolidated net cash provided by operating activities decreased in 2004 as compared to 2003 due to reduced operating profits in both segments . consolidated net cash provided by operating activities decreased in 2003 as compared to 2002 primarily due to lower income before cumulative effect of change in accounting principle , caused by lower imaging segment profits .
| results of operations for purposes of financial reporting , the company operates in two industry segments : the fuller brands segment , which is involved in developing , manufacturing , distributing , and marketing branded consumer and commercial cleaning and personal care products in north america and internationally , and the cpac imaging ( imaging ) segment , which includes the company 's color photographic , health care , and graphic arts imaging operations in the united states , belgium , italy , south africa , and thailand . the products of each segment are manufactured and marketed both in the u.s. and in other parts of the world . sales between segments are not material . the company 's financial results for the fiscal year ended march 31 , 2004 include an after-tax charge of $ 0.15 per diluted share for the imaging restructuring initiative ( see note 8 to the consolidated financial statements ) , an after-tax charge of $ 0.12 per diluted share for its equity in losses from tura , now required to be recognized due to the change in accounting , as a result of cpac 's increased ownership , and an after-tax charge of $ 0.47 per diluted share related to the recognition of an 13 impairment loss on the company 's investment in tura ( see note 2 to the consolidated financial statements regarding tura charges ) . the company 's financial results for the fiscal year ended march 31 , 2003 reflect the adoption of sfas no . 142 during the company 's first quarter of fiscal 2003. adoption included the recording of a one-time , non-cash expense of $ 6,281,251 , net of a tax benefit of $ 4,188,000 , or $ 1.24 per diluted share . the adjustment related to the fuller brands segment 's cleaning technologies group ( ctg ) investment in fiscal 1998 , whose goodwill was determined to be impaired , based on calculating the present value of future discounted cash flows .
| 7,077 |
on october 30 , 2020 , the company entered into a third amendment to credit agreement ( the โ third amendment โ ) with the subsidiary , truist bank , as administrative agent , and the lenders party thereto story_separator_special_tag the following discussion should be read together with the consolidated financial statements and the notes to consolidated financial statements , which are included in this annual report on form 10-k in โ item 8โfinancial statements and supplementary data , โ and the information set forth in โ part i , item 1aโrisk factors. โ overview we are an independent oil and natural gas company engaged in the exploration , development and production of properties primarily in ( i ) northwest louisiana and east texas , which includes the haynesville shale trend ( ii ) southwest mississippi and southeast louisiana , which includes the tuscaloosa marine shale trend ( โ tms โ ) , and ( iii ) south texas , which includes the eagle ford shale trend . we seek to increase shareholder value by growing our oil and natural gas reserves , production , revenues and cash flow from operating activities ( โ operating cash flow โ ) . in our opinion , on a long term basis , growth in oil and natural gas reserves , cash flow and production on a cost-effective basis are the most important indicators of performance success for an independent oil and natural gas company . management strives to increase our oil and natural gas reserves , production and cash flow through exploration and development activities . we develop an annual capital expenditure budget , which is reviewed and approved by our board of directors ( the โ board โ ) on a quarterly basis and revised throughout the year as circumstanc es warrant . when establishing our capital expenditure budget , we take into consideration our projected operating cash flow , commodity prices for oil and natural gas and externally available sources of financing , such as bank debt , asset divestitures , issuance of debt and equity securities and strategic joint-ventures . we place primary emphasis on our operating cash flow in managing our business . management considers operating cash flow a more important indicator of our financial success than other traditional performance measures such as net income because operating cash flow considers only the cash expenses incurred during the period and excludes the non-cash impact of hedging gains ( losses ) that have not yet been settled , non-cash general and administrative expenses and impairments . our revenues and operating cash flow depend on the successful development of our inventory of capital projects with available capital , the volume and timing of our production , as well as commodity prices for oil and natural gas . the prices we receive for our production are largely beyond our control , and in the first half of 2020 , the nymex henry hub price for natural gas hit a five-year low . we have historically been able to hedge our natural gas production at prices that are higher than current strip prices . however , depending on volatility in the commodity price environment , our ability to enter into comparable derivative arrangements may be more limited . see โ item 1aโrisk factors โ for a discussion of the risks to our business as a result of lower commodity prices . the coronavirus disease 2019 ( โ covid-19 โ ) pandemic and related economic repercussions have created significant volatility , uncertainty and turmoil in the oil and gas industry . throughout 2020 , the effect of covid-19 lowered the demand for oil and natural gas which resulted in an oversupply of crude oil with significant downward pressure on oil and natural gas prices for much of the year . west texas intermediate crude oil closed at $ 21 per barrel on march 31 , 2020 and generally remained at that level or lower through may 2020. in the third and fourth quarters of 2020 , we experienced gradual increases in oil and natural gas prices although not enough to alleviate the oversupply caused by lack of demand caused by covid-19 . the ultimate magnitude and duration of the covid-19 pandemic , resulting governmental restrictions placing limitations on the mobility and ability to work of the worldwide population and the related impact on crude oil prices , and the u.s. and global economy and capital markets remains uncertain . because we predominately produce natural gas , and natural gas has not been impacted by the same market forces as crude oil , we have experienced less of an impact from covid-19 than many of our peers . however , the scope and length of the covid-19 pandemic and the ultimate effect on the price of natural gas can not be determined , and we could be adversely affected in future periods . to mitigate the effects of the downturn in commodity prices due to the effects of covid-19 , we reduced our capital expenditures for 2020 thereby conserving capital . we also initiated a company-wide cost reduction program eliminating outside services that are not core to our business . additionally , we have substantial volumes of our production favorably hedged through the first quarter of 2022. as a result of the steps we have taken to enhance our liquidity , we anticipate our cash on hand , cash from operations , 2023 second lien notes and our available borrowing capacity under our 2019 senior credit facility will be sufficient to meet our investing , financing , and working capital requirements into 2021. we remain committed to the following priorities while navigating the covid-19 pandemic : ensuring the health and safety of our employees and the contractors that provide services to us ; continuing to monitor the impact the covid-19 pandemic has on demand for our products in addition to related commodity price impacts in order to adjust our business accordingly ; and ensuring we emerge from the covid-19 pandemic and current oil and natural gas price environment in as strong of a position as possible as story_separator_special_tag general and administrative expense ( โ g & a โ ) general and administrative expense for the year ended december 31 , 2020 was $ 18.0 million , which included $ 4.7 million of share based compensation . the $ 2.8 million decrease in g & a expense for the year ended december 31 , 2020 compared to the prior year period was substantially attributed to a decrease in employee related expenses due to decreased headcount in 2020 as well as a decrease in share based compensation . we capitalized $ 3.5 million and $ 3.7 million of g & a directly attributed to our capital development to the full cost pool for the year ended december 31 , 2020 and december 31 , 2019 , respectively . our g & a expense per unit of production decreased by 16 % in 2020 . other income ( expense ) replace_table_token_16_th interest expense interest expense for the year ended december 31 , 2020 included $ 4.5 million incurred on the 2019 senior credit facility and $ 2.5 million incurred on the 2021/2022 second lien notes , as defined below . the interest on the 2021/2022 second lien notes was all non-cash consisting of paid-in-kind interest of $ 1.8 million , amortized debt discount of $ 0.5 million and amortization of debt issuance costs of $ 0.2 million . interest expense for the year ended december 31 , 2019 included $ 0.9 million incurred on the 2017 senior credit facility , $ 3.4 million incurred on the 2019 senior credit facility , $ 5.3 million incurred on the 2019 second lien notes and $ 1.4 million incurred on the 2021/2022 second lien notes . the interest on the 2019 second lien notes and 2021/2022 second lien notes was all non-cash consisting of paid-in-kind interest of $ 4.0 million , amortized debt discount of $ 2.6 million and amortization of debt issuance costs of $ 0.1 million . interest expense decreased for the year ended december 31 , 2020 compared to the prior year period as a result of the repayment in 2019 of the higher interest rate 2019 second lien notes with borrowings from the 2019 senior credit facility that carries a lower interest rate , offset by additional net borrowings on our 2019 senior credit facility in 2020. on may 29 , 2019 , we redeemed our 2019 second lien notes using borrowings from our 2019 senior credit facility and recorded a $ 1.8 million loss on early extinguishment of debt . on may 31 , 2019 , we issued $ 12.0 million of new convertible second lien notes . these transactions resulted in , and will continue to result in , the company incurring less interest expense overall because a large portion of our debt was moved to the 2019 senior credit facility , which has a lower interest rate , but an increase in interest payable in cash . interest income and other interest income and other for the years ended december 31 , 2020 and 2019 were $ 0.2 million and less than $ 0.1 million , respectively . gain/loss on derivatives not designated as hedges we produce and sell oil and natural gas into a market where prices are historically volatile . we enter into swap contracts , collars or other derivative agreements f rom time to time to manage our exposure to commodity price risk for a portion of our production . we do not designate our derivative contracts as hedges for accounting purposes . consequently , the changes in our mark-to-market valuations are recorded directly to income or loss on our financial statements . 35 gain on commodity derivatives not designated as hedges of $ 4.4 million for the year ended december 31 , 2020 was comprised of a gain of $ 15.2 million from net cash settlements offset by a mark-to-market loss of $ 10.8 million , representing the change in fair value of our unsettled derivative contracts . the mark-to-market loss represented an $ 11.4 million loss in the fair value of our natural gas derivative contracts , offset by a $ 0.5 million gain in the fair value of our basis swaps and a $ 0.1 million gain in the fair value of our oil derivative contracts . the gain on cash settlements reflected a net $ 13.6 million received from our counter-parties on settlement of our natural gas derivatives and $ 1.6 million received to our counter-parties on settlement of oil derivatives . gain on commodity derivatives not designated as hedges of $ 15.0 million for the year ended december 31 , 2019 was comprised of a mark-to-market gain of $ 5.4 million , representing the change in fair value of our unsettled derivative contracts , and a gain of $ 9.6 million from net cash settlements . the mark-to-market gain represented an $ 8.2 million gain in the fair value of our natural gas derivative contracts , offset by a $ 2.4 million loss in the fair value of our basis swaps and a $ 0.4 million loss in the fair value of our oil derivative contracts . the gain on cash settlements reflected a net $ 10.3 million received from our counter-parties on settlement of our natural gas derivatives offset by a net $ 0.7 million paid to our counter-parties on settlement of oil derivatives . income tax benefit we recorded no income tax benefit or expense for the years ended december 31 , 2020 or 2019. we maintained a valuation allowance at december 31 , 2020 , which resulted in no net deferred tax asset or liability appearing on our statement of financial position .
| results we grew production by 3 % in 2020 as we conducted drilling or completion operations on 25 wells , adding 16 gross ( 5.5 net ) wells to production in the haynesville shale trend ; we grew reserves by 5 % to 543 bcfe of proved oil and natural gas reserves with a pv-10 of $ 183 million ; and we delivered $ 58.9 million of net cash provided by operating activities . haynesville shale trend our relatively low risk development acreage in this trend is primarily centered in caddo , desoto and red river parishes , louisiana and angelina and nacogdoches counties , texas . we held approximately 49,000 gross ( 26,000 net ) acres as of december 31 , 2020 producing from or prospective for the haynesville shale trend . we incurred drilling or completion costs on 25 wells in 2020 , spending $ 56.5 million of which $ 0.1 million was leasehold cost . we added 16 gross ( 5.5 net ) wells to production in 2020 . our net production volumes from our haynesville shale trend wells represented approximately 98 % of our total equivalent production on a mcfe basis and su bstantially all of our total natural gas production for the year ended december 31 , 2020 . tuscaloosa marine shale trend we held approximately 48,000 gross ( 33,000 net ) acres in the tms as of december 31 , 2020 all held by producti on . during 2020 , we did not conduct any drilling operations in the tm s ; however , we had 2 gross ( 1.7 net ) wells drilled in 2015 , which are still waiting on completion . our net production volumes from our tms wells represented approximately 2 % of our t otal equivalent production on a mcfe basis and approximat ely 95 % of our to tal oil production for the year ended december 31 , 2020 .
| 7,078 |
our unvested restricted shares ( including restricted stock awards and performance share awards ) contain rights to receive non-forfeitable dividends and therefore are considered to be participating securities and would be included in the calculations of net income per basic and diluted common share . however , we incurred a net loss in all periods presented . in accordance with asc subtopic 260-10 , undistributed losses are not allocated story_separator_special_tag overview of business ; operating environment and key factors impacting fiscal 2014 and 2015 results the following management 's discussion and analysis ( โ md & a โ ) is intended to help the reader understand our results of operations and financial condition . md & a is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes . in the discussion below , our fiscal year ending july 3 , 2015 is referred to as โ fiscal 2015 โ or โ 2015 โ ; our fiscal year ended june 27 , 2014 is referred to as โ fiscal 2014 โ or โ 2014 โ ; our fiscal year ended june 28 , 2013 is referred to as โ fiscal 2013 โ or โ 2013 โ ; and our fiscal year ended june 29 , 2012 is referred to as โ fiscal 2012 โ or โ 2012 . โ we generate revenue by designing , developing , manufacturing and supporting a range of wireless networking products , solutions and services for mobile and fixed communications service providers , private network operators , government agencies , transportation and utility companies , public safety agencies and broadcast system operators across the globe . our products include point-to-point ( ptp ) digital microwave transmission systems designed for first/last mile access , middle mile/backhaul , and long distance trunking applications . we also provide network management software solutions to enable operators to deploy , monitor and manage our systems , third party equipment such as antennas , routers , and multiplexers , necessary to build and deploy a wireless transmission network , and a full suite of turnkey support services . we work continuously to improve our established brands and to create new products that meet our customers ' evolving needs and preferences . our fundamental business goal is to generate superior returns for our stockholders over the long term . we believe that increases in revenue , operating profits and earnings per share are the key measures of financial performance for our business . our strategic focus in fiscal 2015 will be to continue to accelerate innovation and optimize our product portfolio , improve costs and operational efficiencies , grow our revenue and create a sustainable , profitable business model . to do this , we continue to examine our products , markets , facilities , development programs , and operational flows to ensure we are focused on what we do well and what will differentiate us in the future . we will continue working to streamline management processes to attain the efficiency levels required by the markets in which we do business . although the general trend of increasing demand for bandwidth to support mobile networks applies in all markets , we expect to see quarter-to-quarter fluctuations within markets and with individual customers based on customers ' past purchasing patterns . seasonality is also a factor that impacts our business . our fiscal third quarter revenue and orders have historically been lower than the revenue and orders in our second fiscal quarter because many of our customers utilize a significant portion of their capital budgets at the end of their fiscal years , which is typically the calendar year end and coincides with our second fiscal quarter . the majority of our customers begin a new fiscal year on january 1 , and capital expenditures tend to be lower in an organization 's first quarter than in its fourth quarter . we anticipate that this seasonality will continue . the seasonality between the second quarter and third quarter may be affected by a variety of additional factors , including changes in the global economy . during fiscal 2015 , we expect to provide increased managed services , including network design , inventory management , final configuration and warehousing services , to certain customers in certain geographies . our operating results may be impacted by providing these services to the extent that we may need to postpone the recognition of revenue and incur upfront and ongoing expenses that are not offset with additional revenue from product sales associated with these services until a future period . story_separator_special_tag we delivered in the past year . our revenue from product sales decreased $ 114.1 million , or 33.9 % , in fiscal 2014 compared with fiscal 2013. the decrease was primarily due to reduced purchases of our products and services made by larger customers in africa , north america and europe compared to the previous year and continued reduction in fiscal 2014. asia pacific product sales were also down compared to fiscal 2013 , with a small increase in latin america . our service revenue decreased $ 10.7 million , or 7.9 % , in fiscal 2014 compared with fiscal 2013. the main reason for the decline was the reduced revenue in north america owing to the reduction in business with wireless network operators . other regions had relatively flat service revenue performance between the years . 31 our revenue from product sales increased $ 1.2 million , or 0.4 % , in fiscal 2013 compared with fiscal 2012. the increase came primarily from strong sales in africa , offset in part by reductions in asia pacific , europe and a small year-to-year decrease in north america . our services revenue increased $ 26.1 million , or 24.1 % , in fiscal 2013 compared with fiscal 2012. the increase in fiscal 2013 came from additional services delivered in north america , africa and a small increase in europe , offset in part by a decrease in asia pacific . story_separator_special_tag activities under the fiscal 2013-2014 plan included the downsizing of our santa clara , california headquarters and certain international field offices , and reductions in force to reduce our operating expenses . during the first quarter of fiscal 2011 , we initiated a restructuring plan ( the โ fiscal 2011 plan โ ) to reduce our operational costs primarily in north america , europe and asia . activities under the fiscal 2011 plan included the reductions in force to reduce our operating expenses and downsizing or closures of our morrisville , north carolina , santa clara , california , montreal , canada offices and certain international field offices . the fiscal 2011 plan has been completed as of the end of fiscal 2013. our restructuring charges by plan for fiscal 2014 , 2013 and 2012 are summarized in the table below : replace_table_token_10_th 33 our restructuring expenses consisted primarily of severance and related benefit charges and facilities costs related to obligations under non-cancelable leases for facilities that we ceased to use . restructuring charges for fiscal 2014 included a $ 4.7 million facilities charge primarily related to ceasing to use a portion of our santa clara headquarters building and a $ 6.4 million employee termination charge primarily related to our fiscal 2014-2015 plan . restructuring charges for fiscal 2013 included a $ 3.0 million employee termination charge primarily related to our fiscal 2013-2014 plan and fiscal 2011 plan . restructuring charges for fiscal 2012 included a $ 0.9 million employee termination charge and a $ 1.4 million facilities charge associated with the sublease and relocation of our morrisville , north carolina facility under our fiscal 2011 plan . we have substantially completed our activities under the fiscal 2013-2014 plan and intend to complete a majority of the remaining restructuring activities under the fiscal 2014-2015 plan by the end of the second quarter of fiscal 2015. other income , interest income and interest expense replace_table_token_11_th other income of $ 0.7 million for fiscal 2013 reflected a nonrecurring benefit related to a customer contract . interest income reflected interest earned on our cash equivalents which were comprised of money market funds and certificates of deposit . interest expense was primarily related to interest associated with borrowings , term loans and letters of credit under the svb credit facility . in fiscal 2012 , interest expense also included preference dividends on our $ 8.25 million redeemable preference shares . the $ 8.25 million preference shares were redeemed at their carrying value on january 30 , 2012 , funded by a two-year term loan of $ 8.25 million under our credit facility at a fixed interest rate of 5 % per annum . income taxes replace_table_token_12_th the income tax expense from continuing operations for fiscal 2014 was $ 1.5 million . the difference between our income tax expense from continuing operations and income tax expense at the statutory rate of 35 % on our pre-tax loss of $ 50.6 million was primarily attributable to losses in tax jurisdictions in which we can not recognize a tax benefit and increase in foreign withholding taxes . the income tax expense from continuing operations for fiscal 2013 was $ 13.3 million . the difference between our income tax expense from continuing operations and income tax benefit at the statutory rate of 35 % on our pre-tax income of $ 2.4 million was primarily attributable to a $ 11.7 million increase in our reserves for uncertain tax positions , losses in tax jurisdictions in which we can not recognize a tax benefit and increase in foreign withholding taxes . the increase in our unrecognized tax benefits was the result of additional information obtained during recent tax examinations in certain countries . the income tax expense from continuing operations for fiscal 2012 was $ 1.5 million . the difference between our income tax expense from continuing operations and income tax benefit at the statutory rate of 35 % on our pre-tax loss of $ 14.0 million was primarily attributable to losses in tax jurisdictions in which we can not recognize a tax benefit . the tax expense for fiscal 2012 of $ 1.5 million was primarily attributable to profitable foreign entities for which we have accrued income taxes . 34 we are subject to income taxes in the u.s. and numerous foreign jurisdictions . significant judgment is required in determining our worldwide provision for income taxes and recording the related assets and liabilities . in the ordinary course of our business , there are many transactions and calculations where the ultimate tax determination is uncertain . income ( loss ) from discontinued operations replace_table_token_13_th our discontinued operations consist of the wimax business , which was sold to eion networks , inc. ( โ eion โ ) on september 2 , 2011. we completed the business transition with eion in fiscal 2012. the income incurred in fiscal 2014 was primarily due to recovery of certain wimax customer receivables that was previously written down . the loss incurred in fiscal 2013 was primarily due to $ 4.2 million write-downs of certain wimax deferred cost of sales that were not transferred to eion and certain expenses we incurred to support a remaining customer obligation . the loss was partially offset by a $ 0.3 million write down of our payable to eion related to customer receivables and $ 0.1 million contingent payments we received from eion . the loss in fiscal 2012 included operating expenses we incurred to transition the business and a $ 1.9 million loss on disposition of the wimax business . liquidity , capital resources and financial strategies sources of cash as of june 27 , 2014 , our total cash and cash equivalents were $ 48.8 million . approximately $ 8.2 million , or 16.8 % , was held by entities domiciled in the united states . the remaining balance of $ 40.6 million , or 83.2 % , was held by entities outside the united states .
| operations review the market for mobile backhaul continues to be our primary addressable market segment and , over the long term , the demand for increasing the backhaul capacity in our customers ' networks continues to grow . in north america we supported long-term evolution ( `` lte '' ) deployments of our mobile operator customers , public safety network deployments for state and local governments , and private network implementations for utilities and other customers . internationally , our business continued to rely on a combination of customers increasing their capacity to handle subscriber growth , the ongoing build-out of some large 3g deployments , and the emergence of early stage lte deployments . our position continues to be to support our customers for lte readiness and ensure that our technology roadmap is well aligned with evolving market requirements . we continue to find that our strength in turnkey and after-sale support services is a differentiating factor that wins business for us and enables us to expand our business with existing customers in all markets . however , as disclosed above and in the โ risk factors โ section in item 1a of this 30 annual report on form 10-k , a number of factors could prevent us from achieving our objectives , including ongoing pricing pressures attributable to competition and macroeconomic conditions in the geographic markets that we service . during the third quarter of fiscal 2014 , in line with the decrease in revenue that we experienced and our reduced forecast for the immediate future , we announced a new restructuring plan . our restructuring expenses incurred during fiscal 2014 related to two restructuring plans we initiated in fiscal 2014 ( the โ fiscal 2014-2015 plan โ ) and fiscal 2013 ( the โ fiscal 2013-2014 plan โ ) .
| 7,079 |
we have two pharmaceutical manufacturing facilities located in baudette , minnesota , which are capable of producing oral solid dose products , as well as liquids and topicals , controlled substances , and potent products that must be manufactured in a fully-contained environment . our strategy is to use our assets to develop , acquire , manufacture , and market branded and generic specialty prescription pharmaceuticals . by executing this strategy , we believe we will be able to continue to grow our business , expand and diversify our product portfolio , and create long-term value for our investors . on june 19 , 2013 , biosante pharmaceuticals , inc. ( โ biosante โ ) acquired anip acquisition company ( โ anip โ ) in an all-stock , tax-free reorganization ( the โ merger โ ) , in which anip became a wholly-owned subsidiary of biosante . biosante was subsequently renamed ani pharmaceuticals , inc. the merger was accounted for as a reverse acquisition pursuant to which anip was considered the acquiring entity for accounting purposes . as such , anip 's historical results of operations replace biosante 's historical results of operations for all periods prior to the merger . the results of operations of both companies are included in our consolidated financial statements for all periods after completion of the merger . in 2014 , we acquired andas for 31 generic products , the nda for lithobid , and the nda for vancocin , along with two related andas . we also launched our methazolamide product , and entered into collaborative arrangements for generic drug products with sofgen pharmaceuticals and with dexcel pharma technologies ltd. finally , in 2014 , we completed a follow-on public offering of common stock , yielding net proceeds of $ 46.7 million , and closed a public offering of $ 143.8 million of 3.0 % convertible senior notes due in 2019 ( the โ notes โ ) , with simultaneous bond hedge and warrant transactions . in 2015 , we achieved the following : ยท acquired andas for 23 generic products . ยท acquired an nda for testosterone gel . ยท entered into a distribution agreement with idt australia limited ( โ idt โ ) to market several generic products in the u.s. ยท entered into an agreement to acquire two ndas for corticotropin and corticotropin-zinc . the transaction closed in january 2016 . ยท launched six products : etodolac , propafenone , oxycodone oral solution , vancomycin , nimodipine , and flecainide . 37 story_separator_special_tag approval for the group of products or withdraw them from the market . our royalties on the net sales of these unapproved products were $ 0.3 million for both the years ended december 31 , 2015 and 2014. cost of sales ( excluding depreciation and amortization ) ( in thousands ) years ended december 31 , 2015 2014 change % change cost of sales ( excl . depreciation and amortization ) $ 12,692 $ 11,473 $ 1,219 10.6 % for the year ended december 31 , 2015 , cost of sales increased to $ 12.7 million from $ 11.5 million for the same period in 2014 , an increase of $ 1.2 million or 10.6 % , primarily as a result of increased sales in the period , particularly sales of products that are subject to profit-sharing arrangements . we anticipate that our cost of sales will continue to increase in 2016 , due to new product launches and the full year impact of sales of certain products launched in 2015 that are subject to profit-sharing arrangements . cost of sales as a percentage of net revenues decreased to 16.6 % during the year ended december 31 , 2015 , from 20.5 % during same period in 2014 , primarily as a result of price increases for our eemt and hc enema products , and a favorable shift in product mix toward higher margin products , including eemt , and two branded products , lithobid and vancocin , which we acquired in the third quarter of 2014. we anticipate that our cost of sales as a percentage of net revenues will increase in 2016 , due to the full year impact of sales of certain products launched in 2015 that are subject to profit-sharing arrangements , as well as the anticipated launches of new products that are subject to profit-sharing arrangements . we source the raw materials for our products , including api , from both domestic and international suppliers . generally , only a single source of api is qualified for use in each product due to the cost and time required to validate a second source of supply . changes in api suppliers usually must be approved by the fda , which can take 18 months or longer . as a result , we are dependent upon our current vendors to reliably supply the api required for ongoing product manufacturing . in addition , certain of our api for our drug products , including those that are marketed without approved ndas or andas , are sourced from international suppliers . from time to time , we have experienced temporary disruptions in the supply of certain of such imported apis due to fda inspections . during the year ended december 31 , 2015 , we purchased 33 % of our inventory from two suppliers . as of december 31 , 2015 , amounts payable to these suppliers were immaterial . in the year ended december 31 , 2014 , we purchased 42 % of our inventory from two suppliers . in order to manufacture opium tincture and oxycodone oral solution , we must submit a request to the dea for a quota to purchase the amount of opium and oxycodone needed to manufacture the respective products . without approved quotas from the dea , we would not be able to purchase these ingredients from our suppliers . as a result , we are dependent upon the dea to annually approve a sufficient quota of api to support the continued manufacture of opium tincture and oxycodone oral solution . story_separator_special_tag however , in the first half of 2014 , the same competitor re-entered the market , which negatively impacted our eemt unit sales beginning in the second quarter of 2014 , and which continued in 2015. eemt revenues for the year ended december 31 , 2014 also were reduced by $ 3.9 million in charges related to price protection contract obligations . as described in item 1. business โ government regulations โ unapproved products , we market eemt and opium tincture without fda-approved ndas . while we believe that , so long as we comply with applicable manufacturing standards , the fda will not take action against us under the current enforcement policy , we can offer no assurances that the fda will continue this policy or not take a contrary position with any individual product or group of products . our combined net revenues for these products for the years ended december 31 , 2014 and 2013 were $ 29.8 million and $ 14.6 million , respectively . 42 ยท net revenues for branded pharmaceutical products were $ 11.0 million during the year ended december 31 , 2014 , an increase of 226.7 % compared to $ 3.4 million for the same period in 2013. the primary reasons for the increase were $ 3.3 million of sales from our lithobid product , representing six months of sales and $ 4.4 million of sales from our vancocin product , representing five months of sales . the product rights to lithobid and vancocin were acquired during the third quarter of 2014. these increases were partially offset by a decrease in sales of reglan . ยท contract manufacturing revenues were $ 5.9 million during the year ended december 31 , 2014 , a decrease of 1.4 % compared to $ 6.0 million for the same period in 2013 , due to decreased orders from contract manufacturing customers during 2014. as described in item 1. business โ government regulations โ unapproved products , we contract manufacture a group of products on behalf of a customer that are marketed by that customer without an fda-approved nda . if the fda took enforcement action against such customer , the customer may be required to seek fda approval for the group of products or withdraw them from the market . our contract manufacturing revenues for the group of unapproved products for the years ended december 31 , 2014 and 2013 were $ 1.2 million and $ 2.0 million , respectively . ยท contract services and other income were $ 3.2 million during the year ended december 31 , 2014 , an increase of 124.8 % from $ 1.4 million for the same period in 2013 , due primarily to royalties received on sales of the authorized generic of vancocin , the product rights to which were acquired in the third quarter of 2014. this increase was partially offset by a $ 0.5 million non-recurring payment in december 2013 from teva in relation to the testosterone gel nda acquired in the merger , as well as decreased contract services . as described in item 1. business โ government regulations โ unapproved products , we receive royalties on the net sales of a group of contract-manufactured products , which are marketed by the customer without an fda-approved nda . if the fda took enforcement action against such customer , the customer may be required to seek fda approval for the group of products or withdraw them from the market . our royalties on the net sales of these unapproved products were $ 0.3 million for each of the years ended december 31 , 2014 and 2013. cost of sales ( excluding depreciation and amortization ) ( in thousands ) years ended december 31 , 2014 2013 change % change cost of sales ( excl . depreciation and amortization ) $ 11,473 $ 9,974 $ 1,499 15.0 % cost of sales consists of direct labor , including manufacturing and packaging , active and inactive pharmaceutical ingredients , freight costs , and packaging components . cost of sales did not include depreciation and amortization expense , which is reported as a separate component of operating expenses on our consolidated statements of earnings . for the year ended december 31 , 2014 , cost of sales increased to $ 11.5 million from $ 10.0 million for the same period in 2013 , an increase of $ 1.5 million or 15.0 % , primarily as a result of an increase in sales of generic pharmaceutical products , as well as royalties due on proceeds from sales of vancocin and its authorized generic . the contractual requirement to pay these royalties ended december 31 , 2014. cost of sales as a percentage of net revenues decreased to 20.5 % during the year ended december 31 , 2014 , from 33.2 % during same period in 2013 , primarily as a result of a favorable shift in product mix toward higher margin products , including our two new branded products , lithobid and vancocin , and price increases for eemt . during the year ended december 31 , 2014 , we purchased 42 % of our inventory from two suppliers . as of december 31 , 2014 , amounts payable to these suppliers were immaterial . in the year ended december 31 , 2013 , we purchased 37 % of our inventory from three suppliers . 43 other operating expenses replace_table_token_9_th other operating expenses consisted of research and development costs , selling , general , and administrative expenses , and depreciation and amortization .
| general the following table summarizes our results of operations for the years ended december 31 , 2015 , 2014 , and 2013. replace_table_token_3_th the following table sets forth , for the periods indicated , the percentage that items in our consolidated statements of earnings bear to net revenues . replace_table_token_4_th 38 results of operations for the years ended december 31 , 2015 and 2014 net revenues replace_table_token_5_th net revenues for the year ended december 31 , 2015 were $ 76.3 million compared to $ 56.0 million for the same period in 2014 , an increase of $ 20.4 million , or 36.4 % , primarily as a result of the following factors : ยท net revenues for generic pharmaceutical products were $ 55.2 million during the year ended december 31 , 2015 , an increase of 53.9 % compared to $ 35.9 million for the same period in 2014. the primary reason for the increase was increased eemt revenues , due to increases in prices per bottle , as well as sales of methazolamide , launched in the fourth quarter of 2014 , etodolac and propafenone , both of which were launched in the first quarter of 2015 , and vancomycin , launched in the fourth quarter of 2015. we also experienced increased sales for our hc enema product , due to price increases . in 2016 , we anticipate increases in generic pharmaceutical product revenues related to our recently-launched products , as well as additional products we expect to launch in 2016. as described in item 1. business โ government regulations โ unapproved products , we market eemt and opium tincture without fda-approved ndas . the fda 's policy with respect to the continued marketing of unapproved products appears in the fda 's september 2011 compliance policy guide sec . 440.100 titled `` marketed new drugs without approved ndas or andas . ''
| 7,080 |
for the year ended december 31 , 2018 we reported record annual revenues of $ 262.8 million , increasing 39 % over the prior year and we generated $ 9.9 million in cash flows from operations during 2018. revenues for december 31 , 2018 includes a full year of revenues from the december 2017 acquisition of jotec gmbh ( ยjotecย ) , a hechingen , germany-based endovascular and surgical products company . for the year ended december 31 , 2018 we reported a net loss of $ 2.8 million , largely due to an increase in interest expense on net borrowings and business development costs primarily related to integration of jotec . see the ยresults of operationsย section below for additional analysis of the fourth quarter and full year 2018 results . see part i , item 1 , ยbusiness , ย for further discussion of our business and activities during 2018. critical accounting policies a summary of our significant accounting policies is included in part ii , item 8 , note 1 of the ยnotes to consolidated financial statements.ย we believe that the consistent application of these policies enables us to provide users of the financial statements with useful and reliable information about our operating results and financial condition . the consolidated financial statements are prepared in accordance with accounting principles generally accepted in the u.s. , which require us to make estimates and assumptions . the following are accounting policies that we believe are most important to the portrayal of our financial condition and results of operations and may involve a higher degree of judgment and complexity . fair value measurements we record certain financial instruments at fair value , including : cash equivalents , certain marketable securities , certain restricted securities , contingent consideration , and derivative instruments . we may make an irrevocable election to measure other financial instruments at fair value on an instrument-by-instrument basis , although as of december 31 , 2018 we have not chosen to make any such elections . fair value financial instruments are recorded in accordance with the fair value measurement framework . we also measure certain non-financial assets at fair value on a non-recurring basis . these non-recurring valuations include evaluating assets such as cost method investments , long-lived assets , and non-amortizing intangible assets for impairment ; allocating value to assets in an acquired asset group ; applying accounting for business combinations ; and allocating goodwill to divested components of a business . we use the fair value measurement framework to value these assets and report these fair values in the periods in which they are recorded or written down . the fair value measurement framework includes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair values in their broad levels . these levels from highest to lowest priority are as follows : level 1 : quoted prices ( unadjusted ) in active markets that are accessible at the measurement date for identical assets or liabilities ; level 2 : quoted prices in active markets for similar assets or liabilities or observable prices that are based on inputs not quoted in active markets , but corroborated by market data ; and level 3 : unobservable inputs or valuation techniques that are used when little or no market data is available . the determination of fair value and the assessment of a measurement 's placement within the hierarchy requires judgment . level 3 valuations often involve a higher degree of judgment and complexity . level 3 valuations may require the use of various cost , market , or income valuation methodologies applied to our unobservable estimates and assumptions . our assumptions could vary depending on the asset or liability valued and the valuation method used . such assumptions could include : estimates of prices , earnings , costs , actions of market participants , market factors , or the weighting of various valuation methods . we may also engage external advisors to assist in determining fair value , as appropriate . 42 although we believe that the recorded fair value of our financial instruments is appropriate , these fair values may not be indicative of net realizable value or reflective of future fair values . deferred preservation costs deferred preservation costs include costs of cardiac and vascular tissues available for shipment , tissues currently in active processing , and tissues held in quarantine pending release to implantable status . by federal law , human tissues can not be bought or sold ; therefore , the tissues we preserve are not held as inventory . the costs we incur to procure and process cardiac and vascular tissues are instead accumulated and deferred . deferred preservation costs are stated at the lower of cost or market value on a first-in , first-out basis and are deferred until revenue is recognized . upon shipment of tissue to an implanting facility , revenue is recognized , and the related deferred preservation costs are expensed as cost of preservation services . cost of preservation services also includes , as applicable , lower of cost or market write-downs and impairments for tissues not deemed to be recoverable , and includes , as incurred , idle facility expense , excessive spoilage , extra freight , and re-handling costs . the calculation of deferred preservation costs involves judgment and complexity and uses the same principles as inventory costing . donated human tissue is procured from deceased human donors by organ and tissue procurement organizations ( ยotposย ) , that consign the tissue to us for processing , preservation , and distribution . deferred preservation costs consist primarily of the procurement fees charged by the otpos , direct labor and materials ( including salary and fringe benefits , laboratory supplies and expenses , and freight-in charges ) , and indirect costs ( including allocations of costs from support departments and facility allocations ) . fixed production overhead costs are allocated based on actual tissue processing levels , to the extent that they are within the range of the facility 's normal capacity . story_separator_special_tag under this method , the allocation of the purchase price is based on the fair value of the tangible and identifiable intangible assets acquired and the liabilities assumed as of the date of the acquisition . the excess of the purchase price over the estimated fair value of the tangible net assets and identifiable intangible assets is recorded as goodwill . transaction costs related to a business combination are expensed as incurred . in-process research and development acquired as part of a business combination is accounted for as an indefinite-lived intangible asset until the related research and development project gains regulatory approval or is discontinued . we typically engage external advisors to assist in determining the fair value of acquired asset groups or business combinations , using valuation methodologies such as : the excess earnings , the discounted cash flow , or the relief from royalty methods . the determination of fair value in accordance with the fair value measurement framework requires significant judgments and estimates , including , but not limited to : timing of product life cycles , estimates of future revenues , estimates of profitability for new or acquired products , cost estimates for new or changed manufacturing processes , estimates of the cost or timing of obtaining regulatory approvals , estimates of the success of competitive products , and discount rates . we , in consultation with our advisor ( s ) , make these estimates based on our prior experiences and industry knowledge . we believe that our estimates are reasonable , but actual results could differ significantly from our estimates . a significant change in our estimates used to value acquired asset groups or business combinations could result in future write-downs of tangible or intangible assets acquired by us and could , therefore , materially impact our financial position and profitability . if the value of the liabilities assumed by us , including contingent liabilities , is determined to be significantly different from the amounts previously recorded in purchase accounting , we may need to record additional expenses or write-downs in future periods , which could materially impact our financial position and profitability . new accounting pronouncements see note 1 of ยnotes to summary consolidated financial statementsย for further discussion of new accounting standards that have been adopted or are being evaluated for future adoption . 44 story_separator_special_tag roman '' > on-x product revenues , excluding oem , increased 21 % for the twelve months ended december 31 , 2018 , as compared to the twelve months ended december 31 , 2017. this increase was primarily due to a 26 % increase in volume of units sold , which increased revenues by 30 % , partially offset by a decrease in average sales prices , which decreased revenues by 9 % , primarily due to geographic revenue mix . the volume increase of on-x products , excluding oem , for the three and twelve months ended december 31 , 2018 was primarily due to an increase in volume in the u.s. , emea , and canada , after establishing a direct market in canada in july 2017. on-x oem sales accounted for less than 1 % of product revenues for the three and twelve months ended december 31 , 2018 and 2017. cardiogenesis cardiac laser therapy revenues from our cardiogenesis cardiac laser therapy product line consist primarily of sales of handpieces and , in certain periods , the sale of laser consoles . revenues from cardiac laser therapy decreased 2 % for the three months ended december 31 , 2018 , as compared to the three months ended december 31 , 2017. this decrease was primarily due to a 27 % decrease in unit shipments of handpieces , which decreased revenues by 27 % , offset by the effect of the sale of one additional laser console for the three months ended december 31 , 2018 , as compared to the three months ended december 31 , 2017. revenues from cardiac laser therapy decreased 9 % for the twelve months ended december 31 , 2018 , as compared to the twelve months ended december 31 , 2017. this decrease was primarily due to a 12 % decrease in unit shipments of handpieces , which decreased revenues by 12 % , partially offset by the effect of higher average laser console selling prices for the twelve months ended december 31 , 2018 , as compared to the twelve months ended december 31 , 2017. the major contributing factors to the decrease in handpiece revenues included the de-emphasis on this product line since 2016 , when the on-x product line was acquired and the corresponding realignment of our sales force . cardiac laser therapy is generally used adjunctively with cardiac bypass surgery by a limited number of physicians who perform these procedures , although there has been a slight growth in the number of performing physicians in recent months . revenues from laser console sales are difficult to predict and can vary significantly from quarter to quarter . perclot revenues from the sale of perclot increased 6 % for the three months ended december 31 , 2018 , as compared to the three months ended december 31 , 2017. this increase was primarily due to a 16 % increase in the volume of grams sold , which increased revenues by 3 % , and an increase in average selling prices , which increased revenues by 3 % . the volume 47 increase included a larger proportion of products that have lower prices and , therefore , did not have as large of an effect on total perclot revenues .
| results of operations ( in thousands ) year ended december 31 , 2018 compared to year ended december 31 , 2017 revenues replace_table_token_4_th 45 revenues increased 28 % and 39 % for the three and twelve months ended december 31 , 2018 , respectively , as compared to the three and twelve months ended december 31 , 2017 , respectively . a detailed discussion of the changes in product revenues and preservation services revenues for the three and twelve months ended december 31 , 2018 is presented below . products revenues from products increased 40 % and 57 % for the three and twelve months ended december 31 , 2018 , respectively , as compared to the three and twelve months ended december 31 , 2017 , respectively . these increases were primarily due to the acquisition of jotec in december 2017 as well as increased revenues from the sale of on-x products . a detailed discussion of the changes in product revenues for bioglue and biofoam ; jotec ; on-x ; cardiogenesis cardiac laser therapy ; perclot ; and photofix is presented below . sales of certain products through our direct sales force and distributors across europe and various other countries are denominated in a variety of currencies , with a concentration denominated in euros in addition to british pounds , polish zloty , swiss francs , brazilian real , and canadian dollars which are subject to exchange rate fluctuations . for the three months ended december 31 , 2018 compared to the three months ended december 31 , 2017 the u.s. dollar strengthened in comparison to these currencies , resulting in revenue decreases when these foreign currency denominated transactions were translated into u.s. dollars . for the twelve months ended december 31 , 2018 , as compared to the twelve months ended december 31 , 2017 , the u.s. dollar weakened in comparison to the major currencies , resulting in revenue increases when these foreign currency denominated transactions were translated into u.s. dollars .
| 7,081 |
some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the ยcautionary note regarding forward-looking statementsย and ยitem 1a risk factorsย for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . our fiscal year ends on march 31. prior to december 18 , 2019 , we were known as health sciences acquisitions corporation . on december 18 , 2019 , we completed the business combination , with immunovant sciences ltd. , a private company . for accounting purposes , health sciences acquisitions corporation was deemed to be the acquired entity . overview we are a clinical-stage biopharmaceutical company focused on enabling normal lives for patients with autoimmune diseases . we are developing a novel , fully human monoclonal antibody , imvt-1401 ( formerly referred to as rvt-1401 ) , that selectively binds to and inhibits the fcrn . imvt-1401 is the product of a multi-step , multi-year research program conducted by hanall biopharma co. , ltd. to design a highly potent anti-fcrn antibody optimized for subcutaneous delivery . these efforts have resulted in a product candidate that has been dosed in small volumes ( e.g . 2 ml ) and with a 27-gauge needle , while still generating therapeutically relevant pharmacodynamic activity , important attributes that we believe will drive patient preference and market adoption . in nonclinical studies and in clinical trials conducted to date , imvt-1401 has been observed to reduce igg antibody levels . high levels of pathogenic igg antibodies drive a variety of autoimmune diseases and , as a result , we believe imvt-1401 has the potential for broad application in these disease areas . we intend to develop imvt-1401 in autoimmune diseases for which there is robust evidence that pathogenic igg antibodies drive disease manifestation and for which reduction of igg antibodies should lead to clinical benefit . we are developing imvt-1401 as a fixed-dose , self-administered subcutaneous injection on a convenient weekly , or less frequent , dosing schedule . as a result of our rational design , we believe that imvt-1401 , if approved for commercial sale , would be differentiated from currently available , more invasive treatments for advanced igg-mediated autoimmune diseases , ( e.g. , mg , ted , waiha , idiopathic thrombocytopenic purpura , pemphigus vulgaris , chronic inflammatory demyelinating polyneuropathy , bullous pemphigoid , neuromyelitis optica , pemphigus foliaceus , guillain-barrรฉ syndrome and pla2r+ membranous nephropathy ) . in 2019 , these diseases had an aggregate prevalence of approximately 243,000 patients in the united states and 388,000 patients in europe . to the extent we choose to develop imvt-1401 for certain of these rare diseases , we plan to seek orphan drug designation in the united states and europe . such designations would primarily provide financial and exclusivity incentives intended to make the development of orphan drugs financially viable . however , we have not yet sought such designation for any of our three target indications , and there is no certainty that it would obtain such designation , or maintain the benefits associated with such designation , if or when we do . in august 2019 , we initiated dosing in our ascend mg trial , a phase 2a clinical trial in patients with mg. we expect to report results from the placebo-controlled treatment phase of this trial in the late third quarter or early fourth quarter of calendar year 2020. in may 2019 , we initiated dosing in our ascend go-1 trial , a phase 2a clinical trial in canada in patients with ted . we announced initial results from this trial in march 2020. enrollment is ongoing in our ascend go-2 trial , a phase 2b clinical trial for ted in the united states , canada and europe . as previously communicated , results from this trial are still possible in the first half of calendar year 2021. we intend to provide an update on the timing for this trial in the third quarter of calendar year 2020. in november 2019 , we submitted an ind to the fda for waiha and , in december 2019 , our ind was cleared for phase 2 trial initiation . as previously communicated , results from this trial are still possible by the end of second half of calendar year 2020. we intend to provide an update on the timing for this trial in the third quarter of calendar year 2020. isl was incorporated in july 2018 and its operations prior to the closing of the business combination were limited to organizing and staffing isl , acquiring the rights to imvt-1401 , and preparing for and conducting clinical trials . to date , we have not generated any revenue and have generated significant operating losses since our inception . as of march 31 , 2020 and 2019 , we had an accumulated deficit of $ 91.2 million and $ 24.8 million , respectively . for the years ended march 31 , 2020 and 2019 , we recorded net losses of $ 66.4 million and $ 28.6 million , respectively . 90 our financial statements are derived by carving out the historical results of operations and historical cost basis of the assets and liabilities associated with imvt-1401 that have been contributed to us by rsl , from rsl 's financial statements and have been presented as if we had been a separate business since the acquisition of imvt-1401 by rsg on december 19 , 2017. accordingly , the financial statements as of and for the year ended march 31 , 2019 include reasonable allocations for assets and liabilities and expenses attributable to our operations . beginning on july 6 , 2018 ( date of formation ) , the combined and consolidated financial statements include our accounts and those of our wholly owned subsidiaries . story_separator_special_tag under the hanall agreement , the parties may choose to collaborate on a research program directed to the research and development of next generation fcrn inhibitors in accordance with an agreed plan and budget . we are obligated to reimburse hanall for half of such research and development expenses incurred by hanall , up to an aggregate reimbursement amount of $ 20.0 million . intellectual property created by hanall pursuant to this research program will be included in our license ; intellectual property created by us pursuant to this research program will be included in hanall 's license . since the acquisition of imvt-1401 , we , along with rsl , have performed all the development associated with imvt-1401 and no amounts were due to hanall for further research or development of the technology for the years ended march 31 , 2020 and 2019. pursuant to the hanall agreement , rsg made an upfront payment of $ 30.0 million to hanall . in may 2019 , we achieved our first development and regulatory milestone which resulted in a $ 10.0 million milestone payment that we subsequently paid in august 2019. we will be responsible for future contingent payments and royalties , including up to an aggregate of $ 442.5 million upon the achievement of certain development , regulatory and sales milestone events . we are also obligated to pay hanall tiered royalties ranging from the mid-single digits to mid-teens on net sales of licensed products , subject to standard offsets and reductions as set forth in the hanall agreement . these royalty obligations apply on a product-by-product and country-by-country basis and end upon the latest of : ( a ) the date on which the last valid claim of the licensed patents expire , ( b ) the date on which the data or market exclusivity expires or ( c ) 11 years after the first commercial sale of the licensed product , in each case , with respect to a given product in a given country . see ยbusinessยlicense agreement with hanall biopharma co. , ltd.ย for further information . services agreements with rsi and rsg in august 2018 , we entered into services agreements with rsi and rsg , under which rsi and rsg agreed to provide services related to development , administrative and financial activities to us during our formative period . under each services agreement , we will pay or reimburse rsi or rsg , as applicable , for any expenses they , or third parties acting on our behalf , incur . for any general and administrative and research and development activities performed by rsi or rsg employees , rsi or rsg , as applicable , will charge back the employee compensation expense plus a pre-determined markup . rsi and rsg also provided such services prior to the formalization of the services agreements , and such costs have been recognized by us in the period in which the services were rendered . employee compensation expense , inclusive of base salary and fringe benefits , is determined based upon the relative percentage of time utilized on our matters . all other costs will be billed back at cost . the term of the services agreements will continue until terminated by us , rsi or rsg , as applicable , upon 90 days ' written notice . rsl information sharing and cooperation agreement in december 2018 , we entered into an amended and restated information sharing and cooperation agreement ( the ยcooperation agreementย ) with rsl . the cooperation agreement , among other things : ( 1 ) obligates us to deliver to rsl periodic financial statements and other information upon reasonable request and to comply with other specified financial reporting requirements ; ( 2 ) requires us to supply certain material information to rsl to assist it in preparing any future sec filings ; and ( 3 ) requires us to implement and observe certain policies and procedures related to applicable laws and regulations . we have agreed to indemnify rsl and its affiliates and their respective officers , employees and directors against all losses arising out of , due to or in connection with rsl 's status as a stockholder under the cooperation agreement and the operations of or services provided by rsl or its affiliates or their respective officers , employees or directors to us or any of our subsidiaries , subject to certain limitations set forth in the cooperation agreement . no amounts have been paid or received under this agreement ; however , we believe this agreement is material to our business and operations . subject to specified exceptions , the cooperation agreement will terminate upon the earlier of ( 1 ) the mutual written consent of the parties or ( 2 ) the later of when rsl no longer ( a ) is required by accounting principles generally accepted in the u.s. gaap to consolidate our results of operations and financial position , account for its investment in us under the equity method of accounting or , by any rule of the sec , include our separate financial statements in any filings it may make with the sec and ( b ) has the right to elect directors constituting a majority of our board of directors . 92 financial operations overview revenue we have not generated any revenue and have incurred significant operating losses since inception , and we do not expect to generate any revenue from the sale of any products unless or until we obtain regulatory approval of and commercialize imvt-1401 or any future product candidates . our ability to generate revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of imvt-1401 and any future product candidates . research and development expenses since our incorporation , our operations have primarily been limited to organizing and staffing our company , acquiring rights to our product candidate , imvt-1401 , and preparing for and conducting clinical trials .
| results of operations comparison of the years ended march 31 , 2020 and 2019 the following table sets forth our results of operations for the years ended march 31 , 2020 and 2019 ( in thousands ) : replace_table_token_3_th research and development expenses research and development expenses increased by $ 22.2 million , from $ 25.7 million for the year ended march 31 , 2019 to $ 47.9 million for the year ended march 31 , 2020. this increase was primarily due to $ 10.0 million related to the achievement of the first development and regulatory milestone under the hanall agreement in may 2019. other increases mainly include higher clinical trial costs of $ 7.5 million , contract manufacturing costs of $ 5.7 million , and other costs of $ 1.3 million , all of which were driven by the advancement of our clinical trials for the treatment of autoimmune disease , as well as higher personnel-related expenses of $ 2.6 million and stock-based compensation expense of $ 1.9 million , both of which were due to higher headcount to support our clinical operations . the overall increase was partially offset by decreases in costs billed to us under the services agreements of $ 4.9 million , and nonclinical studies of $ 1.9 million . 94 general and administrative expenses general and administrative expenses increased by $ 15.5 million , from $ 2.7 million for the year ended march 31 , 2019 to $ 18.2 million for the year ended march 31 , 2020. this increase was primarily due to higher legal and professional fees of $ 6.4 million , driven by advisory fees incurred in relation to the business combination and increased accounting and legal services to support our higher operating activities and sec filings .
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million merger termination fee ( included in net realized and unrealized gains ) received in connection with the terminated merger transaction with fidelity national financial , inc. ( fnf ) , partially offset by lower revenues from independent agency and ancillary services operations . total expenses declined 1 % in 2019 compared to 2018. refer to `` results of operations '' for additional year-to-year discussions . during the fourth quarter 2019 , we commenced initiatives to reposition stewart for improved long-term financial performance and to create a more competitive and resilient independent company . such initiatives included board , senior executive and managerial changes , as well as office closures and asset impairment . as part of our plan to grow our business and improve margins , we have identified areas where we will make targeted investments to improve our competitive position in each of our businesses and identified improvements needed around our basic execution . we plan to invest in building scale in some key direct markets , manage our agency geographic footprint , build a more attractive commercial business and add scale in our non-title businesses . for the fourth quarter 2019 , we reported break-even results , compared to net income attributable to stewart of $ 11.4 million ( $ 0.48 per diluted share ) for the fourth quarter 2018. pretax income before noncontrolling interests for the fourth quarter 2019 was $ 3.8 million compared to a pretax income before noncontrolling interests of $ 19.7 million for the fourth quarter 2018. fourth quarter 2019 results included the following pretax items : $ 8.0 million of net realized and unrealized losses , which were primarily $ 11.7 million of impairment expenses relating to intangible assets , title plants and other assets , partially offset by $ 2.2 million of realized gains on sale of securities investments and $ 1.1 million of net unrealized gains on fair value changes of equity securities investments , $ 6.5 million of severance expenses related to our corporate reorganization included in employee costs ( $ 4.3 million in the ancillary services and corporate segment and $ 2.2 million in the title segment ) , $ 5.9 million of office closure costs primarily related to lease terminations included in other operating expenses ( $ 4.7 million in the title segment and $ 1.2 million in the ancillary services and corporate segment ) , $ 2.2 million of executive insurance policy settlement expense recorded as part of other operating expenses within the ancillary services and corporate segment , $ 1.7 million of commercial services ' escrow loss recorded as part of title loss expense in the title segment , and $ 2.1 million of other non-operating charges ( $ 1.3 million in the ancillary services and corporate segment and $ 0.8 million in the title segment ) . fourth quarter 2018 results included the following pretax items : $ 4.3 million of net realized and unrealized losses which were primarily related to fair value changes of equity securities investments , $ 3.0 million of third-party advisory expenses related to the terminated fidelity national financial ( fnf ) merger transaction included in other operating expenses within the ancillary services and corporate segment , $ 1.2 million of litigation expense related to a 2013 lender services acquisition included in other operating expenses within the ancillary services and corporate segment , $ 1.0 million of executive severance expenses included in employee costs ( $ 0.6 million in the title segment and $ 0.4 million in the ancillary services and corporate segment ) , and $ 0.8 million of office closure costs included in other operating expenses within the title segment . 12 summary results of the title segment are as follows ( $ in millions , except pretax margin ) : replace_table_token_3_th title operating revenues in the fourth quarter 2019 increased 11 % , compared to the prior year quarter , as direct title revenues and gross independent agency revenues improved by 12 % and 10 % , respectively . the segment 's overall operating expenses in the fourth quarter 2019 increased $ 58.9 million , or 14 % , compared to the last year 's quarter , primarily due to higher agency retention expense and other operating costs driven by increased title revenues , increased title loss expense primarily resulting from less favorable loss experience in portions of our non-canadian international operations and the escrow loss in our commercial business , and the charges discussed above . excluding the segment 's net realized and unrealized losses and other non-operating charges , pretax income in the fourth quarter 2019 would have been $ 33.0 million ( 6.5 % margin ) compared to pretax income of $ 35.1 million ( 7.7 % margin ) in the fourth quarter 2018. the segment 's net realized and unrealized losses during the fourth quarter 2019 included $ 7.1 million of impairment expenses relating to intangible assets , title plants and other assets , partially offset by $ 2.2 million of realized gains on sale of securities investments and $ 1.1 million of net unrealized gains on fair value changes of equity securities investments . in comparison , net realized and unrealized losses during the fourth quarter 2018 were primarily related to net unrealized losses on fair value changes of equity securities investments . direct title revenue information is presented below : replace_table_token_4_th non-commercial domestic revenues increased in the fourth quarter 2019 , compared to fourth quarter 2018 , as a result of improved closed orders primarily driven by the current lower interest rate environment . story_separator_special_tag replace_table_token_6_th in 2019 , total known claims provisions increased by $ 12.1 million , or 15 % , to $ 91.9 million primarily due to the higher reported claims relating to prior year policies compared to 2018. total 2019 provisions - ibnr increased by $ 12.7 million , or 24 % , to $ 66.0 million compared to the prior year , primarily as a result of unfavorable loss experience in 2019 and a $ 4.0 million prior policy year reserve reduction during 2018. in 2018 , total known claims provisions increased to $ 79.8 million from $ 77.5 million in 2017 , as a result of slightly higher reported claims relating to prior year policies . total 2018 provisions - ibnr decreased by $ 25.0 million , or 32 % , to $ 53.3 million compared to the prior year , primarily due to a favorable loss experience in 2018 , which resulted in a lower current year policy provisioning rate and a $ 4.0 million prior policy year reserve reduction . as a percentage of title operating revenues , current year provisions - ibnr were 3.3 % , 2.8 % and 3.8 % in 2019 , 2018 and 2017 , respectively . provisions - ibnr relating to prior policy years for 2019 and 2017 were primarily related to adverse developments on large claims . in addition to title policy claims , we incur losses in our direct operations from escrow , closing and disbursement functions . these escrow losses typically relate to errors or other miscalculations of amounts to be paid at closing , including timing or amount of a mortgage payoff , payment of property or other taxes and payment of homeowners ' association fees . escrow losses also arise in cases of fraud , and in those cases , the title insurer incurs the loss under its obligation to ensure that an unencumbered title is conveyed . escrow losses are recognized as expense when discovered or when contingencies associated with them ( such as litigation ) are resolved and are typically paid less than 12 months after the loss is recognized . for the years ended december 31 , 2019 , 2018 and 2017 , we recorded approximately $ 4.5 million , $ 6.9 million and $ 5.0 million , respectively , for policy loss reserves relating to escrow losses arising principally from mortgage fraud . 15 large title losses due to independent agency defalcations typically occur when the independent agency misappropriates funds from escrow accounts under its control . such losses are usually discovered when the independent agency fails to pay off an outstanding mortgage loan at closing ( or immediately thereafter ) from the proceeds of the new loan . these incurred losses are typically more severe in terms of dollar value compared with traditional title policy claims since the independent agency is often able , over time , to conceal misappropriation of escrow funds relating to more than one transaction through the constant volume of funds moving through its escrow accounts . in declining real estate markets , lower transaction volumes result in a lower incoming volume of funds , making it more difficult to cover up the misappropriation with incoming funds . thus , when the defalcation is discovered , it often relates to several transactions . in addition , the overall decline in an independent agency 's revenues , profits and cash flows increases the agency 's incentive to improperly utilize the escrow funds from real estate transactions . for each of the three years ended december 31 , 2019 , our net title losses due to independent agency defalcations were not material . internal controls relating to independent agencies include , but are not limited to , periodic audits , site visits and reconciliations of policy inventories and premiums . the audits and site visits cover examination of the escrow account bank reconciliations and an examination of a sample of closed transactions . in some instances , the scope of our review is limited by attorney agencies that cite client confidentiality . certain states have mandated annual reviews of agencies by their underwriter . we also determine whether our independent agencies have appropriate internal controls as defined by the american land title association 's best practices and us . however , even with adequate internal controls in place , their effectiveness can be circumvented by collusion or improper override of the controls by management at the independent agencies . to aid in the selection of independent agencies to review , we have developed an agency risk model that aggregates data from different areas to identify possible issues . this is not a guarantee that all independent agencies with deficiencies will be identified . in addition , we are typically not the only underwriter for which an independent agency issues policies , and independent agencies may not always provide complete financial records for our review . agency revenues we recognize revenues on title insurance policies written by independent agencies when the policies are reported to us . in addition , where reasonable estimates can be made , we accrue for revenues on policies issued but not reported until after period end . we believe that reasonable estimates can be made when recent and consistent policy issuance information is available . our estimates are based on historical reporting patterns and other information about our independent agencies . we also consider current trends in our direct operations and in the title industry . in this accrual , we are not estimating future transactions ; we are estimating revenues on policies that have already been issued by independent agencies but not yet reported to or received by us . we have consistently followed the same basic method of estimating unreported policy revenues for more than 10 years . our accruals for revenues on unreported policies from independent agencies were not material to our consolidated financial statements as of december 31 , 2019 and 2018 .
| results of operations a comparison of our consolidated results of operations for 2019 to 2018 and 2018 to 2017 is discussed as follows . factors contributing to fluctuations in our results of operations are presented in the order of their monetary significance , and we have quantified , when necessary , significant changes . results from our ancillary services and corporate segment are included in year-to-year discussions and , when relevant , are discussed separately . our employee costs and certain other operating expenses are sensitive to inflation . title revenues . direct title revenue information is presented below : replace_table_token_8_th revenues from direct title operations in 2019 increased $ 36.3 million , or 4 % , compared to 2018 , primarily due to the $ 45.1 million ( 9 % ) and $ 3.3 million ( 3 % ) improvement in non-commercial domestic and total international revenues , respectively , which were partially offset by a $ 12.1 million , or 6 % , decline in domestic commercial revenues . the improvement in non-commercial domestic revenues , which include revenues from purchase and refinancing transactions , was primarily due to a 13 % improvement in closed orders influenced by lower interest rates in 2019 compared to the prior year . domestic commercial revenues declined primarily as a result of lower number of commercial transactions in 2019 versus the prior year . total international revenues increased primarily due to improved transaction volumes in our canada and united kingdom operations , partially offset by the effect of the weaker average exchange rates of the canadian dollar and united kingdom pound against the u.s. dollar during 2019 compared to 2018. revenues from direct title operations in 2018 decreased $ 29.2 million , or 3 % , compared to 2017 , primarily as a result of lower non-commercial domestic and international revenues , which were partially offset by higher commercial revenues . revenues from purchase transactions and centralized title operations decreased 2 % and 48 % , respectively , primarily due to the lower purchase and refinancing orders .
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highlights of the fiscal year ended september 30 , 2016 : our consolidated net sales from company-operated stores that have been open for 14 months or longer , which we refer to as same store sales , increased by 2.9 % for both the fiscal year ended september 30 , 2016 and the fiscal year ended september 30 , 2015 ; our consolidated net sales for the fiscal year ended september 30 , 2016 increased by $ 118.3 million , or 3.1 % , to $ 3,952.6 million compared to the fiscal year ended september 30 , 2015. consolidated net sales for the fiscal year ended september 30 , 2016 , are inclusive of a net negative impact from changes in foreign currency exchange rates of $ 56.4 million , or 1.5 % of consolidated net sales ; our consolidated gross profit for the fiscal year ended september 30 , 2016 increased by $ 66.1 million , or 3.5 % , to $ 1,963.9 million compared to the fiscal year ended september 30 , 2015. as a percentage of net sales , gross profit was 49.7 % for the fiscal year ended september 30 , 2016 , compared to 49.5 % for the fiscal year ended september 30 , 2015 ; our consolidated operating earnings for the fiscal year ended september 30 , 2016 increased by $ 3.0 million , or 0.6 % , to $ 498.3 million compared to the fiscal year ended september 30 , 2015. as a percentage of net sales , operating earnings decreased by 30 basis points to 12.6 % for the fiscal year ended september 30 , 2016 , compared to 12.9 % for the fiscal year ended september 30 , 2015 ; our consolidated net earnings decreased by $ 12.1 million , or 5.2 % , to $ 222.9 million compared to the fiscal year ended september 30 , 2015. as a percentage of net sales , net earnings decreased by 50 basis points to 5.6 % for the fiscal year ended september 30 , 2016 , compared to 6.1 % for the fiscal year ended september 30 , 2015 ; during the fiscal year ended september 30 , 2016 , sally beauty supply and bsg opened or acquired 108 and 37 net new stores , respectively , excluding franchised stores . as of september 30 , 2016 , we have refreshed approximately 1,450 of our sally beauty stores in the u.s. and expect to continue our initiatives to update the look and feel of our u.s. stores ; cash provided by operations increased by $ 50.2 million , or 16.7 % , to $ 351.0 million for the fiscal year ended september 30 , 2016 , compared to $ 300.8 million for the fiscal year ended september 30 , 2015 ; during the fiscal year ended september 30 , 2016 , the company redeemed in full its 6.875 % senior notes due 2019 primarily with the net proceeds from its december 2015 issuance of $ 750.0 million principal amount of its 5.625 % senior notes due 2025. for the fiscal year ended september 30 , 2016 , the company recorded a loss on extinguishment of debt of $ 33.3 million in connection therewith ; during the fiscal year ended september 30 , 2016 , we repurchased and subsequently retired approximately 7.8 million shares of our common stock under the share repurchase program 44 approved by our board of directors ( the `` board '' ) in august 2014 , at an aggregate cost of $ 207.3 million ; and we experienced a data security incident in fiscal year 2014 ( the `` 2014 data security incident '' ) and experienced a second data security incident in fiscal year 2015 ( the `` 2015 data security incident '' and , together with the 2014 data security incident , the `` data security incidents '' ) . for the fiscal year ended september 30 , 2016 and 2015 , selling , general and administrative expenses reflect expenses of $ 14.6 million and $ 5.6 million ( net of related insurance recovery of $ 0.6 million ) , respectively , related to the data security incidents . overview description of business at september 30 , 2016 , we operated primarily through two business units , sally beauty supply and beauty systems group , or bsg . we believe the company is the largest open-line distributor of professional beauty supplies in the u.s. based on store count . as of september 30 , 2016 , through sally beauty supply and bsg , we had a multi-channel platform of 4,937 company-operated stores and supplied 182 franchised stores primarily in north america and selected south american and european countries . within bsg , we also have one of the largest networks of professional distributor sales consultants in north america . we provide our customers with a wide variety of leading third-party branded and exclusive-label professional beauty supplies , including hair color products , hair care products , styling appliances , skin and nail care products and other beauty items . our sally beauty stores target retail consumers and salon professionals , while bsg exclusively targets salons and salon professionals . for the year ended september 30 , 2016 , our consolidated net sales and operating earnings were $ 3,952.6 million and $ 498.3 million , respectively . as of september 30 , 2016 , sally beauty supply operated 3,763 company-operated retail stores ( generally , under the sally beauty banner ) , 2,917 of which are located in the u.s. , with the remaining 846 company-operated stores located in canada , mexico , chile , colombia , peru , the united kingdom , ireland , belgium , france , germany , the netherlands and spain . sally beauty supply also supplied 18 franchised stores located in the united kingdom , belgium and certain other european countries . in the u.s. and canada , our sally beauty stores average approximately 1,700 square feet in size and are located primarily in strip shopping centers . story_separator_special_tag the costs that the 46 company has incurred to date in connection with the data security incidents include assessments by payment card networks , professional advisory fees , legal costs and expenses relating to investigating and remediating the data security incidents . for the fiscal years ended september 30 , 2016 , 2015 and 2014 , selling , general and administrative expenses reflect expenses of $ 14.6 million , $ 5.6 million ( net of related insurance recovery of $ 0.6 million ) and $ 2.5 million , respectively , related to the data security incidents , including an accrued liability of approximately $ 2.9 million related to loss contingencies associated with the 2014 data security incident recorded during the fiscal year ended september 30 , 2015 and an accrued liability of approximately $ 12.8 million related to loss contingencies associated with the 2015 data security incident recorded during the fiscal year ended september 30 , 2016. as of september 30 , 2016 , the company has an aggregate accrued liability relating to the data security incidents of $ 15.6 million . the company 's estimated probable losses related to the claims made by the payment card networks in connection with the data security incidents are based on currently available information . the company disputes the validity of these claims and intends to contest them . estimates related to these claims may change as new information becomes available or circumstances change . we expect to incur additional costs and expenses related to the data security incidents in future periods . these costs may result from potential additional liabilities to payment card networks , governmental or third party investigations , proceedings or litigation and legal and other fees necessary to defend against any potential liabilities or claims , and further investigatory and remediation costs . as of september 30 , 2016 , the scope of these additional costs , or a range thereof , can not be reasonably estimated and , while we do not anticipate these additional costs or liabilities would have a material adverse impact on our business , financial condition and operating results , these additional costs could be significant . please see `` risk factorsย we may be adversely affected by any disruption in our information technology systems , `` `` unauthorized access to confidential information and data on our information technology systems and security and data breaches could materially adversely affect our business , financial condition and operating results `` and `` we have experienced data security incidents and are not yet able to determine the full extent or scope of the potential liabilities relating to these data security incidents. `` germany restructuring in the fiscal year 2015 , the board approved an initiative to restructure our sally beauty supply operations in germany ( the `` germany restructuring '' ) , which included the closing of 15 underperforming retail stores and two supporting administrative offices . this initiative is part of our ongoing cost rationalization efforts designed to increase the profitability of our sally beauty supply segment 's international operations . after completion of the germany restructuring , which was substantially completed during the fourth quarter of the fiscal year 2015 , we have continued to operate 18 retail stores in germany . in connection with the germany restructuring we incurred pre-tax expenses in the aggregate amount of approximately 4.7 million ( $ 5.3 million , at the weighted average exchange rate during the relevant period ) , including costs associated with lease obligations , asset impairments , employee severance , and other business transition and exit costs . of this amount , approximately 2.2 million ( $ 2.5 million , at the weighted average exchange rate during the relevant period ) were non-cash expenses resulting from asset impairments . in addition , approximately 0.4 million ( $ 0.4 million , at the weighted average exchange rate during the relevant period ) represent one-time employee severance payments . the germany restructuring expenses are included in cost of products sold and distribution expenses ( 1.2 million , $ 1.4 million , at the weighted average exchange rate during the relevant period ) and in selling , general and administrative expenses ( 3.5 million , $ 3.9 million , at the weighted average exchange rate during the relevant period ) in the company 's consolidated statements of earnings for the fiscal year 2015 , based on the nature of the costs incurred . 47 other significant items derivative instruments as a multinational corporation , we are subject to certain market risks including changes in market interest rates and foreign currency fluctuations . we may consider a variety of practices in the ordinary course of our business to manage these market risks including , when deemed appropriate , the use of derivative instruments such as foreign currency forwards and options ( hereafter , `` foreign exchange contracts '' ) and interest rate swaps . currently , we do not purchase or hold any derivative instruments for speculative or trading purposes . foreign currency derivative instruments we are exposed to potential gains or losses from foreign currency fluctuations affecting net investments in subsidiaries ( including intercompany balances not permanently invested ) and earnings denominated in foreign currencies , as well as exposure resulting from the purchase of merchandise by certain of our subsidiaries in a currency other than their functional currency and from the sale of products and services among the parent company and subsidiaries with a functional currency different from the parent or among subsidiaries with different functional currencies . our primary exposures are to changes in exchange rates for the u.s. dollar versus the euro , the british pound sterling , the canadian dollar , the chilean peso and the mexican peso . in addition , from time to time we may have exposure to changes in the exchange rate for the british pound sterling versus the euro in connection with the sale of products and services among certain european subsidiaries of the company .
| results of operations the following table shows the condensed results of operations of our business for the fiscal years ended september 30 , 2016 , 2015 and 2014 ( in millions ) : replace_table_token_13_th 50 the following table shows the condensed results of operations of our business for the fiscal years ended september 30 , 2016 , 2015 and 2014 , expressed as a percentage of net sales for each respective period : replace_table_token_14_th 51 key operating metrics the following table sets forth , for the periods indicated , information concerning key measures we rely on to gauge our operating performance ( dollars in thousands ) : replace_table_token_15_th ( a ) for the fiscal year 2015 , sally beauty supply 's operating earnings reflects $ 5.3 million in expenses related to the restructuring of its operations in germany . this amount includes $ 1.4 million in expenses reported in cost of products sold and distribution expenses and $ 3.9 million in expenses reported in selling , general and administrative expenses in our consolidated statements of earnings . ( b ) unallocated expenses consist of corporate and shared costs and are included in selling , general and administrative expenses in our consolidated statements of earnings . for the fiscal years 2016 , 2015 and 2014 , unallocated expenses reflect expenses of $ 14.6 million , $ 5.6 million ( net of related 52 insurance recovery of $ 0.6 million ) and $ 2.5 million , respectively , in connection with the data security incidents . ( c ) for the fiscal year 2014 , share-based compensation expense reflects a charge of $ 3.5 million in connection with the executive management transition plan . share-based compensation expense is included in selling , general and administrative expenses in our consolidated statements of earnings .
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there was no interest expense or penalties related to unrecognized tax benefits recorded through december 31 , 2014 . 99 invitae corporation notes to consolidated financial statements ( continued ) december 31 , 2014 9. income taxes ( continued ) the company 's major tax jurisdictions are the united states and california . all of the company 's tax years will remain open for examination by the federal and state tax authorities for three and four years , respectively , from story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included in item 8 of this report . historic results are not necessarily indicative of future results . business overview our mission is to bring comprehensive genetic information into mainstream medical practice to improve the quality of healthcare for billions of people . our goal is to aggregate most of the world 's genetic tests into a single service with higher quality , faster turnaround time and lower price than many single gene tests today . by aggregating large numbers of currently available genetic tests into a single service , we can achieve great economies of scale that allow us to not only provide primary single gene or multi-gene tests but also to generate and store additional genetic information on behalf of the patient for future use . we refer to the service of managing genetic information over the course of disease or the lifetime of a patient as `` genome management . '' in addition , as more individuals gain access to their genetic information , we believe that sharing genetic information will provide an economic opportunity for patients and us to participate in advancing the understanding and treatment of disease . from our inception through december 31 , 2014 , we raised an aggregate of $ 207.0 million in equity financing , established the infrastructure necessary to launch our service and were primarily focused on the research and development of our initial assay . we launched our first commercial offering in late november 2013 , an assay of 216 genes comprising 85 different genetic disorders and 17 targeted panels , and began selling and marketing our panels with a focused effort on hereditary cancers , including breast , colon and pancreatic cancer . we charge $ 1,500 per sample in most cases , which allows our clients to receive test results on any or all genes in a specific indication or multi-gene panel . we also currently offer a free re-requisition of additional data within the same indication when ordered within 90 days of the date of service . in addition , clients may obtain test results on genes that are in other indications or panels , or genes within the same indication or panel more than 90 days after the date of initial service , for an additional fee . importantly , we are providing turnaround time of less than three weeks for the substantial majority of our tests . since our initial launch , we have marketed additional panels based on the same assay of 216 genes . we have experienced rapid growth in recent periods . for the years ended december 31 , 2014 , 2013 , and 2012 our revenue was $ 1.6 million , $ 0.1 million and $ 0 , respectively . for the years ended december 31 , 2014 , 2013 and 2012 we incurred a net loss of $ 47.5 million , $ 24.8 million and $ 8.6 million , respectively . as of december 31 , 2014 , we had an accumulated deficit of $ 85.2 million . we also increased our number of employees to 161 at december 31 , 2014 from 44 on january 1 , 2013. our sales force grew to nine people in the fourth quarter of 2014 from six people in the first quarter of 2014. since our commercial launch , we have delivered more than 3,800 billable tests as of december 31 , 2014. sales of our tests have grown significantly in 2014 from over 200 billable tests in the first quarter of 2014 to over 1,800 billable tests in the fourth quarter of 2014 , which we believe is evidence that our value proposition is attractive to our clients . as the market for our billable tests develops , we expect that competitors will release offerings with broader content that is clinically relevant to particular patients . we thus expect our rate of growth in delivered billable tests to slow in periods leading up to commercial releases of our expanding platform , including the period in 2015 leading up to the first planned expansion of our current assay of 216 genes . we estimate that the u.s. market for hereditary cancer tests is greater than $ 650 million per year and thus represents a key growth opportunity for us . from inception through december 31 , 2014 , approximately 26 % of billable tests have been paid . on a historical basis through december 31 , 2014 , approximately 37 % of the billable tests we performed have 63 been billable to institutions and patients , and the remainder have been billable to third-party payors . many of the gene tests on our assay are tests for which private insurers reimburse . however , because we do not have reimbursement policies or contracts with very many private insurers , our claims for reimbursement from them may be denied upon submission , and we must appeal the claims . the appeals process is time consuming and expensive , and may not result in payment . even if we are successful achieving reimbursement , we may be paid at lower rates than if we were under contract with the third-party payor . when there is not a contracted rate for reimbursement , there is typically a greater co-insurance or co-payment requirement from the patient which may result in further delay or decreased likelihood of collection . story_separator_special_tag additionally , as we commercialize new test offerings , we will need to achieve a predictable pattern of collection at a consistent payment amount for each payor for each new product offering prior to being able to recognize the related test revenue on an accrual basis . because the timing and amount of cash payments received from payors is difficult to predict , we expect that our revenue will fluctuate significantly in any given quarter . for the year ended december 31 , 2014 and 2013 , amounts billed for tests delivered totaled $ 6.6 million and $ 0.3 million , respectively . as of december 31 , 2014 , we had recognized revenue of $ 1.5 million related to amounts billed for tests delivered during the year ended december 31 , 2014 and $ 0.1 million related to amounts billed for tests delivered during the year ended december 31 , 2013. it is difficult to predict future revenue from previously delivered but unpaid tests . accordingly , we can not provide any assurance as to when , if ever , or to what extent any of these amounts will be collected . because we are in the early stages of commercializing our tests , we have had limited payment and 65 collection history . notwithstanding our efforts to obtain payment for these tests , payors may deny our claims , in whole or in part , and we may never receive revenue from any previously delivered but unpaid tests . revenue from these tests , if any , may not be equal to the billed amount due to a number of factors , including differences in reimbursement rates , the amounts of patient co-payments , the existence of secondary payors and claims denials . we incur and recognize expenses for tests in the period in which the test is conducted and recognize revenue for tests in the period in which our revenue recognition criteria are met . accordingly , any revenue that we receive in respect of previously delivered but unpaid tests will favorably impact our liquidity and results of operations in future periods . financial overview revenue we generate revenue from the sale of our tests which provide the analysis and associated interpretation of the sequencing of parts of the genome . clients are billed upon delivery of test results to the physician . as we do not have sufficient history of collection and are not yet able to determine a predictable pattern of collection , we currently recognize revenue when cash is received . our ability to increase our revenue will depend on our ability to increase our market penetration , obtain contracted reimbursement coverage from third-party payors and increase the rate at which we are paid for tests performed . cost of revenue cost of revenue reflects the aggregate costs incurred in delivering test results to physicians and includes expenses for materials and supplies , personnel costs , equipment and infrastructure expenses associated with testing and allocated overhead including rent , equipment depreciation and utilities . costs associated with performing our test are recorded as the patient 's sample is processed regardless of whether and when revenue is recognized with respect to that test . as a result , our cost of revenue as percentage of revenue may vary significantly from period to period because we generally do not recognize revenue in the period in which costs are incurred . we expect cost of revenue to generally increase in line with the increase in the number of tests we perform . however , we expect that the cost per test will decrease over time due to the efficiencies we may gain as test volume increases and from automation and other cost reductions . operating expenses our operating expenses are classified into three categories : research and development , selling and marketing , and general and administrative . for each category , the largest component is personnel costs , which include salaries , employee benefit costs , bonuses , commissions , as applicable , and stock-based compensation expense . research and development research and development expenses represent costs incurred to develop our technology and future tests , including costs associated with our efforts to expand the number of genes we can evaluate in our tests . these costs consist of personnel costs , laboratory supplies and equipment expenses , consulting costs and allocated overhead including rent , information technology , equipment depreciation and utilities . we expense all research and development costs in the periods in which they are incurred . we expect our research and development expenses will substantially increase in absolute dollars in future periods as we continue to invest in research and development activities related to developing additional tests . we expect that in the next 12 months the substantial increase in research and development 66 expenses will be for the continued development and support of our assay of 216 genes and other new testing services and programs under development . selling and marketing selling and marketing expenses consist of personnel costs , client service expenses , direct marketing expenses , educational and promotional expenses , market research and analysis , and allocated overhead including rent , information technology , equipment depreciation and utilities . we expect our selling and marketing expenses to substantially increase over the next 12 months , primarily driven by the cost of hiring additional account executives and business development personnel associated with efforts to further penetrate the domestic market . general and administrative general and administrative expenses include executive , finance and accounting , legal and human resources functions . these expenses include personnel-related costs , audit and legal expenses , consulting costs , and allocated overhead including rent , information technology , equipment depreciation and utilities . we expect our general and administrative expenses will increase as we scale our operations .
| results of operations comparison of the years ended december 31 , 2014 and 2013 replace_table_token_4_th revenue revenue increased $ 1.5 million , or 984 % , in the year ended december 31 , 2014 compared to the same period in 2013. the increase is due to an increase in the adoption of our test , which resulted in an increase in cash collections during 2014. revenue for the year ended december 31 , 2013 resulted from an early access program we offered beginning in the first quarter of 2013. cost of revenue cost of revenue increased $ 5.0 million , or 743 % , in the year ended december 31 , 2014 compared to the same period in 2013. this increase was primarily due to a $ 3.2 million increase in costs of reagents , laboratory materials and test validation costs and a $ 1.5 million increase in personnel costs related to the increase in headcount . the number of billed test results delivered increased to over 3,600 for the year ended december 31 , 2014 from over 200 for the same period in 2013. research and development research and development expenses increased $ 6.0 million , or 38 % , for the year ended december 31 , 2014 compared to the same period in 2013. the increase was primarily driven by a $ 4.1 million increase in personnel costs related to the increase in headcount , a $ 1.4 million increase in allocated facilities-related expenses due to the expansion of our operations into two additional locations and a $ 0.5 million increase in costs of laboratory materials and laboratory equipment maintenance .
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3. affiliated transactions richard a. lumpkin , chairman of the board , together with his family , beneficially owned 41.3 % and 49.7 % of agracel , inc. ( ยagracelย ) , a real estate investment company , at december 31 , 2011 and 2010 , respectively . story_separator_special_tag the following discussion of our consolidated operating results and financial condition for the three years ended december 31 , 2011 , should be read in conjunction with the consolidated financial statements and related notes beginning on page f-1 . ยconsolidated communicationsย or the ยcompanyย refers to consolidated communications holdings , inc. alone or with its wholly owned subsidiaries as the context requires . when this report uses the words ยwe , ย ยour , ย or ยus , ย they refer to the company and its subsidiaries . overview we are an established rural local exchange carrier that provides communications services to residential and business customers in illinois , texas and pennsylvania . we offer a wide range of telecommunications services , including local and long-distance service , high-speed broadband internet access , standard and high-definition digital television , voip , custom calling features , private line services , carrier access services , network capacity services over our regional fiber optic network , directory publishing and clec services . we also operate two non-core complementary businesses : telephone services to correctional facilities and equipment sales . executive summary we generated net income attributable to common stockholders in 2011 of $ 26.4 million , or $ 0.88 per diluted share , as compared to net income attributable to common stockholders of $ 32.6 million , or $ 1.09 per diluted share , in 2010. net income in 2011 benefited from increased earnings from our wireless partnerships , lower interest expense , lower bad debt , and lower pension expense . we also used the departure of one of our senior executives as the occasion to conduct a company-wide reorganization . this reorganization created an annual cost savings of $ 2.3 million of which we started to recognize these benefits in the second quarter of 2011. these ongoing cost reductions have allowed us to mostly offset the declines in revenue . operating expenses included $ 2.6 million for our debt refinancing fees , which in accordance with our credit agreement has been treated as an add back to adjusted ebitda 51 revenue in 2011 decreased $ 9.1 million , or 2.4 % , to $ 374.3 million as compared to $ 383.4 million in 2010. the decrease in revenue is a result of declines in our traditional wireline businesses , caused primarily from a loss of access lines ( which includes local calling services , network access services , subsidies and long-distance services ) . these declines were partially offset by growth in data , internet and video revenues . revenues from our prison services business and our wholesale carrier business also increased in 2011 versus 2010. subsequent to 2011 , we entered into a definitive agreement with surewest to acquire all of its outstanding shares in a cash and stock transaction for a total consideration valued at approximately $ 340.9 million , exclusive of debt , based on our february 3 , 2012 closing price . see part i ย item 1 ย ยbusiness ย generalย . general the following general factors should be considered in analyzing our results of operations : revenues telephone operations and other operations . our revenues are derived primarily from the sale of voice and data communication services to residential and business customers in our rural telephone companies ' service areas . because we operate primarily in rural service areas , we do not anticipate significant growth in revenues in our telephone operations segment except through acquisitions . however , we do expect relatively consistent cash flow from year to year because of stable customer demand , an efficient cost structure , and growing earnings from our wireless partnership investments . local access lines and bundled services . an ยaccess lineย is the telephone line connecting a home or business to the public switched telephone network . the number of local access lines in service directly affects the monthly recurring revenue we generate from end users , the amount of traffic on our network , the access charges we receive from other carriers , the federal and state subsidies we receive and most other revenue streams . we had 227,992 , 237,141 and 247,235 local access lines , respectively , in service as of december 31 , 2011 , 2010 and 2009. most wireline telephone companies have experienced a loss of local access lines due to increased competition from wireless providers , competitive local exchange carriers , cable operators and challenging economic conditions . we have not been immune to these conditions ( see ยยtrends and factors that may affect future operating resultsย ) . since 2008 , our competitors have launched competing voice product in our area , which contributed to a spike in our line loss . we estimate that cable companies are now offering voice service to all of their addressable customers , covering 85 % of our entire service territory . in addition , we believe that our voip telephone additions are being substituted for our traditional access lines . we expect to continue to experience modest erosion in access lines both due to market forces and through our own cannibalization . we have been able in some instances to offset the decline in local access lines with increased average revenue per access line by : aggressively promoting dsl service , including selling dsl as a stand-alone offering ; 52 ยท value bundling services , such as dsl or iptv , with a combination of local service and custom calling features ; ยท maintaining excellent customer service standards ; and ยท keeping a strong local presence in the communities we serve . story_separator_special_tag exclusive of these adjustments , our effective tax rate would have been 35.2 % for the year ended december 31 , 2011 , compared to 34.3 % for the year ended december 31 , 2010. net income attributable to noncontrolling interest the net income attributable to noncontrolling interest remained flat at $ 0.6 million in 2011 and in 2010 , respectively . for the year ended december 31 , 2010 , compared to december 31 , 2009 the following summarizes our revenues and operating expenses on a consolidated basis for the years ended december 31 , 2010 and 2009 : 58 replace_table_token_10_th revenue revenue in 2010 declined by $ 22.8 million , or 5.6 % , to $ 383.4 million from $ 406.2 million in 2009. the decline in revenue was principally the result of the sale of our cmr and operator services businesses during 2010 and declines in our traditional wireline businesses ( which includes local calling services , network access services , subsidies and long-distance services ) caused primarily by a loss of access lines . the year over year decline in revenues as a result of the sale of cmr and operator services totaled $ 10.2 million . excluding the impact on revenue from the sale of these business units , year-over-year revenues decreased by only 3.2 % . these declines were partially offset by a double digit percentage growth in data , internet and video revenues . dsl and iptv connections increased significantly in 2010. revenues from our prison services business also increased in 2010 versus 2009. connections by type are as follows : 59 replace_table_token_11_th ( 1 ) clec access line equivalents represent a combination of voice services and data circuits . the calculations represent a conversion of data circuits to an access line basis . equivalents are calculated by converting data circuits ( basic rate interface , primary rate interface , dsl , ds-1 , ds-3 and ethernet ) and sonet-based ( optical ) services ( oc-3 and oc-48 ) to the equivalent of an access line . ( 2 ) reflects the inclusion of long-distance service provided as part of our voip offering while excluding clec long-distance subscribers . telephone operations revenue local calling services revenue decreased by $ 5.3 million , or 5.5 % , to $ 91.9 million in 2010 compared to $ 97.2 million in 2009. the decrease is primarily due to the decline in local access lines , as discussed under ยยtrends and factors that may affect future operating resultsย . network access services revenue decreased by $ 4.6 million , or 5.3 % , to $ 81.7 million in 2010 compared to $ 86.3 million in 2009. the decrease is primarily due to a decline in switched access revenue as a result of a decline in minutes of use . in addition , we experienced a decrease in subscriber line charge revenue due to access line loss . subsidy revenue decreased by $ 7.3 million , or 13.0 % , to $ 48.7 million in 2010 compared to $ 56.0 million in 2009. the decrease was principally the result of a reduction in the amount of interstate high cost fund support we received , and , to a lesser extent , access line loss for interstate common line revenue . long-distance services revenue decreased by $ 2.4 million , or 11.8 % , to $ 18.0 million in 2010 as compared to $ 20.4 million in 2009. the decrease is primarily due to a decline in billable minutes as customers increase their use of wireless devices for long-distance calls and move to unlimited long-distance plans . data , internet and video revenue increased by $ 7.1 million , or 10.4 % , to $ 75.2 million in 2010 as compared to $ 68.1 million in 2009. the increase is primarily due to continued growth in the number of dsl and iptv subscribers , along with higher fees related to the expansion of additional services such as video on demand and higher dsl speeds . 60 other services revenue decreased by $ 2.5 million , or 6.8 % , to $ 34.1 million in 2010 as compared to $ 36.6 million in 2009. the decrease is primarily due to a reduction in revenue related to our transport business along with a decrease in other miscellaneous services such as inside wire maintenance , billing and collections and finance charges . other operations revenue other operations revenue decreased by $ 7.8 million , or 18.8 % , to $ 33.8 million in 2010 as compared to $ 41.6 million in 2009. the sale of our cmr and operator services business units negatively affected revenue by $ 10.2 million year over year . a gain in revenue from our prison services business partially offset some of this decline . operating expenses operating expenses decreased in 2010 by $ 20.0 million , or 8.0 % , to $ 230.3 million as compared to $ 250.3 million in 2009. reductions in operating expenses by segment are discussed below . reductions in operating expenses have allowed us to mostly offset revenue declines . telephone operations operating expenses operating expenses for telephone operations decreased by $ 12.0 million , or 5.7 % , to $ 199.1 million in 2010 as compared to $ 211.1 million in 2009. the overall decrease in operating expenses was principally the result of $ 7.4 million of integration expenses incurred in 2009 with no equivalent amounts incurred in 2010 , along with lower pension , postretirement and professional fee expenses in 2010. these decreases in operating expense were partially offset by higher bad debt expense related to an increase in the number of iptv subscribers and an increase in intercarrier access disputes . as our iptv subscriber base increases , we expect to see corresponding increases in bad debt . our cost structure continues to benefit from previous integration and cost reduction efforts from prior years .
| results of operations segments we have two reportable business segments , telephone operations and other operations . the results of operations discussed below reflect our consolidated results . 54 for the year ended december 31 , 2011 , compared to december 31 , 2010 the following summarizes our revenues and operating expenses on a consolidated basis for the years ended december 31 , 2011 and 2010 : replace_table_token_8_th revenue revenue in 2011 declined by $ 9.1 million , or 2.4 % , to $ 374.3 million from $ 383.4 million in 2010. the decline in revenue was principally the result of declines in our traditional wireline businesses ( which includes local calling services , network access services , subsidies and long-distance services ) caused primarily by a loss of access lines . these declines were partially offset by a 6.8 % growth in data , internet and video revenues . dsl and iptv connections increased significantly in 2011. revenues from our prison services business also increased in 2011 versus 2010. connections by type are as follows : 55 replace_table_token_9_th ( 1 ) clec access line equivalents represent a combination of voice services and data circuits . the calculations represent a conversion of data circuits to an access line basis . equivalents are calculated by converting data circuits ( basic rate interface , primary rate interface , dsl , ds-1 , ds-3 and ethernet ) and sonet-based ( optical ) services ( oc-3 and oc-48 ) to the equivalent of an access line . ( 2 ) reflects the inclusion of long-distance service provided as part of our voip offering while excluding clec long-distance subscribers . telephone operations revenue local calling services revenue decreased by $ 5.0 million , or 5.4 % , to $ 86.9 million in 2011 compared to $ 91.9 million in 2010. the decrease is primarily due to the decline in local access lines , as discussed under ยยtrends and factors that may affect future operating resultsย .
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in addition to historical information , the following discussion and other parts of this form 10-k contain forward-looking information that involves risks and uncertainties . our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed elsewhere in this form 10-k. the statements that are not historical constitute โ โ forward-looking statements . '' said forward-looking statements involve risks and uncertainties that may cause the actual results , performance or achievements of the company to be materially different from any future results , performance or achievements , expressed or implied by such forward-looking statements . these forward-looking statements are identified by the use of such terms and phrases as โ โ expects , '' โ โ intends , '' โ โ goals , '' โ โ estimates , '' โ โ projects , '' โ โ plans , '' โ โ anticipates , '' โ โ should , '' โ โ future , '' โ โ believes , '' and โ โ scheduled . '' the variables , which may cause differences include , but are not limited to , the following : general economic and business conditions ; competition ; success of operating initiatives ; operating costs ; advertising and promotional efforts ; the existence or absence of adverse publicity ; changes in business strategy or development plans ; the ability to retain management ; availability , terms and deployment of capital ; business abilities and judgment of personnel ; availability of qualified personnel ; labor and employment benefit costs ; availability and costs of raw materials and supplies ; and changes in , or failure to comply with various government regulations . although the company believes that the assumptions underlying the forward-looking statements contained herein are reasonable , any of the assumptions could be inaccurate ; therefore , there can be no assurance that the forward-looking statements included in this form 10-k will prove to be accurate . in light of the significant uncertainties inherent in the forward-looking statements included herein , the inclusion of such information should not be regarded as a representation by the company or any person that the objectives and expectations of the company will be achieved . overview cui global , inc. is a colorado corporation organized on april 21 , 1998. the company 's principal place of business is located at 20050 sw 112th avenue , tualatin , oregon 97062 , phone ( 503 ) 612-2300. cui global is a platform company dedicated to maximizing shareholder value through the acquisition , development and commercialization of new , innovative technologies . through its subsidiaries , cui global has built a diversified portfolio of industry leading technologies that touch many markets . critical accounting policies our financial statements and related public financial information are based on the application of accounting principles generally accepted in the united states ( โ โ gaap '' ) . gaap requires the use of estimates , assumptions , judgments and subjective interpretations of accounting principles that have an impact on the assets , liabilities , revenue , and expense amounts reported . these estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies , risk and financial condition . we believe our use of estimates and underlying accounting assumptions adhere to gaap and are consistently applied . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ materially from these estimates under different assumptions or conditions . we continue to monitor significant estimates made during the preparation of our financial statements . while all of our significant accounting policies impact the company 's financial condition and results of operations , we view certain of these policies as critical . policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates . actual results may differ from those estimates . our management believes that given current facts and circumstances , it is unlikely that applying any other reasonable judgments or estimate methodologies would have caused a material change in our results of operations , financial position or liquidity for the periods presented in this report . 31 asset impairment the company reviews its long-lived assets including finite-lived intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable . in performing the review for recoverability , the company estimates the future cash flows expected to result from the use of the asset and its eventual disposition . if the sum of the expected future cash flows ( undiscounted and without interest charges ) is less than the carrying amount of the asset , an impairment loss is recognized as the excess of the carrying amount over the fair value . otherwise , an impairment loss is not recognized . management estimates the fair value and the estimated future cash flows expected . any changes in these estimates could impact whether there was impairment and the amount of the impairment . in the fourth quarter of 2018 , the company determined that certain long-term prepaid assets classified on the balance sheet as deposits and other assets , which were reliant on future revenue in order to be amortized to expense , did not have adequate forecasted revenue to justify the current valuation . this was primarily driven by the lack of substantial sales over the last two years within the energy segment and uncertainty regarding the level of future sales . for that reason , the company recorded a $ 1.5 million impairment to deposits and other assets included in cost of revenues and reclassified $ 0.1 million to prepaid assets . the amount reclassified to prepaid assets related to prepaid royalties associated with expected 2019 revenue . story_separator_special_tag this slower than expected recovery , led to lower 2018 energy segment revenue , operating income and cash flows than originally forecasted . to test the orbital-uk reporting unit for impairment , the company used a quantitative test similar to the one used in may 2018. the company estimated the fair value of the orbital-uk reporting unit using a blend of a market approach and an income approach , which was deemed to be the most indicative of fair value in an orderly transaction between market participants . under the income approach , the company determined fair value based on estimated future cash flows of the orbital-uk reporting unit discounted by an estimated weighted-average cost of capital , reflecting the overall level of inherent risk of the orbital-uk reporting unit and the rate of return an outside investor would expect to earn . the company based its cash flow projections for the orbital-uk reporting unit using a revised forecast of cash flows and a terminal value developed by capitalizing an assumed stabilized cash flow figure . the forecast and related assumptions were derived from an updated financial forecast prepared during the fourth quarter of 2018. under the market approach , appropriate valuation multiples were derived from the historical operating data of selected guideline companies . the valuation multiples were evaluated and adjusted based on the strengths and weaknesses of the company relative to the selected guideline companies and the multiple was then applied to the appropriate operating data of the company to arrive at an indication of fair market value . as a result of the analysis , the company concluded that the carrying value of the orbital-uk reporting unit exceeded its estimated fair value . the quantitative test for the orbital-uk reporting unit resulted in further impairment for the orbital-uk reporting unit , and the company recorded a goodwill impairment charge of $ 3.1 million during the fourth quarter of 2018 , which was a write-off of the remaining energy segment goodwill . in addition , the reporting units in the power and electromechanical segment were also tested for impairment due to the overall decrease in market capitalization experienced in 2018. as of december 31 , 2018 , there was goodwill and indefinite lived assets remaining for cui inc. , cui-canada and cui-japan reporting units , which are included in the power and electromechanical segment . december 2017 interim test . during the fourth quarter of 2017 , the company determined that there were indicators present to suggest that it was more likely than not that the fair value of the orbital-uk reporting unit was less than its carrying amount . the significant changes for the orbital-uk reporting unit subsequent to the annual goodwill impairment test performed as of may 31 , 2017 included a decline in the 2017 actual revenue , operating income and cash flows compared to previously forecasted results and a decline in the 2018 forecasted revenue , operating income and cash flows due in part to the longer than expected temporary halt in shipping of its gaspt product to a major customer in italy and market uncertainty due to the continuing effects of brexit . 33 to test the orbital-uk reporting unit for impairment , the company used a quantitative test . the company estimated the fair value of the orbital-uk reporting unit using a blend of a market approach and an income approach , which was deemed to be the most indicative of fair value in an orderly transaction between market participants . under the income approach , the company determined fair value based on estimated future cash flows of the orbital-uk reporting unit discounted by an estimated weighted-average cost of capital , reflecting the overall level of inherent risk of the orbital-uk reporting unit and the rate of return an outside investor would expect to earn . the company based its cash flow projections for the orbital-uk reporting unit using a forecast of cash flows and a terminal value developed by capitalizing an assumed stabilized cash flow figure . the forecast and related assumptions were derived from an updated financial forecast prepared during the fourth quarter of 2017. under the market approach , appropriate valuation multiples were derived from the historical operating data of selected guideline companies . the valuation multiples were evaluated and adjusted based on the strengths and weaknesses of the company relative to the selected guideline companies and the multiple was then applied to the appropriate operating data of the company to arrive at an indication of fair market value . as a result of the analysis , the company concluded that the carrying value of the orbital-uk reporting unit exceeded its estimated fair value . the quantitative test for the orbital-uk reporting unit resulted in an impairment for the orbital-uk reporting unit , and the company recorded a goodwill impairment charge of $ 3.2 million during the fourth quarter of 2017 . 2016 annual test . in 2016 , the analysis , determined there was no impairment necessary to goodwill . through these reviews , management concluded there were no events or circumstances that triggered an impairment ( and there was no expectation that a reporting unit or a significant portion of a reporting unit would be sold or otherwise disposed of in the following year ) , therefore , no further analysis was necessary to prepare for goodwill impairment beyond the steps in 350-20-35-3c in accordance with current accounting guidance . in 2016 , in addition to the qualitative analysis , we performed a quantitative analysis of goodwill impairment and concluded no impairment of goodwill was required . long-lived assets and finite lived intangible assets besides goodwill being tested for impairment , the company also tested its long-lived assets and finite lived intangible assets for orbital-uk . the result of the quantitative test of undiscounted cash flows , did not result in any impairment . stock-based compensation the company accounts for stock-based compensation using fasb accounting standards codification no . 718 ( โ โ fasb asc 718 '' ) , โ โ compensation โ stock compensation .
| results of operations the following tables set forth , for the periods indicated , certain financial information regarding revenue and costs by segment : replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th 43 revenue replace_table_token_9_th 2018 compared to 2017 revenues in 2018 are attributable to continued sales and marketing efforts , and sales through the distribution channel customers . net revenues for the year ended december 31 , 2018 were greater than in 2017 due to higher revenues in our power and electromechanical segment associated with the timing of customer project delivery schedules due to higher sales through our distribution customers and the revenue recognition accounting change while sales to direct customers were relatively flat . higher revenue in the energy segment in 2018 is associated with a strong fourth quarter for revenues due to the timing of customer project delivery schedules and despite the continued delay in shipment of gaspts toward a significant project in italy . energy segment revenue was higher in both our uk and houston facilities . the customer orders related to the power and electromechanical segment are associated with the existing product offering , continued new product introductions , continued sales and marketing programs , new customer engagements , and distribution channel sales .
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forward-looking statements are often identified by words like believe , expect , estimate , anticipate , intend , project and similar expressions , or words which , by their nature , refer to future events . you should not place undue certainty on these forward-looking statements . these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions . the following discussion should be read in conjunction with the consolidated financial statements and notes . 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 . factors that could cause differences include , but are not limited to , continued reliance on external sources on financing , development risks for new products and services , 32 commercialization delays and customer acceptance risks when introducing new products and services , fluctuations in market demand , pricing for raw materials as well as general conditions of the energy and oilfield marketplace . story_separator_special_tag hamilton on august 12 , 2014 , which provided $ 4.4 million in additional revenues in 2014 as well as continued growth within our water division from aes water solutions and aquatex ( acquired in november 2013 ) frac water management services , which provided $ 10.5 million in additional revenues in 2014 from 2013. additionally , increased revenues came from the continued organic growth of aes safety services , including its new spill remediation service line , resulting in $ 4.2 million of increased revenues during 2014 from 2013 and the organic growth of sage power 's generator rental fleet business in mobile oilfield power resulting in $ 1.8 million in increased revenues in 2014 from 2013. all three divisions of water , safety and power benefitted from the continued activity levels of horizontal drilling and its related hydraulic fracing in the domestic u.s. cost of revenues . cost of revenues increased by $ 14,686,095 or approximately 137 % , to $ 25,421,159 for the year ended december 31 , 2014 , or 72 % of revenues , compared to cost of revenues of $ 10,735,064 , or 74 % of revenues for the year ended december 31 , 2013. the cost of revenues during the year ended december 31 , 2014 were primarily the result of contract labor of $ 10,103,674 , frac water pipe and pump rental of $ 3,044,456 , direct costs associated with the spill remediation line of $ 1,586,008 , equipment and truck rental of $ 4,177,950 and related fuel costs of $ 3,270,541. the decrease in cost of revenues as a percentage of sales was the result of the additional revenues of aquatex , subsidiary which was acquired in november 2013 , hamilton , subsidiary which was acquired in august 2014 , lower equipment rental costs , as well as higher revenues covering more fixed costs within cost of revenues particularly in the newer safety and power divisions . the company currently anticipates a lower cost of sales as a percentage of sales in the next fiscal year from continued increases in revenues covering a higher percentage of fixed costs , decreasing rental expense through the procurement of additional fixed assets , and the anticipated future impact of revenues resulting from the anticipated commencement of new technology related services and their higher margins . the cost of revenues during the year ended december 31 , 2013 were primarily the result of contract labor of $ 5,349,002 , frac water pipe and pump rental of $ 1,906,181 , equipment and truck rental of $ 1,404,520 and related fuel costs of $ 1,393,404. selling , general , and administrative . selling , general and administrative expenses increased by 35 $ 6,092,257 , or approximately 144 % , to $ 10,325,631 , or approximately 29 % of revenues , for the year ended december 31 , 2014 , as compared to $ 4,233,374 or approximately 29 % of revenues for the comparable period in 2013. the increase was primarily attributable to newly added employee compensation expense , consulting fees , the cost of public reporting and holding company expenses , as well as the testing and development costs related to water recycling technologies during 2014. the company currently anticipates lower selling , general and administrative expenses as a percentage of sales in the next fiscal year from continued increases in revenues covering a higher percentage of fixed costs , reduced testing and development costs related to water recycling technologies , and decreasing growth in expenses for personnel . impairment loss . we had impairment loss of $ 2,344,420 for the year ended december 31 , 2014 , which is attributable to the full impairment at year-end of the intangible customer relationship assets acquired with the acquisitions of aquatex and hamilton . we had no impairment loss in the year ended december 31 , 2013. acquisition expenses . we had acquisition expenses of $ 175,945 for the year ended december 31 , 2014 , which expenses are attributable to our acquisition of hamilton in august 2014. we had acquisition expenses of approximately $ 17,000 in the year ended december 31 , 2013 , which expenses are attributable to our acquisition of aquatex in november 2013. interest expense . interest expense increased by $ 4,345,282 , or approximately 1,088 % to $ 4,744,776 in the year ended december 31 , 2014 , from $ 399,494 for the comparable period in 2013. the increase was attributable to the interest accrued on the accounts receivable financing facility , the senior term loan credit facility and amortization of related deferred finance costs and non-cash debt discount , interest expense associated with promissory notes we issued in our september 2012 and october 2013 financings , as well as accrued interest on the seller notes issued in connection with our acquisition of aes water solutions in september 2012 and aquatex in november 2013. net loss . story_separator_special_tag the financing facility provides for the borrower to have access to the lesser of ( i ) $ 2 million or ( ii ) 85 % of net amount of eligible receivables ( as defined in the financing agreement ) . the financing facility is paid for by the assignment of the borrower 's accounts 37 receivable to rosenthal and is secured by the borrower 's assets . the financing facility has an interest rate of 4.00 % in excess of the prime rate reported by the wall street journal per annum . in addition , the borrower paid rosenthal a facility fee of $ 30,000 on the closing and an annual fee of $ 20,000 and a monthly administration fee of $ 1,000 as well as monthly additional charges of not less than $ 2,000. the financing facility is for an initial term of two-years and will renew on a year to year basis , unless terminated in accordance with the financing agreement . if the facility is terminated prior to the first anniversary , borrower is obligated to pay rosenthal a fee equal to 2 % of the maximum facility amount and if terminated after the first anniversary and prior to the second anniversary then borrower shall pay a fee equal to 1 % of the maximum facility amount . we guaranteed repayment of the line of credit , which guaranty is secured by our assets . on november 20 , 2013 , our wholly-owned subsidiary , aqua handling of texas , llc ( dba aquatex ) entered into an assumption agreement rosenthal & rosenthal , inc. under which aquatex became an additional borrower under the financing facility with rosenthal . in connection with aquatex becoming an additional borrower under the facility , the lender increased the maximum amount available under the facility to $ 3 million . in january 2014 , the lender increased the maximum amount available under the facility to $ 4 million . in april 2014 , the lender increased the maximum amount available under the facility to $ 5 million . the company is required to maintain at the end of each fiscal quarter a tangible net worth of not less than negative $ 1 million and working capital of not less than $ 4.5 million . on august 12 , 2014 , in connection with the consummation of the heartland bank credit facility , we terminated this financing facility and paid approximately $ 4.75 million in repayment of all amounts due thereunder with proceeds received under the heartland bank credit facility . heartland bank credit facility on august 12 , 2014 , hii technologies , inc. ( the `` company '' ) and its wholly-owned subsidiaries ( collectively , the ยborrowerย ) entered a senior secured credit facility ( the ยfacilityย ) with heartland bank as agent consisting of ( i ) a credit agreement ( the `` credit agreement '' ) with heartland bank for a 3-year $ 12 million term loan ( the ยterm loanย ) and ( ii ) an account purchase agreement ( the ยpurchase agreementย ) with heartland bank , as agent for the purchase and sale of approved receivables of borrower in amounts not to exceed $ 6 million , which amount was increased to $ 6.6 million pursuant to a first modification agreement executed on september 15 , 2014. the proceeds of borrowings under the facility may be used for the payment of a portion of the purchase price for the acquisition of hamilton investment group ( ยhamiltonย ) ; the refinance of outstanding debt under borrower 's prior accounts receivable facility ; working capital needs of the company and its subsidiaries ; funding of the debt service reserve account and payment of all costs and expenses arising in connection with the negotiation of the credit agreement and related documents . on the closing date , the borrower received proceeds of $ 12 million under the credit agreement and approximately $ 4.65 million under the purchase agreement . the company utilized $ 9 million to pay a portion of the purchase price for the hamilton acquisition , approximately $ 4.75 million to pay off the borrower 's prior accounts receivable facility , $ 450,000 in commitment fees , $ 675,000 to fund borrower 's debt service reserve account and approximately $ 190,000 in other expenses related to the facility . borrower retained approximately $ 1.585 million for working capital . borrowings under the credit agreement bear interest at a rate per annum equal to wsj prime plus a spread that ranges from 5.50 % to 8.25 % per annum depending on the borrower 's first lien leverage ratio ( provided that at no time shall the wsj prime be less than 4 % ) . the term loan , as amended , requires monthly interest payments , quarterly principal payments of $ 300,000 and a balloon payment on the august 12 , 2017 maturity date . the term loan contains an accordion feature , whereby the borrowings may be increased by up to an additional $ 10 million upon request and agreement by the lenders , but is not a committed amount under the facility . under the purchase agreement , all approved receivables will be purchased by the lenders thereunder for the face amount of such receivable less the lender 's 1.50 % service charge . in addition , the 38 purchase agreement requires a 10 % reserve against receivables purchased , which amount will increase from 25-50 % for receivables outstanding past 60-90 days , respectively . the account purchase facility replaces the company 's previous senior secured revolving facility .
| overview hii technologies , inc. is a houston , texas based oilfield services company with operations in texas , oklahoma , ohio and west virginia focused on commercializing technologies and providing services in frac water management , safety services and portable power used by exploration and production ( ยe & pย ) companies in the united states . we operate through our wholly-owned subsidiaries . the table below provides an overview of our current subsidiaries and their oilfield service activities : name doing business as ( dba ) : business apache energy services , llc aes water solutions frac water management solutions aes safety services oilfield safety services aqua handling of texas , llc aquatex frac water management solutions hamilton investment group hamilton water transfer frac water management solutions sage power solutions , inc. sage power , south texas power , stp oilfield power management solutions the company 's total frac water management services division does business as aes water solutions , aquatex and hamilton investment group , and provides total frac water management solutions associated with the needed millions of gallons of water typically used during hydraulic fracturing and completions of horizontally drilled oil and gas wells . aes safety services is the company 's oilfield safety consultancy providing experienced trained safety personnel such as contract safety engineers during oilfield operation from site preparation ยrigging upย to drilling and completion for e & p customers . aes safety services provides the flexibility as outsourced safety consultants , training and inspection to its customers to move quickly in key locations . the company 's oilfield mobile power subsidiary , sage power solutions , does business as south texas power ( stp ) and operates a fleet of mobile generators , light towers and related equipment for in-field power rental where remote locations provide little or no existing electrical infrastructure . we currently employ 90 persons and extensively use independent contractor crews in connection with our field service work .
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the company obtained the right to negotiate the coh license agreement with city of hope from bioscience oncology as part of the bioscience oncology transaction ( see note 4 ) . under the terms of the coh license agreement , the company is obligated to pay earned royalties based on a percentage of net sales , as defined in the coh license agreement , including net sales generated from sub-licensees . in addition , the company is obligated to make payments in cash upon the achievement of certain clinical development and product approval milestones totaling $ 3,525,000 in the aggregate . none of the milestones in the coh license agreement have been reached and therefore as of december 31 , 2020 , there is no obligation to make any milestone payments . pursuant to the terms of the sra , the company has committed to fund research and development at city of hope for two years in accordance with a predetermined funding schedule . total expenses incurred in connection with the sra were $ 138,889 for the year ended december 31 , 2020. these expenses are included in โ research and development โ expenses in the accompanying consolidated statements of comprehensive loss . 8. commitments and contingencies research and development agreements the company has entered into various research and development agreements which require the company to provide certain funding and support . see note 7 for further information regarding these agreements . legal proceedings the company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities . notwithstanding , legal proceedings are subject to inherent uncertainties , and an unfavorable outcome , if such event were to occur , could include monetary damages and could result in a material adverse impact on the company 's business , financial position , results of operations , and cash flows . 9. stockholders ' equity preferred stock the company is authorized to issue 20,000,000 shares of preferred stock with a par value of $ 0.001 per share with such designation , rights and preferences as may be determined from time-to-time by the company 's board of directors . authority is expressly vested in the board of directors to authorize the issuance of one or more series of preferred stock . all 20,000,000 shares remained unissued as of december 31 , 2020. common stock the company is authorized to issue 50,000,000 shares of common stock with a par value of $ 0.001 per share . the number of authorized shares of common stock may be increased or decreased ( but not below the number of shares of common stock then outstanding ) by an affirmative vote of the holders of a majority of the common stock . f- 17 scopus biopharma inc. and subsidiaries notes to consolidated financial statements 9. stockholders ' equity ( continued ) common stock ( continued ) the powers , preferences , and rights of the holders of the common stock are junior to the preferred stock and are subject to all the powers , rights , privileges , preferences , and priorities of the preferred stock . the holder of each share of common stock shall have the right to one vote per share . each holder of common stock shall be entitled to receive dividends and distributions ( whether payable in cash or otherwise ) as declared by the board of directors of the company , subject to the rights of any class of preferred stock outstanding . in the event of any liquidation , dissolution or winding-up of the company ( whether voluntary or involuntary ) , the assets available for distribution to holders of common stock will be in equal amounts per share . equity units the company received $ 24,008 in 2018 relating to 16,005 units comprising one share of common stock and two warrants at a price of $ 1.50 ( the โ $ 1.50 โ units โ ) which were subsequently issued in january 2019 following the increase in number units offered . the company recorded the $ 24,008 as an advance deposit on equity units as of december 31 , 2018 , which was reclassified to equity upon issuance of the applicable $ 1.50 units in january 2019. during the year ended december 31 , 2019 , the company sold an additional 717,328 $ 1.50 units resulting in net proceeds of $ 1,071,230 after issuance costs . the holders of the warrants included in the $ 1.50 units ( โ $ 1.50 unit warrants โ ) discussed above have the same rights to receive dividends or other distribution of assets as the holders of common stock . as such , these $ 1.50 unit warrants are considered participating securities under the two-class method of calculating the net loss per share . the company has incurred net losses to date , and as the holders of these $ 1.50 unit warrants are not contractually obligated to share in the losses , there is no impact on the company 's net loss 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 related notes appearing elsewhere in this report . some of the information contained in this discussion and analysis or set forth elsewhere in this report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements involving risks and uncertainties which could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a biopharmaceutical company developing transformational therapeutics targeting serious diseases with significant unmet medical needs . story_separator_special_tag we believe that the accounting policies are critical for fully understanding and evaluating our financial condition and results of operations . 52 net loss per share basic net loss per common share attributable to common shareholders is calculated by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period . since the company was in a loss position for all periods presented , basic net loss per share is the same as dilutive net loss per share as the inclusion of all potential dilutive common shares which consist of stock options and warrants , would be anti-dilutive . jobs act on april 5 , 2012 , the jumpstart our business startups act of 2012 , or the jobs act , was enacted . under the jobs act , emerging growth companies can delay adopting new or revised accounting standards issued after the enactment of the jobs act until such time as those standards apply to private companies . we have irrevocably elected to avail ourselves of this exemption from new or revised accounting standards , and , therefore , will not be subject to the same new or revised accounting standards as public companies that are not emerging growth companies . as a result of this election , our financial statements may not be comparable to companies that are not emerging growth companies . we are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the jobs act . subject to certain conditions set forth in the jobs act , as an โ emerging growth company , โ we intend to rely on certain of these exemptions , including without limitation , ( i ) providing an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act and ( ii ) complying with any requirement that may be adopted by the pcaob regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements , known as the auditor discussion and analysis . we will remain an โ emerging growth company โ until the earliest of ( i ) the last day of the fiscal year in which we have total annual gross revenues of $ 1 billion or more ; ( ii ) the last day of our fiscal year following the fifth anniversary of the date of the completion of an initial public offering ; ( iii ) the date on which we have issued more than $ 1 billion in non-convertible debt during the previous three years ; or ( iv ) the date on which we are deemed to be a large accelerated filer under the rules of the sec . story_separator_special_tag of common stock at a public offering price of $ 5.50 per share in our ipo on december 18 , 2020. as of december 31 , 2020 , we had cash of $ 1,832,100. subsequent to the end of the fiscal year , on february 10 , 2021 , we completed a follow-on public offering of 1,150,000 shares of common stock , including the underwriters ' exercise , in full , of their over-allotment option , at a public offering price of $ 9.00 per share for aggregate gross proceeds of $ 10,350,000. future funding requirements we have not generated any revenue . we do not know when , or if , we will generate any revenue from product sales . we do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize any of our drug candidates . at the same time , we expect our expenses to increase in connection with our ongoing development activities , particularly as we continue to research , develop , and seek regulatory approval for , our drug candidates . we expect to incur additional costs associated with operating as a public company . in addition , subject to obtaining regulatory approval of any of our drug candidates , we expect to incur significant commercialization expenses for product sales , marketing , manufacturing and distribution . we anticipate that we will need substantial additional funding in connection with our continuing operations . based on our current financial resources and our expected level of operating expenditures , we believe that we will be able to fund our projected operating requirements for at least the next 12 months . this period could be shortened if there are any significant increases in planned spending on development programs or more rapid progress on our development programs than anticipated . thereafter , we will need to obtain additional financing to fund future clinical trials for our drug candidates and other expenses . we expect to finance our cash needs primarily through debt and equity offerings . we may also raise capital through government or other third-party funding and grants , collaborations and development agreements , strategic alliances and licensing arrangements . because of the numerous risks and uncertainties associated with the development and commercialization of our drug candidates , we are unable to estimate the amounts of additional capital outlays and operating expenditures necessary to complete the development of our drug candidates . thereafter , we will need to obtain additional financing to fund future clinical trials for our drug candidates . because of the numerous risks and uncertainties associated with the development and commercialization of our drug candidates , we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of our drug candidates .
| results of operations fiscal year ended december 31 , 2020 versus fiscal year ended december 31 , 2019 the following table summarizes our results of operation for the fiscal years ended december 31 , 2020 and december 31 , 2019 : replace_table_token_1_th 53 our net losses were $ 10,862,292 and $ 2,689,949 for the fiscal years ended december 31 , 2020 and december 31 , 2019 , respectively , an increase of $ 8,172,343 or 304 % . we anticipate our fiscal year net losses will increase as we continue to advance our research and drug development activities and incur additional general and administrative expenses to meet the needs of our business . revenue we did not have any revenue during our fiscal year ended december 31 , 2020 or 2019. our ability to generate product revenues in the future will depend almost entirely on our ability to successfully develop , obtain regulatory approval for , and then successfully commercialize a drug candidate in the united states . in the event we choose to pursue a partnering arrangement to commercialize a drug candidate or other products outside the united states , we would expect to initiate additional research and development in the future . operating expenses general and administrative expenses general and administrative expenses consist primarily of compensation and benefits to our personnel , including the costs related to our msas . other significant general and administrative expenses including accounting and legal services , expenses related to obtaining and protecting our intellectual property and costs associated with our board of directors and scientific and senior advisors . we incurred general and administrative expenses in the fiscal years ended december 31 , 2020 and 2019 of $ 2,732,060 and $ 2,226,837 , respectively , an increase of $ 505,223 or 23 % .
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the company pays commissions on certain sales for its biomedical and anti-aging product markets once the customer payment has been received , which are accrued at the time of the sale . the company generally expenses sales commissions when incurred because the amortization period would have been one year or less . these costs are recorded within sales and marketing expenses . in addition , the company has elected to exclude sales taxes consideration from the determined transaction price . allowance for sales returns the company 's anti-aging products have a 30-day product return guarantee ; however , the company determined that there is a low probability that returns will occur based on its historical rate of returns . historically , returns have not been significant and are recognized as a reduction to current period revenue . as of december 31 , 2020 and 2019 , the company recorded no allowance for sales returns . cost of sales cost of sales consists primarily of salaries and benefits associated with employee efforts expended directly on the production of the company 's products , as well as related direct materials , general laboratory supplies and an allocation of overhead . certain of the company 's licensed technology agreements may require the company to pay royalties based on the future sale of the company 's products . such royalties will be recorded as a component of cost of sales when incurred . additionally , milestone payments or the amortization of license fees related to developed technologies used in the company 's products will be included as a component of cost of sales to the extent that such payments become due in the future . research and development costs research and development costs , which are expensed as incurred , primarily consist of salaries and benefits associated with research and development personnel , overhead and occupancy costs , contract services costs and amortization of license costs for technology used in research and development with alternative future uses . research and development costs are net of research and development tax story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes and other financial information included elsewhere in this annual report on form 10-k. the discussion contains forward-looking statements , such as our plans , expectations and intentions ( including those related to clinical trials and business and expense trends ) , that are based upon current expectations and that involve risks and uncertainties . our actual results may differ significantly from management 's expectations . the factors that could affect these forward-looking statements are in item 1a of part i of this report . this discussion should not be construed to imply that the results discussed herein will necessarily continue into the future , or that any expectations expressed herein will necessarily be indicative of actual operating results in the future . such discussion represents only the best present assessment by our management . business overview we have generated aggregate product revenues from our two commercial businesses of $ 7.1 million and $ 9.5 million for the years ended december 31 , 2020 and 2019 , respectively . we currently have no revenue generated from our principal operations in therapeutic and clinical product development . our products are based on multi-decade experience with human cell culture and a proprietary type of pluripotent stem cells , human parthenogenetic stem cells ( โ hpscs โ ) . our hpscs are comparable to human embryonic stem cells ( โ hescs โ ) in that they have the potential to be differentiated into many different cells in the human body . however , the derivation of hpscs does not require the use of fertilized eggs or the destruction of viable human embryos and also offers the potential for the creation of immune-matched cells and tissues that are less likely to be rejected following transplantation . our collection of hpscs , known as unistemcell , currently consists of 15 stem cell lines . we have facilities and manufacturing protocols that comply with the requirements of good manufacturing practice ( gmp ) standards as promulgated by the u.s. code of federal regulations and enforced by the united states food and drug administration ( โ fda โ ) . covid-19 pandemic the impact of the covid-19 pandemic has been and will likely continue to be extensive in many aspects of society , which has resulted in and will likely continue to result in significant disruptions to the global economy , as well as businesses and capital markets around the world . impacts to our business have included a reduction in sales volume primarily from media sales in our biomedical market segment and professional channel sales in our anti-aging market segment , temporary or reduced occupancy of portions of our manufacturing facilities , and disruptions or restrictions on our employee 's ability to travel to such manufacturing facilities which caused minor delays in manufacturing . our manufacturing facilities continue to operate as they are deemed essential suppliers in accordance with laws applicable to california and maryland . we have taken precautionary measures to better ensure the health and safety of our workers , including staggering employees ' shifts and isolating at-risk employees . the scope and duration of these delays and disruptions , and the ultimate impacts of covid-19 on our operations , are currently unknown . we are continuing to actively monitor the situation and may take further precautionary and preemptive actions as may be required by federal , state or local authorities or that we determine are in the best interests of public health and safety . story_separator_special_tag these techniques can also be used to produce products that do not contain non-human animal proteins , a feature desirable to the research and therapeutic markets . each lct cell product is quality tested for the expression of specific markers ( to assure the cells are the correct type ) , proliferation rate , viability , morphology and absence of pathogens . each cell system also contains associated donor information and all informed consent requirements are strictly followed . lct 's research products are marketed and sold by its internal sales force , oem partners and lct brand distributors in europe and asia . 31 results of operations 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 , together with the dollar and percent change in those items ( in thousands ) : replace_table_token_1_th product sales product sales revenue for the year ended december 31 , 2020 was $ 7.1 million , compared to $ 9.5 million for the year ended december 31 , 2019. the decrease of $ 2.4 million , or 25 % , was primarily attributable to a $ 1.9 million decrease in media product sales in our biomedical market segment and a $ 446,000 decrease in professional channel sales in our anti-aging market in 2020 compared to 2019. our media product sales were adversely impacted by covid-19 as universities and research laboratories in the united states closed , slowed or shifted operations during 2020. in addition , original equipment manufacturers have reduced purchases as inventory turnover has slowed . this may result in a continued decline in product sales as such customers deplete excess inventory in 2021 and beyond . our professional skin care products , which are largely marketed to medical professionals and spas that offer walk-up retail , experienced a significant decline in customer demand due to covid-19 and the related restrictions as these businesses have continued with limited or reduced operations during the year ended december 31 , 2020. the impact of these restrictions was mitigated in-part by expanding our offering of professional skin care products through our ecommerce channel . anti-aging product sales through our ecommerce channel remained consistent year-over-year . cost of sales cost of sales for the year ended december 31 , 2020 was $ 2.8 million , compared to $ 3.9 million for the year ended december 31 , 2019. the decrease of $ 1.1 million , or 29 % , was primarily attributable to a $ 1.0 million decrease in costs as a result of decreased product sales and a $ 624,000 decrease in inventory transactions including a reduction in allowance for inventory excess and obsolescence , partially offset by a $ 393,000 increase in cost of sales due to unfavorable manufacturing variances and absorption due to reduced customer demand . profit margins increased slightly for the year ended december 31 , 2020 compared to 2019 , which was largely attributable to the reduction in allowance for inventory excess and obsolescence during 2020 compared to the prior year . cost of sales consists primarily of salaries and benefits associated with employee efforts expended directly on the production of the company 's products , as well as related direct materials , general laboratory supplies and an allocation of overhead . we aim to continue refining our manufacturing processes and supply chain management to improve the cost of sales as a percentage of revenue for both lct and lsc . research and development expenses research and development expenses for the year ended december 31 , 2020 was $ 1.0 million , compared to $ 1.4 million for the year ended december 31 , 2019. the decrease of $ 400,000 , or 29 % , was primarily attributable to a $ 729,000 decrease in personnel-related costs and stock-based compensation primarily as a result of headcount reductions following the conclusion of the treatment phase of the clinical trial in australia , and a $ 61,000 decrease in materials and supplies , partially offset by a $ 458,000 decrease in our research and development tax credit related to qualifiable expenditures from our research and development activities of our australia subsidiary , cyto 32 therapeutics , which reduced research and development expenses for years ende d december 31 , 2020 and 2019. we expect to continue to experience a decline in research and development expense for the first half of 202 1 as we await the full story_separator_special_tag of $ 136,000 year-over-year . financing cash flows net cash provided by financing activities for year ended december 31 , 2020 was $ 654,000 , compared to $ 1.3 million for the year ended december 31 , 2019. for the year ended december 31 , 2020 , net cash providing from financing activities consisted of $ 654,000 in proceeds from the paycheck protection program loan . for the year ended december 31 , 2019 , net cash provided from financing activities consisted of $ 1.3 million from a note payable from a related party . liquidity and going concern management continues to evaluate various financing sources and options to raise working capital to help fund our current research and development programs and operations . we will need to obtain significant additional capital from sources including exercise of outstanding warrants , equity and or debt financings , license arrangements , grants and or collaborative research arrangements to sustain our operations and develop products . unless we obtain additional financing , we do not have sufficient cash on hand to sustain our operations at least through one year after the issuance date .
| results of the active and follow up periods from our phase 1 clinical trial of isc-hpnscยฎ , which are expected to be received in second quarter of 2021. our research and development efforts are primarily focused on the development of treatments for parkinson 's disease , traumatic brain injury , liver diseases , stroke , and the creation of new gmp grade human parthenogenetic stem cell lines . these projects are long-term investments that involve developing both new stem cell lines and new differentiation techniques that can provide higher purity populations of functional cells . research and development expenses are expensed as incurred and are accounted for on a project-by-project basis . however , much of our research has potential applicability to each of our projects . selling and marketing expenses selling and marketing expenses for the year ended december 31 , 2020 was $ 1.8 million , compared to $ 2.7 million for the year ended december 31 , 2019. the decrease of $ 930,000 , or 35 % , was primarily attributable to a $ 525,000 decrease in personnel-related costs , sales commissions and stock-based compensation , primarily as a result of headcount reductions , a $ 152,000 decrease in marketing and tradeshow related expenses and a $ 57,000 decrease in consulting and creative services . the reduction in marketing and tradeshow related expenses was largely attributable to travel restrictions as a result of covid-19 .
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2017 , the securities and exchange commission ( sec ) staff issued staff accounting bulletin no . 118 ( sab 118 ) , โ income tax accounting implications of the tax cuts and jobs act , โ which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date . our provision for income taxes for 2017 included a net charge of $ 143.4 million attributable to the tax act based upon our best estimate of the impact of the tax act in accordance with our understanding of the tax act and the related guidance available . the changes included in the tax act are broad and complex . the final transition impacts of the tax act may differ from the above estimate due to , among other things , changes in interpretations of the tax act , any legislative action to address questions that arise because of the tax act , any changes in accounting standards for income taxes or related interpretations in response to the tax act , or any updates or changes to estimates we have utilized to calculate the transition impacts , including impacts from changes to current-year earnings estimates and foreign exchange rates of foreign subsidiaries . our accounting for the effects of the tax act is expected to be completed within the measurement period provided by sab 118. our foreign subsidiaries have accumulated $ 2.5 billion of undistributed earnings for which we have not recorded a deferred tax liability . no additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax , in connection with the enactment of the tax act , or any additional outside basis difference inherent in these entities , as these amounts continue to be indefinitely reinvested in foreign operations . although tax liabilities might result from dividends being paid out of these earnings , or as a result of a sale or liquidation of non-u.s. subsidiaries , these earnings are permanently reinvested outside of the united states and we do not have any plans to repatriate them or to sell or liquidate any of our non-u.s. subsidiaries . to the extent that we are able to repatriate earnings in a tax efficient manner , we would be required to accrue and pay u.s. taxes to repatriate these funds , net of foreign tax credits . determining our tax liability upon repatriation is not practicable . see note 14 of the notes to consolidated financial statements set forth in item 8 of this annual report for further information regarding income taxes . new accounting pronouncements see new accounting pronouncements section within note 2 of the notes to consolidated financial statements set forth in item 8 of this annual report . seasonality a significant portion of our revenue is seasonal , which an investor should keep in mind when comparing our financial condition and results of operations on a quarter-by-quarter basis . historically , our revenue , operating income , net income and cash flow from operating activities tend to be lowest in the first quarter , and highest in the fourth quarter of each year . revenue , earnings and cash flow have generally been concentrated in the fourth calendar quarter due to the focus on completing sales , financing and leasing transactions prior to year-end . inflation our commissions and other variable costs related to revenue are primarily affected by commercial real estate market supply and demand , which may be affected by inflation . however , to date , we do not believe that general inflation has had a material impact upon our operations . 29 items affecting comparability when you read our financial statements and the information included in this annual report on form 10-k , you should consider that we have experienced , and continue to experience , several material trends and uncertainties that have affected our financial condition and results of operations that make it challenging to predict our future performance based on our historical results . we believe that the following material trends and uncertainties are crucial to an understanding of the variability in our historical earnings and cash flows and the potential for continued variability in the future . macroeconomic conditions economic trends and government policies affect global and regional commercial real estate markets as well as our operations directly . these include : overall economic activity and employment growth ; interest rate levels and changes in interest rates ; the cost and availability of credit ; and the impact of tax and regulatory policies . periods of economic weakness or recession , significantly rising interest rates , fiscal uncertainty , declining employment levels , decreasing demand for commercial real estate , falling real estate values , disruption to the global capital or credit markets , or the public perception that any of these events may occur , will negatively affect the performance of our business . compensation is our largest expense and our sales and leasing professionals generally are paid on a commission and or bonus basis that correlates with their revenue production . as a result , the negative effect of difficult market conditions on our operating margins is partially mitigated by the inherent variability of our compensation cost structure . in addition , when negative economic conditions have been particularly severe , we have moved decisively to lower operating expenses to improve financial performance , and then have restored certain expenses as economic conditions improved . nevertheless , adverse global and regional economic trends could pose significant risks to the performance of our operations and our financial condition . commercial real estate markets in the united states have generally been marked by increased demand for space , falling vacancies and higher rents since 2010. during this time , healthy u.s. property sales activity has been sustained by gradually improving market fundamentals , including higher occupancy rates and rents , broad , low-cost credit availability and increased acceptance of commercial real estate as an institutional asset class . story_separator_special_tag dollar relative to the other currencies in which we may generate earnings could adversely affect our business , financial condition and operating results . our global investment management business has a significant amount of euro-denominated assets under management , or aum , as well as associated revenue and earnings in europe . in addition , our global workplace solutions business also has a significant amount of its revenue and earnings denominated in foreign currencies , such as the euro and the british pound sterling . fluctuations in foreign currency exchange rates have resulted and may continue to result in corresponding fluctuations in our aum , revenue and earnings . during the year ended december 31 , 2017 , approximately 48 % of our business was transacted in non-u.s. dollar currencies , the majority of which included the australian dollar , brazilian real , british pound sterling , canadian dollar , chinese yuan , czech koruna , danish krone , euro , hong kong dollar , indian rupee , japanese yen , korean won , mexican peso , polish zloty , singapore dollar , swedish krona , swiss franc and thai baht . the following table sets forth our revenue derived from our most significant currencies ( u.s. dollars in thousands ) : replace_table_token_6_th although we operate globally , we report our results in u.s. dollars . as a result , the strengthening or weakening of the u.s. dollar may positively or negatively impact our reported results . for example , we estimate that had the british pound sterling-to-u.s. dollar exchange rates been 10 % higher during the year ended december 31 , 2017 , the net impact would have been an increase in pre-tax income of $ 10.9 million . had the euro-to-u.s. dollar exchange rates been 10 % higher during the year ended december 31 , 2017 , the net impact would have been an increase in pre-tax income of $ 12.0 million . these hypothetical calculations estimate the impact of translating results into u.s. dollars and do not include an estimate of the impact that a 10 % change in the u.s. dollar against other currencies would have had on our foreign operations . 32 from time to time , we have entered into derivative financial instruments to attempt to protect the value or fix the amount of certain obligations in terms of our reporting currency , the u.s. dollar . in march 2014 , we began a foreign currency exchange forward hedging program by entering into foreign currency exchange forward contracts , including agreements to buy u.s. dollars and sell australian dollars , british pound sterling , canadian dollars , euros and japanese yen . the purpose of these forward contracts was to attempt to mitigate the risk of fluctuations in foreign currency exchange rates that would adversely impact some of our foreign currency denominated ebitda . hedge accounting was not elected for any of these contracts . as such , changes in the fair values of these contracts were recorded directly in earnings . as of december 31 , 2017 and 2016 , we had no foreign currency exchange forward contracts outstanding as we made the decision to let our program expire at the end of 2016. included in the consolidated statement of operations set forth in item 8 of this annual report were net gains of $ 7.7 million and $ 24.2 million from foreign currency exchange forward contracts for the years ended december 31 , 2016 and 2015 , respectively . we do not intend to hedge our foreign currency denominated ebitda in 2018. due to the constantly changing currency exposures to which we are subject and the volatility of currency exchange rates , we can not predict the effect of exchange rate fluctuations upon future operating results . in addition , fluctuations in currencies relative to the u.s. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations . our international operations also are subject to , among other things , political instability and changing regulatory environments , which affects the currency markets and which as a result may adversely affect our future financial condition and results of operations . we routinely monitor these risks and related costs and evaluate the appropriate amount of oversight to allocate towards business activities in foreign countries where such risks and costs are particularly significant . 33 results of operations the following table sets forth items derived from our consolidated statements of operations for the years ended december 31 , 2017 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_7_th ( 1 ) certain adjustments have been made to 2016 and 2015 fee revenue to conform with current-year presentation . fee revenue , ebitda and adjusted ebitda are not recognized measurements under gaap . when analyzing our operating performance , investors should use these measures in addition to , and not as an alternative for , their most directly comparable financial measure calculated and presented in accordance with gaap . we generally use 34 these non-gaap financial measures to evaluate operating performance and for other discretionary purposes . we believe these measures provide a more complete understanding of ongoing operations , enhance comparability of current results to prior periods and may be useful for investors to analyze our financial performance because they eliminate the impact of selected charges that may obscure trends in the underlying performance of our business . because not all companies use identical calculations , our presentation of fee revenue , ebitda and adjusted ebitda may not be comparable to similarly titled measures of other companies . fee revenue is gross revenue less both client reimbursed costs largely associated with employees that are dedicated to client facilities and subcontracted vendor work performed for clients . we believe that investors may find this measure useful to analyze the company 's overall financial performance because it excludes costs reimbursable by clients , and as such provides greater visibility into the underlying performance of our business .
| ncial condition and results of operations overview we are the world 's largest commercial real estate services and investment firm , based on 2017 revenue , with leading global market positions in our leasing , property sales , occupier outsourcing and valuation businesses . as of december 31 , 2017 , we operated in more than 450 offices worldwide with over 80,000 employees , excluding independent affiliates . our business is focused on providing services to both the occupiers of real estate and investors in real estate . for occupiers , we provide facilities management , project management , transaction ( both property sales and tenant leasing ) and consulting services , among others . for investors , we provide capital markets ( property sales , commercial mortgage brokerage , loan origination and servicing ) , leasing , investment management , property management , valuation and development services , among others . we provide commercial real estate services under the โ cbre โ brand name , investment management services under the โ cbre global investors โ brand name and development services under the โ trammell crow company โ brand name . we generate revenue from both management fees ( large multi-year portfolio and per-project contracts ) and commissions on transactions . in 2017 , we generated revenue from a well-balanced , highly diversified base of clients , including more than 90 of the fortune 100 companies . we have been an s & p 500 company since 2006 and in 2017 we were ranked # 214 on the fortune 500. we have been voted the most recognized commercial real estate brand in a lipsey company survey for 17 years in a row ( including 2018 ) . we have also been rated a world 's most ethical company by the ethisphere institute for five consecutive years .
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eligible employees purchasing shares under the espp are subject to an annual cap equal to the lesser of $ 25,000 or 10 % of the employee 's annual cash compensation . shares purchased under the espp can not be sold for a period of one year following the purchase date ( or such shorter period of time if the participating employee 's employment terminates before this one-year anniversary ) . a total of 750,000 shares of common stock have been reserved for issuance under the espp . as of december 31 , 2019 , 568,728 shares of common stock remained available for future grants under the espp . equity awards the activity related to equity awards , which are comprised of stock options and inducement grants , during the year ended december 31 , 2019 is summarized as follows : replace_table_token_14_th f - 13 la jolla pharmaceutical company notes to the consolidated financial statements ( 1 ) in march 2019 , the company issued a stock option grant to the company 's recently appointed chief commercial officer to purchase 80,000 shares of common stock . the grant was awarded as an inducement grant outside of the 2013 equity plan . on the first anniversary of the grant date , story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , include forward-looking statements that involve risks and uncertainties . you should review the โ risk factors โ set forth in this annual report on form 10-k for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . discussion and analysis of our 2017 financial condition and results of operations compared to our 2018 financial condition and results of operations can be found in item 7 of the company 's annual report on form 10-k filed on march 4 , 2019. business overview la jolla pharmaceutical company is dedicated to the development and commercialization of innovative therapies that improve outcomes in patients suffering from life-threatening diseases . in december 2017 , giapreza tm ( angiotensin ii ) was approved by the u.s. food and drug administration ( โ fda โ ) as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock . giapreza u.s. net sales were $ 23.1 million in 2019 compared to $ 10.1 million in 2018 , an increase of 129 % . in august 2019 , giapreza was approved by the european commission ( โ ec โ ) for the treatment of refractory hypotension in adults with septic or other distributive shock who remain hypotensive despite adequate volume restitution and application of catecholamines and other available vasopressor therapies . ljpcโ0118 ( i.v . artesunate ) is la jolla 's investigational product for the treatment of severe malaria . story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; '' > while our significant accounting policies are more fully described in the notes to our consolidated financial statements included in item 15 of this annual report on form 10-k , we believe that the following accounting policies and estimates are most critical to understanding and evaluating our reported financial results . revenue recognition our revenue solely consists of u.s. net sales from giapreza , which we launched in the u.s. in march 2018. in 2019 , 444 hospitals in the u.s. purchased giapreza . hospitals purchase our products through a network of specialty and wholesale distributors ( โ customers โ ) . in addition to distribution agreements with customers , we enter into arrangements with group purchasing organizations ( โ gpos โ ) and health systems that provide for privately negotiated chargebacks and discounts with respect to the purchase of giapreza . revenue from product sales is recorded at the transaction price , net of estimates for variable consideration consisting of chargebacks , discounts , returns and administrative fees . variable consideration is estimated using the expected-value amount method , which is the sum of probability-weighted amounts in a range of possible consideration amounts . actual amounts of consideration ultimately received may differ from our estimates . if actual results vary materially from our estimates , we will adjust these estimates , which will affect net sales of giapreza and results from our operations in the period such estimates are adjusted . accrued expenses as part of the process of preparing the financial statements , we are required to estimate accrued expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed by service providers and estimating the level of service performed and the associated cost incurred for services that have not yet been invoiced . we make estimates of accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known at that time . we 28 periodically confirm the accuracy of recorded estimates with the service providers and make adjustments , if necessary . we base our accrued expenses on our estimates of the services received and efforts expended pursuant to our contractual arrangements . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual or prepayment accordingly . the financial terms of our contractual agreements may be subject to interpretation , and the timing of payment story_separator_special_tag eligible employees purchasing shares under the espp are subject to an annual cap equal to the lesser of $ 25,000 or 10 % of the employee 's annual cash compensation . shares purchased under the espp can not be sold for a period of one year following the purchase date ( or such shorter period of time if the participating employee 's employment terminates before this one-year anniversary ) . a total of 750,000 shares of common stock have been reserved for issuance under the espp . as of december 31 , 2019 , 568,728 shares of common stock remained available for future grants under the espp . equity awards the activity related to equity awards , which are comprised of stock options and inducement grants , during the year ended december 31 , 2019 is summarized as follows : replace_table_token_14_th f - 13 la jolla pharmaceutical company notes to the consolidated financial statements ( 1 ) in march 2019 , the company issued a stock option grant to the company 's recently appointed chief commercial officer to purchase 80,000 shares of common stock . the grant was awarded as an inducement grant outside of the 2013 equity plan . on the first anniversary of the grant date , story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , include forward-looking statements that involve risks and uncertainties . you should review the โ risk factors โ set forth in this annual report on form 10-k for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . discussion and analysis of our 2017 financial condition and results of operations compared to our 2018 financial condition and results of operations can be found in item 7 of the company 's annual report on form 10-k filed on march 4 , 2019. business overview la jolla pharmaceutical company is dedicated to the development and commercialization of innovative therapies that improve outcomes in patients suffering from life-threatening diseases . in december 2017 , giapreza tm ( angiotensin ii ) was approved by the u.s. food and drug administration ( โ fda โ ) as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock . giapreza u.s. net sales were $ 23.1 million in 2019 compared to $ 10.1 million in 2018 , an increase of 129 % . in august 2019 , giapreza was approved by the european commission ( โ ec โ ) for the treatment of refractory hypotension in adults with septic or other distributive shock who remain hypotensive despite adequate volume restitution and application of catecholamines and other available vasopressor therapies . ljpcโ0118 ( i.v . artesunate ) is la jolla 's investigational product for the treatment of severe malaria . story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; '' > while our significant accounting policies are more fully described in the notes to our consolidated financial statements included in item 15 of this annual report on form 10-k , we believe that the following accounting policies and estimates are most critical to understanding and evaluating our reported financial results . revenue recognition our revenue solely consists of u.s. net sales from giapreza , which we launched in the u.s. in march 2018. in 2019 , 444 hospitals in the u.s. purchased giapreza . hospitals purchase our products through a network of specialty and wholesale distributors ( โ customers โ ) . in addition to distribution agreements with customers , we enter into arrangements with group purchasing organizations ( โ gpos โ ) and health systems that provide for privately negotiated chargebacks and discounts with respect to the purchase of giapreza . revenue from product sales is recorded at the transaction price , net of estimates for variable consideration consisting of chargebacks , discounts , returns and administrative fees . variable consideration is estimated using the expected-value amount method , which is the sum of probability-weighted amounts in a range of possible consideration amounts . actual amounts of consideration ultimately received may differ from our estimates . if actual results vary materially from our estimates , we will adjust these estimates , which will affect net sales of giapreza and results from our operations in the period such estimates are adjusted . accrued expenses as part of the process of preparing the financial statements , we are required to estimate accrued expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed by service providers and estimating the level of service performed and the associated cost incurred for services that have not yet been invoiced . we make estimates of accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known at that time . we 28 periodically confirm the accuracy of recorded estimates with the service providers and make adjustments , if necessary . we base our accrued expenses on our estimates of the services received and efforts expended pursuant to our contractual arrangements . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual or prepayment accordingly . the financial terms of our contractual agreements may be subject to interpretation , and the timing of payment
| results of operations the following table summarizes our results of operations for each of the periods below ( in thousands ) : replace_table_token_1_th net product sales net product sales consist solely of revenue recognized from sales of giapreza to hospitals in the u.s. through a network of specialty and wholesaler distributors ( โ customers โ ) . giapreza u.s. net sales were $ 23.1 million for the year ended december 31 , 2019 compared to $ 10.1 million for the year ended december 31 , 2018 , an increase of 129 % . la jolla launched giapreza in the u.s. in march 2018. cost of product sales cost of product sales primarily consists of royalties paid or payable to gw and the costs to produce , package and deliver giapreza to our customers . these costs include raw materials , labor and manufacturing and 25 quality control , as well as shipping and distribution costs . for the year ended december 31 , 2019 , cost of product sales was $ 2.4 million compared to $ 1.6 million for the same period in 2018 . research and development expense research and development expense consists of non-personnel and personnel expenses . the following table summarizes these expenses for each of the periods below ( in thousands ) : replace_table_token_2_th during the year ended december 31 , 2019 , total research and development non-personnel expense decreased primarily as a result of decreases in giapreza- and ljpc-0118-related expenses .
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in circumstances where the most likely outcome of a contingency can be reasonably estimated , we accrue a liability for that amount . where the most likely outcome story_separator_special_tag general overview the company is a leading worldwide provider of highly engineered drilling and well-servicing equipment , products and services to the exploration and production segments of the oil and gas industry . with operations in over 1,160 locations across six continents , we design , manufacture and service a comprehensive line of drilling and well servicing equipment ; sell and rent drilling motors , specialized downhole tools , and rig instrumentation ; perform inspection and internal coating of oilfield tubular products ; provide drill cuttings separation , management and disposal systems and services ; provide expendables and spare parts used in conjunction with our large installed base of equipment ; and provide supply chain management services through our distribution network . we also manufacture coiled tubing , manufacture high pressure fiberglass and composite tubing , and sell and rent advanced in-line inspection equipment to makers of oil country tubular goods . we have a long tradition of pioneering innovations which improve the cost-effectiveness , efficiency , safety , and environmental impact of oil and gas operations . our revenues and operating results are directly related to the level of worldwide oil and gas drilling and production activities and the profitability and cash flow of oil and gas companies and drilling contractors , which in turn are affected by current and anticipated prices of oil and gas . oil and gas prices have been and are likely to continue to be volatile . see ยrisk factorsย . we conduct our operations through three business segments : rig technology , petroleum services & supplies and distribution & transmission . see item 1 . ยbusinessย for a discussion of each of these business segments . unless indicated otherwise , results of operations data are presented in accordance with accounting principles generally accepted in the united states ( ยgaapย ) . in an effort to provide investors with additional information regarding our results of operations , certain non-gaap financial measures , including operating profit excluding other costs , operating profit percentage excluding other costs and diluted earnings per share excluding other costs , are provided . see ยnon-gaap financial measures and reconciliationsย in results of operations for an explanation of our use of non-gaap financial measures and reconciliations to their corresponding measures calculated in accordance with gaap . operating environment overview our results are dependent on , among other things , the level of worldwide oil and gas drilling , well remediation activity , the price of crude oil and natural gas , capital spending by other oilfield service companies and drilling contractors , and the worldwide oil and gas inventory levels . key industry indicators for the past three years include the following : replace_table_token_5_th * averages for the years indicated . see sources below . 35 the following table details the u.s. , canadian , and international rig activity and west texas intermediate oil prices for the past nine quarters ended december 31 , 2012 on a quarterly basis : source : rig count : baker hughes , inc. ( www.bakerhughes.com ) ; west texas intermediate crude price : department of energy , energy information administration ( www.eia.doe.gov ) . the average price per barrel of west texas intermediate crude was $ 94.11 per barrel in 2012 , a slight decrease of 0.8 % over the average price for 2011 of $ 94.90 per barrel . average natural gas prices were $ 2.75 per mmbtu , a decrease of 31.3 % compared to the 2011 average of $ 4.00 per mmbtu . average rig activity worldwide increased 1.5 % for the full year in 2012 compared to 2011. average crude oil prices for the fourth quarter of 2012 was $ 87.96 per barrel and natural gas was $ 3.40 per mmbtu . at february 8 , 2013 , there were 2,390 rigs actively drilling in north america , compared to 1,967 rigs at december 31 , 2012 ; an increase of 21.5 % from year end 2012 levels . the price of oil increased to $ 95.72 per barrel and gas decreased to $ 3.27 per mmbtu at february 8 , 2013 , representing a 4.2 % increase in oil prices and a 4.6 % decrease in gas prices from the end of 2012 . 36 story_separator_special_tag technology progressed steadily nonetheless , as the company and its competitors continued to invest in new and better ways of drilling . as a consequence , the safety , reliability , and efficiency of new , modern rigs surpass the performance of most of the older rigs at work today . drilling rigs are now being pushed to drill deeper wells , more complex wells , highly deviated wells and horizontal wells , tasks which require larger rigs with more capabilities . the drilling process effectively consumes the mechanical components of a rig , which wear out and need periodic repair or replacement . this process was accelerated by very high rig utilization and wellbore complexity . drilling consumes rigs ; more complex and challenging drilling consumes rigs faster . the industry responded by launching many new rig construction projects since 2005 , to 1 . ) retool the existing fleet of jackup rigs ( according to riglogix , nearly 65 % of the existing 494 jackup rigs are more than 25 years old ) ; 2 . ) replace older mechanical and dc electric land rigs with improved ac power , electronic controls , automatic pipe handling and rapid rigup and rigdown technology ; and 3 . ) build out additional deepwater floating drilling rigs , including semisubmersibles and drillships , to employ recent advancements in deepwater drilling to exploit unexplored deepwater basins . we believe that the newer rigs offer considerably higher efficiency , safety , and capability , and that many will effectively replace a portion of the existing fleet . story_separator_special_tag the year over year revenue growth was due primarily to the acquisitions of wilson and ce franklin , made during the second and third quarters of 2012 , respectively . approximately 84 % of the group 's fourth quarter sales were into north american markets and 16 % into international markets . outlook following the credit market downturn , global recession , and lower commodity prices of 2009 , we saw signs of stabilization and recovery in many of our markets in 2010 and into 2011 , led by higher drilling activity in north america and slowly improving international drilling activity . order levels for new deepwater drilling rigs have rebounded sharply , and the rig technology segment continues to experience a high level of interest as dayrates for deepwater offshore rigs continue to improve . still , margins , which were 22.4 % in the fourth quarter of 2012 , may be temporarily challenged to expand , due to lower-margin contributions from recent subsea production equipment acquisitions , a soft outlook for land drilling , workover and pressure pumping equipment markets in north america , in view of low gas and natural gas liquids prices , and by incremental expenses to support long-term strategic growth initiatives . our outlook for the company 's petroleum services & supplies segment and distribution & transmission segment remains closely tied to the rig count , particularly in north america . the fourth quarter saw domestic rig counts continue to decline , resulting in an average u.s. rig count in december 2012 that was down 11 % from the average u.s. rig count in january of 2012 , and an average canadian rig count in december 2012 that was down 18 % from the same period in 2011. as a result , pricing and volumes are beginning to come under pressure as pressure pumpers , drilling contractors and oil companies reduce operating and capital expenditures . additionally , economic weakness may pressure oil prices , which could lead to further activity declines , particularly among north american operators which may rely on cash flows from gas production and or external financing to fund their drilling operations . in contrast , activity generally seems to be continuing to increase in most international markets outside north america . the company believes it is well positioned , and should benefit from its strong balance sheet and capitalization , access to credit , global infrastructure , broad product and service offering , installed base of equipment , and a record level of contracted orders . in the event of a market downturn , the company also believes that its long history of cost-control and downsizing in response to slowing market conditions , and of executing strategic acquisitions during difficult periods will enable it to capitalize on new opportunities to effect new organic growth and acquisition initiatives . still the recovery of the world economy continues to move forward with a great deal of uncertainty as the world watches the sovereign debt crises in several european countries unfold , market turbulence and general global economic worries . if such global economic uncertaintanties develop adversely , world oil and gas prices could be impacted which in turn could negatively impact the worldwide rig count and the company 's future financial results . 39 results of operations years ended december 31 , 2012 and december 31 , 2011 the following table summarizes the company 's revenue and operating profit by operating segment in 2012 and 2011 ( in millions ) : replace_table_token_6_th rig technology revenue from rig technology for the year ended december 31 , 2012 was $ 10,107 million , an increase of $ 2,319 million ( 29.8 % ) compared to the year ended december 31 , 2011. deepwater offshore drilling worldwide and active shale plays in north america were the primary driving forces for the increase in revenue for this segment during the first half of 2012 , resulting in increased rig construction as well as demand for well intervention and stimulation equipment and aftermarket spare parts . in addition , the acquisitions of nkt and enerflow , occurring towards the beginning of the second quarter of 2012 , contributed to the increase in revenue for rig technology . as the segment moved into the second half of 2012 , it saw continued strong deepwater offshore demand as well as a strong demand in international markets with strong revenue growth in coiled tubing equipment , wireline equipment and land rigs sold internationally . north american markets , however , saw a decrease in demand for land drilling as both gas and oil plays have decreased production . this is evidenced by a decrease in rig count in the u.s. during 2012 and has resulted in lower sales of land rigs and jackups in the u.s. as the segment moved into the second half of 2012. the average rig count in the u.s. during the fourth quarter of 2012 decreased to 1,809 rigs ( 9 % ) from the first quarter 2012 average of 1,991 rigs . rig technology revenues could decrease as it enters 2013 due to the decrease in demand for pressure pumping equipment . operating profit from rig technology was $ 2,335 million ( which included $ 45 million in other costs related to acquisitions ) for the year ended december 31 , 2012 , an increase of $ 282 million ( 13.7 % ) compared to 2011. operating profit percentage decreased to 23.1 % , from 26.4 % in 2011. partially contributing to the decrease in operating profit percentage was a decrease in the average margin of revenue out of backlog as contracts signed during 2009 and 2010 contain less favorable margins compared to contracts won during the order ramp-up from 2005 to 2008. also contributing to the decrease in operating profit percentage were integration costs related to the nkt and enerflow acquisitions made during the second quarter of 2012 as well as considerable start-up costs associated with construction of an nov flexibles plant in brazil , and the opening of a new technical college in korea .
| executive summary during 2012 national oilwell varco , inc. earned $ 2.5 billion in net income attributable to company , or $ 5.83 per fully diluted share . earnings per diluted share increased 24 % from prior year levels of $ 2.0 billion or $ 4.70 per fully diluted share . excluding other costs ( as defined in the ยnon-gaap financial measures and reconciliationsย in results of operations ) from both years , diluted earnings per share of $ 5.91 in 2012 increased 24 % from $ 4.77 per share in 2011. during 2012 revenue grew 37 % from 2011 , to $ 20.0 billion , and operating profit grew 21 % from 2011 as well , to $ 3.6 billion . generally 2012 benefitted from strategic acquisitions as well as higher international drilling activity , which saw international rig counts ( as measured by baker hughes ) increase 6 % from 2011. this enabled all three of the company 's reporting segments to post higher year-over-year revenues in 2012. for its fourth quarter ended december 31 , 2012 , the company generated $ 668 million in net income attributable to company , or $ 1.56 per fully diluted share , on $ 5.7 billion in revenue . compared to the third quarter of 2012 revenue increased $ 366 million or 7 % and net income attributable to company increased $ 56 million . compared to the fourth quarter of 2011 , revenue increased $ 1.4 billion or 33 % , and net income attributable to company increased $ 94 million or 16 % . the fourth quarter of 2012 included pre-tax other costs of $ 51 million , the third quarter of 2012 included pre-tax other costs of $ 48 million , and the fourth quarter of 2011 included pre-tax other costs of $ 12 million . the fourth quarter of 2012 also included a net $ 69 million tax benefit related to certain u.s. foreign tax credits in the quarter .
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these coalitions are our reportable segments for financial reporting purposes . basis of presentation on august 26 , 2016 , vf completed the sale of its contemporary brands coalition , which included the 7 for all mankind ยฎ , splendid ยฎ and ella moss ยฎ brands . accordingly , the company has reported the operating results of those businesses in discontinued operations for all periods presented . the assets and liabilities of those businesses at december 2015 have been reported as assets and liabilities of discontinued operations in the consolidated balance sheet . refer to note b to vf 's consolidated financial statements for additional information on discontinued operations . unless otherwise noted , amounts and percentages for all periods discussed below reflect the results of operations and financial condition from vf 's continuing operations . vf operates and reports using a 52/53 week fiscal year ending on the saturday closest to december 31 of each year . all references to โ 2016 โ , โ 2015 โ and โ 2014 โ relate to the 52-week fiscal years ended december 31 , 2016 and january 2 , 2016 , and the 53-week fiscal year ended january 3 , 2015 , respectively . because 2014 had 53 weeks compared to 52 weeks in 2015 , we have highlighted the estimated comparative impact where relevant in the discussions below . all per share amounts are presented on a diluted basis . all percentages shown in the tables below and the discussion that follows have been calculated using unrounded numbers . references to 2016 foreign currency amounts below reflect the changes in foreign exchange rates from 2015 and their impact on both translating foreign currencies into u.s. dollars and on transactions denominated in a foreign currency . references to 2015 foreign currency amounts below reflect the changes in foreign exchange rates from 2014 and their impact on both translating foreign currencies into u.s. dollars and on transactions denominated in a foreign currency . story_separator_special_tag million of net tax benefits related to the realization of previously unrecognized tax benefits and interest , and $ 4.1 million of discrete tax expense related to the effects of tax rate changes . the $ 44.5 million net discrete tax benefit in 2016 reduced the effective income tax rate by 3.1 % compared to a 2.6 % impact of discrete items in 2015. without discrete items , the effective tax rate during 2016 decreased by approximately 5.3 % primarily due to i ) a higher percentage of foreign earnings in 2016 , ii ) the comparative impact of tax benefits recorded in 2016 related to the utilization of foreign tax attributes , iii ) the full year benefits of the federal research tax credit and other incentives signed into law in december 2015 and iv ) the negative tax impact related to the 2016 goodwill impairment . the international effective tax rate was 10.7 % and 12.3 % for 2016 and 2015 , respectively . vf expects the 2017 annual tax rate to approximate 20 % . as a result of the above , net income in 2016 was $ 1.2 billion ( $ 2.78 per diluted share ) , compared to $ 1.3 billion ( $ 3.04 per diluted share ) in 2015. the decrease in diluted earnings per share in 2016 compared to 2015 reflects goodwill and intangible asset impairment charges ( $ 0.15 per share ) , restructuring charges ( $ 0.10 per share ) and a pension settlement charge ( $ 0.07 per share ) . 25 2015 compared to 2014 in 2015 , gross margin declined 40 basis points primarily due to foreign currency exchange rate fluctuations , which negatively impacted gross margin by 70 basis points in 2015 compared to 2014. excluding this impact , gross margin improved 30 basis points in 2015 due to lower product costs and the continued shift in our revenue mix towards higher margin businesses , including outdoor & action sports , direct-to-consumer and international , partially offset by aggressive efforts to manage inventory levels . selling , general and administrative expenses as a percentage of total revenues decreased 10 basis points compared to 2014. this decrease was primarily due to lower incentive compensation , leverage of operating expenses on higher revenues and the benefit from a $ 16.6 million gain on the sale of a vf outlet ยฎ location in 2015 , partially offset by increased investments in our direct-to-consumer businesses and global product development , which includes our strategic innovation centers . in 2015 , operating margin decreased 20 basis points , to 14.9 % from 15.1 % in 2014. the decrease in operating margin reflects lower gross margin due to unfavorable foreign currency exchange rate fluctuations . in 2015 , net interest expense increased $ 2.4 million to $ 81.6 million primarily due to higher average levels of short-term borrowings . outstanding interest-bearing debt averaged $ 2.4 billion for 2015 and $ 1.8 billion for 2014 , with short-term borrowings representing 42 % and 22 % of average debt outstanding for the respective years . the weighted average interest rate on outstanding debt was 3.5 % in 2015 and 4.6 % in 2014. the weighted average interest rate decreased in 2015 compared to 2014 primarily due to the increase in average levels of short-term borrowings at lower interest rates . other income ( expense ) netted to income of $ 1.0 million in 2015 compared to expense of $ 5.5 million in 2014. the income in 2015 was due primarily to net foreign currency exchange gains compared to net foreign currency losses in 2014. the effective income tax rate was 23.0 % in 2015 compared to 22.5 % in 2014. the 2015 tax rate included a net discrete tax benefit of $ 43.5 million , which included $ 36.2 million of tax benefits related to the settlement of tax audits , and $ 4.1 million related to the retroactive impact of the protecting americans from tax hikes ( โ path โ ) act of 2015 as discussed below . story_separator_special_tag sales for the north face ยฎ brand were negatively impacted by the warm weather in 2015 , particularly during the fourth quarter when consumer demand for cold-weather products is typically at its peak . vans ยฎ brand global revenues were up 7 % in 2015 , reflecting operational growth in both the direct-to-consumer and wholesale channels , partially offset by a negative 7 % impact from foreign currency . global revenues for the timberland ยฎ brand were up 2 % in 2015 driven by strong wholesale revenues , partially offset by a negative 8 % impact from foreign currency and reduced consumer demand for outdoor apparel and footwear as a result of the warm weather noted above . operating margin decreased 110 basis points in 2015 due to the negative impact from foreign currency and increased investments in direct-to-consumer businesses , partially offset by the leverage of operating expenses on higher revenues . jeanswear replace_table_token_8_th the jeanswear coalition consists of the global jeanswear businesses , led by the wrangler ยฎ and lee ยฎ brands . 2016 compared to 2015 global jeanswear revenues decreased 2 % in 2016 compared to 2015 , due to a 2 % negative impact from foreign currency . revenues in the americas region decreased 2 % in 2016 , due to a 2 % negative impact from foreign currency . revenues in the asia pacific region decreased 4 % in 2016 , driven by a 5 % negative impact from foreign currency . european revenues increased 3 % in 2016 , including a 1 % negative impact from foreign currency . global revenues for the wrangler ยฎ brand decreased 1 % in 2016 , as 1 % operational growth , which was tempered by aggressive inventory management by key retailers , was offset by a negative 2 % impact from foreign currency . global revenues for the lee ยฎ brand were down 3 % in 2016 compared to 2015 , primarily driven by a negative 2 % impact from foreign currency and softness in the u.s. mid-tier channel . operating margin decreased 120 basis points in 2016 over 2015 , primarily due to lower gross margin largely driven by restructuring charges and higher product costs as a result of lower production volumes . 2015 compared to 2014 global jeanswear revenues were flat in 2015 compared to 2014 , reflecting operational growth offset by a negative 4 % impact from foreign currency . the 53 rd week in 2014 also negatively impacted 2015 revenue growth . revenues in the americas region increased 1 % in 2015 , including a 2 % negative impact from foreign currency . revenues in the asia pacific region increased 5 % in 2015 despite a 4 % negative impact from foreign currency . european revenues decreased 15 % in 2015 , including an 18 % negative impact from foreign currency . global revenues for the wrangler ยฎ brand were flat in 2015 compared to 2014 , as 4 % operational growth driven by continued strength in the mass business was offset by a negative 4 % impact from foreign currency . global revenues for the lee ยฎ brand were 28 also flat in 2015 compared to 2014 , as continued growth in china and europe , strong wholesale growth in india , and recent product launches in the u.s. were partially offset by a negative 5 % impact from foreign currency . revenues for the rock & republic ยฎ brand were down 11 % in 2015 compared to 2014. operating margin increased 40 basis points in 2015 over 2014 , primarily due to lower product costs , partially offset by the negative impact from foreign currency . imagewear replace_table_token_9_th the imagewear coalition consists of vf 's image business ( occupational apparel and uniforms , including the red kap ยฎ and bulwark ยฎ brand industrial businesses ) and licensed sports group ( โ lsg โ ) business ( athletic apparel and fanwear , which includes the majestic ยฎ brand business ) . 2016 compared to 2015 imagewear revenues increased 2 % in 2016 compared to 2015 , due to strong growth in our lsg business , offset by declines in our image business . revenues for the lsg business were up 9 % in 2016 compared to 2015 , driven by strong major league baseball sales throughout the year and incremental sales during the fourth quarter due to the world series results . the image business revenues decreased 4 % in 2016 compared to 2015 primarily due to continued weakness in the industrial manufacturing and energy sectors , which negatively impacted sales of the bulwark ยฎ and red kap ยฎ brands . the 170 basis point increase in operating margin in 2016 compared to 2015 was driven by improved gross margin in our lsg business , primarily due to favorable pricing , product mix and foreign currency impacts , partially offset by restructuring charges . 2015 compared to 2014 imagewear revenues decreased 2 % in 2015 compared to 2014 , partially due to the impact of the 53 rd week in 2014. the image business revenues decreased 6 % compared to 2014 primarily due to the impact of considerably lower levels of oil and gas exploration , which negatively impacted sales of the bulwark ยฎ brand . revenues for the lsg business were up 4 % in 2015 compared to 2014 , driven by strong major league baseball and national basketball association sales . the 30 basis point decline in operating margin in 2015 compared to 2014 was negatively impacted by lower gross margins primarily due to business mix . sportswear replace_table_token_10_th the sportswear coalition consists of the nautica ยฎ and kipling ยฎ brand businesses in north america ( the kipling ยฎ brand outside of north america is managed by the outdoor & action sports coalition ) . 2016 compared to 2015 coalition revenues decreased 16 % in 2016 over 2015. nautica ยฎ brand revenues decreased 17 % in 2016 due to continued challenges in the u.s. department store channel and reduced in-store traffic .
| highlights of 2016 in light of the 2016 divestiture of our contemporary brands coalition and the ongoing strategic review of our licensed sports group business , we reassessed how to best optimize and leverage vf 's strengths to create a more efficient and agile organization . as part of this assessment , the company approved restructuring initiatives in the fourth quarter of 2016 to realign our cost structure . vf recognized $ 58.1 million in expense related to severance , asset write-downs and other costs associated with these restructuring initiatives . as part of this assessment , management made a strategic decision to merge the lucy ยฎ brand into the north face ยฎ brand during 2017 , and incurred $ 79.6 million of intangible asset and goodwill impairment charges associated with the decision . severance and other asset impairment charges associated with this decision are included in the restructuring charge noted above . additionally , vf took steps to reduce the size and potential future volatility of its u.s. pension plan obligation and 23 offered former employees a one-time option to receive a lump sum distribution of their deferred vested benefits , the payment of which resulted in a pension settlement charge of $ 50.9 million .
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85 the container store group , inc. notes to consolidated financial statements ( continued ) ( in thousands , except share amounts and unless otherwise stated ) february 27 , 2016 4. long-term debt and revolving lines of credit ( continued ) on april 8 , 2013 , the container store group , inc. , the container store , inc. and certain of its domestic subsidiaries entered into amendment no . 1 to the senior secured term loan facility , pursuant to which the borrowings under the senior secured term loan facility were increased to $ 362,250 and the interest rate on such borrowings was decreased to a rate of libor + 4.25 % , story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the `` cautionary note regarding forward-looking statements '' and `` risk factors '' sections of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are the original and leading specialty retailer of storage and organization products in the united states and the only national retailer solely devoted to the category . our goal is to help provide order to an increasingly busy and chaotic world . we provide creative , multifunctional , customizable storage and organization solutions that help our customers save time , save space and improve the quality of their lives . the breadth , depth and quality of our product offerings are designed to appeal to a broad demographic , including our core customers , who are predominantly female , highly educated and busyยfrom college students to empty nesters . 41 our operations consist of two operating segments : the container store ( `` tcs '' ) , which consists of our retail stores , website and call center , as well as our installation and organizational services business . as of february 27 , 2016 , we operated 79 stores with an average size of approximately 25,000 square feet ( 19,000 selling square feet ) in 28 states and the district of columbia . we also offer all of our products directly to customers through our website , responsive mobile site , and call center . our stores receive all products directly from our distribution center co-located with our corporate headquarters and call center in coppell , texas . elfa , the container store , inc. 's wholly owned swedish subsidiary , elfa international ab ( `` elfa '' ) , which designs and manufactures component-based shelving and drawer systems and made-to-measure sliding doors . elfa was founded in 1948 and is headquartered in malmรถ , sweden . elfa 's shelving and drawer systems are customizable for any area of the home , including closets , kitchens , offices and garages . elfa operates four manufacturing facilities with two located in sweden , one in finland and one in poland . the container store began selling elfaยฎ products in 1978 and acquired elfa in 1999. today our tcs segment is the exclusive distributor of elfaยฎ products in the u.s. elfa also sells its products on a wholesale basis to various retailers in approximately 30 countries around the world , with a concentration in the nordic region of europe . recent events as part of the company 's long-term succession plan , on may 9 , 2016 , the company announced that melissa reiff , current president and chief operating officer , will become the retailer 's chief executive officer , succeeding william a . ( `` kip '' ) tindell , iii , and sharon tindell will add president to her current chief merchandising officer title . kip tindell , current chairman and chief executive officer , will retain his role as chairman of the company 's board of directors . in addition , jodi taylor , chief financial officer and secretary , will add chief administrative officer to her current title . these changes will be effective july 1 , 2016. how we assess the performance of our business we consider a variety of financial and operating measures in assessing the performance of our business . the key measures we use to determine how our business is performing are net sales , gross profit , gross margin , and selling , general and administrative expenses . in addition , we also review other important operating metrics such as comparable store sales and non-gaap measures such as ebitda and adjusted ebitda and adjusted net income . net sales net sales reflect our sales of merchandise plus other services provided , such as shipping , delivery , and installation , less returns and discounts . net sales also include wholesale sales by elfa . revenue from our tcs segment is recognized upon receipt of the product by our customers or upon completion of the service to our customers . elfa segment revenue is recorded upon shipment to customers . the retail and wholesale businesses in which we operate are cyclical , and consequently our sales are affected by general economic conditions . purchases of our products are sensitive to trends in the levels of consumer spending , which are affected by a number of factors such as consumer disposable income , housing market conditions , stock market performance , consumer debt , interest rates , tax rates and overall consumer confidence . our net sales are moderately seasonal . as a result , our revenues fluctuate from quarter to quarter , which often affects the comparability of our interim results . story_separator_special_tag ebitda and adjusted ebitda ebitda and adjusted ebitda are key metrics used by management , our board of directors and lgp to assess our financial performance . in addition , we use adjusted ebitda in connection with covenant compliance , executive performance evaluations , and to supplement gaap measures of performance to evaluate the effectiveness of our business strategies , to make budgeting decisions and to compare our performance against that of other peer companies using similar measures . we believe it is useful for investors to see the measures that management uses to evaluate the company , its executives and our covenant compliance , as applicable . ebitda and adjusted ebitda are also frequently used by analysts , investors and other interested parties to evaluate companies in our industry . we define ebitda as net income ( loss ) before interest , taxes , depreciation , and amortization . adjusted ebitda is calculated in accordance with the senior secured term loan facility and the revolving credit facility and is one of the components for performance evaluation under our executive compensation programs . adjusted ebitda reflects further adjustments to ebitda to eliminate the impact of certain items , including certain non-cash and other items , that we do not consider representative of our ongoing operating performance . for reconciliation of adjusted ebitda to the most directly comparable gaap measure , refer to `` item 6 : selected financial and operating data. `` adjusted net income and adjusted net income per common shareยdiluted we use adjusted net income and adjusted net income per common shareยdiluted to supplement gaap measures of performance to evaluate the effectiveness of our business strategies , to make budgeting decisions and to compare our performance against that of other peer companies using 44 similar measures . we present adjusted net income and adjusted net income per common shareยdiluted because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance and because we believe it is useful for investors to see the measures that management uses to evaluate the company . adjusted net income is a supplemental measure of financial performance that is not required by , or presented in accordance with , gaap . we define adjusted net income as net income ( loss ) available to common shareholders before distributions accumulated to preferred shareholders , stock-based compensation and other costs in connection with our ipo , restructuring charges , losses on extinguishment of debt , certain gains on disposal of assets and the tax impact of these adjustments and unusual or infrequent tax items . we define adjusted net income per common shareยdiluted as adjusted net income divided by the diluted weighted average common shares outstanding ; however for fiscal 2013 adjusted diluted weighted common shares outstanding are calculated based on the assumption that the number of shares outstanding as of march 1 , 2014 was outstanding at the beginning of the fiscal year . for a reconciliation of adjusted net income to the most directly comparable gaap measure , refer to `` item 6 : selected financial and operating data. `` adjustment for currency exchange rate fluctuations additionally , this management 's discussion and analysis also refers to elfa third party net sales after the conversion of elfa 's net sales from swedish krona to u.s. dollars using the prior year 's conversion rate . the company believes the disclosure of elfa third party net sales without the effects of currency exchange rate fluctuations helps investors understand the company 's underlying performance . note on dollar amounts all dollar amounts in this management 's discussion and analysis of financial condition and results of operations are in thousands , except per share amounts , unless otherwise stated . story_separator_special_tag style= '' font-family : times ; '' > new stores 35,005 other stores ( including a $ 20,341 , or 56.4 % , increase in online sales ) ( 9,359 ) elfa third party net sales ( excluding impact of foreign currency translation ) ( 513 ) impact of foreign currency translation on elfa third party net sales ( 13,103 ) services and other 734 โ โ โ โ โ net sales for fiscal 2015 $ 794,630 โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ 48 the increase in net sales was driven by new stores , with sixteen stores generating $ 35,005 of incremental sales , nine of which were opened in fiscal 2015 and seven of which were opened in fiscal 2014. the increase in sales generated by new stores was partially offset by a $ 9,359 decrease in sales from other stores , primarily due to increased promotional activities in fiscal 2015. elfa third party net sales were negatively impacted by foreign currency translation of $ 13,103 during fiscal 2015. after converting elfa 's third party net sales from swedish krona to u.s. dollars using the fiscal 2014 conversion rate for both fiscal 2015 and fiscal 2014 , elfa third party net sales declined slightly as a result of lower sales in russia and norway . this decline was almost completely offset by improved sales in sweden . gross profit and gross margin gross profit in fiscal 2015 increased by $ 5,485 , or 1.2 % , compared to fiscal 2014. the increase in gross profit was primarily the result of increased sales , partially offset by lower gross margins . the following table summarizes the gross margin for fiscal 2015 and fiscal 2014 by segment and total . the segment margins include the impact of inter-segment sales from the elfa segment to the tcs segment : replace_table_token_12_th tcs gross margin decreased 60 basis points during fiscal 2015 , largely due to increased promotional activities , the april 2015 introduction of everyday free shipping on orders over $ 75 , and a growing mix of lower-margin service sales in fiscal 2015 as compared to fiscal 2014. this was partially offset by the impact of the stronger u.s.
| results of operations the following data represents the amounts shown in our audited consolidated statements of operations expressed in dollars and as a percentage of net sales and operating data for the periods presented ( categories that are only applicable to our tcs segment are noted with ( * ) and to our elfa 45 segment with ( + ) ) . for segment data , see note 14 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k. replace_table_token_9_th 46 replace_table_token_10_th ( 1 ) a store is included in the comparable store sales calculation on the first day of the sixteenth full fiscal month following the store 's opening . when a store is relocated , we continue to consider sales from that store to be comparable store sales . net sales from our website and call center are also included in calculations of comparable store sales . the comparable store sales growth operating measure in a given period is based on merchandise and service orders placed in that period , excluding shipping and delivery , which may not always reflect when the merchandise and services are received by the customer . prior to fiscal 2015 , the comparable store sales growth operating measure did not include net sales from services . the comparable store sales growth metric is an operating measure intended only as supplemental information and is not a substitute for net sales presented in accordance with generally accepted accounting principles ( `` gaap '' ) . ( 2 ) we have presented ebitda , adjusted ebitda , adjusted net income , and adjusted net income per common shareยdiluted as supplemental measures of financial performance that are not required by , or presented in accordance with , gaap .
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surfactants are manufactured at five sites in the united states , two european sites ( united kingdom and france ) , five latin american sites ( one site in colombia and two sites in each of brazil and mexico ) and two asian sites ( philippines and singapore ) . recent significant surfactants events include : on january 19 , 2020 , the company experienced a power disruption that impacted its millsdale , illinois facility . this power outage , combined with below freezing temperatures , led to significant production and operational challenges that impacted both surfactants and polymers produced at the site . the millsdale facility operated on a partial basis and used existing inventories to serve the company 's customers . however , on february 17 , 2020 , power outage-related operational issues impacted the millsdale site 's waste water treatment plant ( wwtp ) and forced the company to stop production at the site . as a result , the company declared force majeure for the supply of phthalic anhydride ( polymers ) and certain surfactant product lines . all production lines were fully operational prior to the end of the first quarter of 2020. these operational issues negatively impacted the company 's 2020 earnings . the company finalized an insurance settlement related to this power outage during 2020 and recognized $ 18.0 million of pre-tax insurance recovery . this insurance recovery was recognized as a reduction of expenses within cost of sales . the surfactant and polymer segments recognized $ 5.2 million and $ 12.8 million , respectively , of the insurance settlement . all expenses , business interruptions and insurance recoveries associated with the millsdale power outage were recorded in the full year 2020. in september 2020 the company , through its subsidiaries in mexico , acquired clariant ( mexico ) s.a. de c.v. 's ( clariant ) anionic surfactant business located in santa clara , mexico . the acquisition did not include the purchase of a manufacturing site . the business acquired is being integrated into the company 's two existing manufacturing sites in mexico ( matamoros and ecatepec ) . this acquisition supports the company 's growth strategy in latin america and the company believes the acquisition will enhance its ability to support customer growth in the mexican consumer and functional surfactant markets ( see note 20 , acquisitions , of the notes to the company 's consolidated financial statements ( included in item 8 of this form 10-k ) for additional details ) . in march 2020 , the company acquired certain assets of logos technologies llc 's natsurfactยฎ business , a rhamnolipid-based line of bio-surfactants derived from renewable sources . these bio-surfactants offer synergies in several strategic end use markets including oilfield , agriculture , personal care , and household , industrial and institutional . the company is focusing efforts to further develop , integrate and commercialize these unique surfactants moving forward . the company believes the rhamnolipid technology will further advance the growth and sustainability aspirations of both the company and its customers ( see note 20 , acquisitions , of the notes to the company 's consolidated financial statements ( included in item 8 of this form 10-k ) for additional details ) . in february 2021 , the company acquired a fermentation plant , located in lake providence , louisiana . the company believes this plant complements the rhamnolipid-based bio-surfactant technology the company acquired from logos technologies in march 2020. fermentation is a new platform technology for the company and the company is focusing efforts to further develop , integrate , produce and commercialize these unique surfactants moving forward . bio-surfactants , produced via fermentation , are attractive due to their biodegradability , low toxicity , and in some cases , unique antimicrobial properties . these bio-surfactants offer synergies in several strategic end use markets including oilfield , agriculture , personal care and household , industrial and institutional . the acquisition of this industrial scale fermentation plant represents the latest step in the company 's bio-surfactant commercialization efforts ( see note 26 , subsequent events , of the notes to the company 's consolidated financial statements ( included in item 8 of this form 10-k ) for additional details ) . 21 in december 2019 , the company acquired an oilfield demulsifier product line . the company believes this acquisition will accelerate its strategy to diversify into additional application segments within the oilfield end markets . the acquired business did not impact the company 's 2019 financial results and had a m inimal impact on 2020 financial results ( see note 20 , acquisitions , of the notes to the company 's consolidated financial statements ( included in item 8 of this form 10-k ) for additional details ) . during the fourth quarter of 2018 , the company shut down surfactant operations at its plant site in germany . the company ceased surfactant production at this site to further reduce its fixed cost base , refocus surfactant resources on higher margin end markets and allow for select assets to be repurposed to support future polyol growth . decommissioning costs associated with the shutdown were incurred in 2019 and during the first half of 2020 ( see note 22 , business restructuring , of the notes to the company 's consolidated financial statements ( included in item 8 of this form 10-k ) for additional details ) . polymers - polymers , which accounted for 24 percent of consolidated net sales in 2020 , include polyurethane polyols , polyester resins and phthalic anhydride . polyurethane polyols are used in the manufacture of rigid foam for thermal insulation in the construction industry and are also a base raw material for coatings , adhesives , sealants and elastomers ( collectively , case products ) . powdered polyester resins are used in coating applications . case and powdered polyester resins are collectively referred to as specialty polyols . phthalic anhydride is used in unsaturated polyester resins , alkyd resins and plasticizers for applications in construction materials and components of automotive , boating and other consumer products . story_separator_special_tag below are the year-end company common stock market prices used in the computation of deferred compensation income and expense : replace_table_token_5_th 23 effects of foreign currency translation the company 's foreign subsidiaries transact business and report financial results in their respective local currencies . as a result , foreign subsidiary income statements are translated into u.s. dollars at average foreign exchange rates appropriate for the reporting period . because foreign exchange rates fluctuate against the u.s. dollar over time , foreign currency translation affects year-over-year comparisons of financial statement items ( i.e. , because foreign exchange rates fluctuate , similar year-to-year local currency results for a foreign subsidiary may translate into different u.s. dollar results ) . the following tables present the effects that foreign currency translation had on the year-over-year changes in consolidated net sales and various income line items for 2020 compared to 2019 and 2019 compared to 2018 : replace_table_token_6_th replace_table_token_7_th results of operations 2020 compared with 2019 summary net income attributable to the company for 2020 increased 23 percent from $ 103.1 million , or $ 4.42 per diluted share in 2019 to $ 126.8 million , or $ 5.45 per diluted share , in 2020. adjusted net income increased 11 percent to $ 132.0 million , or $ 5.68 per diluted share , from $ 119.4 million , or $ 5.12 per diluted share in 2019 ( see the โ reconciliations of non-gaap adjusted net income and diluted earnings per share โ section of this md & a for reconciliations between reported net income attributable to the company and reported earnings per diluted share and non-gaap adjusted net income and adjusted earnings per diluted share ) . below is a summary discussion of the major factors leading to the year-over-year changes in net sales , expenses and income . a detailed discussion of segment operating performance for 2020 compared to 2019 follows the summary . consolidated net sales increased $ 11.1 million , or one percent , between years . consolidated sales volume increased three percent , which positively impacted the change in net sales by $ 49.6 million . sales volume in the surfactant segment increased six percent while sales volume in the polymer and specialty products segments decreased five and three percent , respectively . higher average selling prices positively impacted the change in net sales by $ 7.1 million . foreign currency translation negatively impacted the year-over-year change in net sales by $ 45.7 million primarily due to a stronger u.s. dollar against the latin american currencies used in certain of the company 's foreign operations . operating income increased $ 44.3 million , or 35 percent , between years . surfactant operating income increased $ 46.3 million , or 38 percent versus operating income reported in 2019. polymer and specialty products operating income decreased $ 1.4 million and $ 2.4 million , respectively . deferred compensation expenses and business restructuring expenses decreased $ 5.2 million and $ 1.5 million , respectively , year-over-year . corporate expenses , excluding deferred compensation and business restructuring expenses , were up $ 4.9 million year-over-year . most of this increase reflects higher incentive-based compensation and acquisition-related expenses , partially offset by lower environmental remediation expenses . foreign currency translation had an unfavorable $ 7.7 million effect on year-over-year consolidated operating income . operating expenses ( including deferred compensation expense and business restructuring expenses ) decreased $ 0.4 million , or less than one percent , between years . changes in the individual income statement line items that comprise the company 's operating expenses were as follows : selling expenses decreased $ 1.4 million , or two percent , year-over-year largely due to lower travel and entertainment expenses as a result of covid-19 restrictions . 24 administrative expenses increased $ 4 . 8 million , or six percent , year - over - year . th is increase was primarily due to higher incentive-based compensation and acquisition-related expenses in 2020 that were partially offset by non-recurring 2019 environmental remediation costs . the majority of the environmental remediation costs in 2019 relate d to the company 's maywood , new jersey site and the company 's formerly-owned site in wilmington , massachusetts . research , development and technical service ( r & d ) expenses increased $ 2.9 million , or five percent , year-over-year primarily due to higher incentive-based compensation expenses . deferred compensation expense decreased $ 5.2 million primarily due to a $ 16.88 per share increase in the market price of company common stock during 2020 compared to a $ 28.44 per share increase in 2019. see the overview and segment results - corporate expenses sections of this md & a for further details . business restructuring expenses were $ 1.2 million in 2020 versus $ 2.7 million in 2019. the 2020 restructuring expenses were primarily comprised of ongoing decommissioning costs associated with the company 's manufacturing facility in canada that ceased operations in the fourth quarter of 2016 ( $ 1.1 million ) and decommissioning expenses associated with the company 's 2018 sulfonation shut down in germany ( $ 0.1 million ) . the 2019 restructuring expenses were primarily comprised of severance and office shutdown expenses related to the specialty products netherland office restructuring ( $ 0.7 million ) , decommissioning costs associated with the company 's canadian plant closure ( $ 1.4 million ) , and decommissioning expenses associated with the company 's sulfonation shut down in germany ( $ 0.9 million ) . see note 22 , business restructuring , of the notes to the company 's consolidated financial statements ( included in item 8 of this form 10-k ) for additional details . net interest expense in 2020 declined $ 0.5 million , or nine percent , versus prior year .
| segment results replace_table_token_8_th 25 replace_table_token_9_th surfactants surfactant 2020 net sales increased $ 79.0 million , or six percent , versus 2019 net sales . a six percent increase in sales volume and higher average selling prices positively impacted the change in net sales by $ 67.2 million and $ 55.0 million , respectively . the unfavorable impact of foreign currency translation negatively impacted the change in net sales by $ 43.2 million . a year-over-year comparison of net sales by region follows : replace_table_token_10_th net sales for north american operations increased $ 60.5 million , or eight percent , between years . a six percent increase in sales volume and higher average selling prices positively impacted the change in net sales by $ 43.3 million and $ 17.6 million , respectively . the sales volume growth was primarily due to higher demand for products sold into the consumer product end markets , driven by increased demand for cleaning , disinfection and personal wash products as a result of covid-19 , partially offset by lower demand in the functional product end markets , principally agriculture and oilfield . foreign currency translation negatively impacted the change in net sales by $ 0.4 million . net sales for european operations decreased $ 6.1 million , or three percent , year-over-year . a seven percent decrease in sales volume negatively impacted the change in net sales $ 16.6 million . the lower sales volume reflects lost business at one customer that was partially offset by higher demand for products from our distribution partners . higher average selling prices and the favorable impact of foreign currency translation positively impacted the change in net sales by $ 7.5 million and $ 3.0 million , respectively . a weaker u.s. dollar relative to the european euro and british pound sterling led to the foreign currency translation effect .
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27 key business indicators the following measurements are among the key business indicators reviewed by various members of management to gauge the company 's results : comparable sales ; comparative results of operations with the prior year 's results converted at the current year 's foreign currency exchange rate to remove the impact of foreign currency exchange rate fluctuation ; gross profit and gross profit rate ; cost of sales , exclusive of depreciation and amortization , as a percentage of net sales ; stores and distribution expense as a percentage of net sales ; marketing , general and administrative expense as a percentage of net sales ; operating income and operating income as a percentage of net sales ; net income and net income attributable to a & f inventory per gross square foot and inventory to sales ratio ; cash flow and liquidity determined by the company 's current ratio , working capital and free cash flow ; store metrics such as net sales per gross square foot , average number of transactions per store and store contribution ( defined as store sales less direct costs of operating the store ) ; transactional metrics such as traffic and conversion , performance across key product categories , average unit retail , average unit cost , average units per transaction and average transaction values ; return on invested capital and return on equity ; and customer-centric metrics such as customer satisfaction , brand health scores and certain metrics related to the loyalty programs . while not all of these metrics are disclosed publicly by the company due to the proprietary nature of the information , the company publicly discloses and discusses many of these metrics within this management 's discussion and analysis of financial condition and results of operations . 28 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > . for fiscal 2016 , marketing , general and administrative expense as a percentage of net sales increased by approximately 20 basis points as compared to fiscal 2015 , primarily due to the deleveraging effect from lower net sales and higher marketing expenses , partially offset by the net year-over-year impact of the excluded items presented above , lower compensation expense and expense reduction efforts . excluding items presented above , fiscal 2016 adjusted non-gaap marketing , general and administrative expense as a percentage of net sales increased by approximately 90 basis points as compared to fiscal 2015 . 31 restructuring benefit there were no restructuring benefits in fiscal 2017 or fiscal 2016. for fiscal 2015 , benefits associated with the restructuring of the gilly hicks brand were $ 1.6 million , which were excluded from adjusted non-gaap results . asset impairment for fiscal 2017 , the company incurred store asset impairment charges of $ 14.4 million , primarily related to certain of the company 's international abercrombie & fitch stores in germany , spain , italy and hong kong . for fiscal 2016 , the company incurred store asset impairment charges of $ 7.9 million , primarily related to the company 's abercrombie kids flagship store in london . for fiscal 2015 , the company incurred store asset impairment charges of $ 18.2 million , primarily related to the company 's abercrombie & fitch flagship store in hong kong and the removal of certain store fixtures in connection with changes to the abercrombie and hollister store experiences . other operating income , net replace_table_token_13_th ( 1 ) includes benefits related to a settlement of certain economic loss claims associated with the april 2010 deepwater horizon oil spill . ( 2 ) includes charges related to a release of cumulative translation adjustment as the company substantially completed the liquidation of its australian operations . for fiscal 2017 , other operating income , net , as a percentage of net sales decreased by approximately 30 basis points as compared to fiscal 2016 . excluding items presented above , fiscal 2017 adjusted non-gaap other operating income , net , as a percentage of net sales increased by approximately 10 basis points as compared to fiscal 2016 , as higher foreign currency exchange rate related gains more than offset lower gift card breakage . for fiscal 2016 , other operating income , net , as a percentage of net sales increased by approximately 60 basis points as compared to fiscal 2015 . excluding items presented above , fiscal 2016 adjusted non-gaap other operating income , net , as a percentage of net sales increased by approximately 20 basis points as compared to fiscal 2015 , primarily due to higher gift card breakage from the initial recognition of international gift card breakage of $ 4.8 million and higher foreign currency exchange rate related gains in fiscal 2016 , partially offset by insurance recoveries of $ 2.2 million in fiscal 2015 . 32 operating income replace_table_token_14_th ( 1 ) fiscal 2017 includes legal charges of $ 11.1 million in connection with the settlement of two class action lawsuits , subject to court approval , related to alleged wage and hour practices and accrued charges of $ 4.0 million related to other alleged wage and hour legal matters . fiscal 2015 includes accrued expense for certain then proposed legal settlements . ( 2 ) includes benefits related to an indemnification recovery of certain legal settlements which were recognized in fiscal 2015 . ( 3 ) includes benefits related to a settlement of certain economic loss claims associated with the april 2010 deepwater horizon oil spill . ( 4 ) includes inventory write-down charges related to a decision to accelerate the disposition of certain aged merchandise , net of recoveries . story_separator_special_tag ( 5 ) includes charges related to a release of cumulative translation adjustment as the company substantially completed the liquidation of its australian operations . for fiscal 2017 , operating income as a percentage of net sales increased by approximately 160 basis points as compared to fiscal 2016 , primarily driven by the leveraging effect from higher net sales and expense reduction efforts , partially offset by a reduction in the gross profit rate , increases in performance-based compensation and marketing expenses and the net year-over-year impact of the excluded items in the above table . excluding items presented above , fiscal 2017 adjusted non-gaap operating income as a percentage of net sales increased approximately 280 basis points as compared to fiscal 2016 . for fiscal 2016 , operating income as a percentage of net sales decreased by approximately 160 basis points as compared to fiscal 2015 , primarily driven by the deleveraging effect due to lower net sales , a reduction in the gross profit rate and higher marketing and direct-to-consumer expense , partially offset by the net year-over-year impact of the excluded items presented above and expense reduction efforts . excluding items presented above , fiscal 2016 adjusted non-gaap operating income as a percentage of net sales decreased approximately 380 basis points as compared fiscal 2015. interest expense , net replace_table_token_15_th for fiscal 2017 , interest expense , net was $ 16.9 million as compared to $ 18.7 million and $ 18.2 million for fiscal 2016 and fiscal 2015 , respectively . in each year , interest expense , net primarily consisted of interest expense on borrowings outstanding under the company 's term loan facility , partially offset by realized gains from the trust-owned life insurance policies held in the irrevocable rabbi trust ( the โ rabbi trust โ ) and interest income earned on the company 's investments and cash holdings . for fiscal 2017 , interest expense , net decreased as compared to fiscal 2016 , primarily due to higher interest income earned on the company 's investments and cash holdings and a decrease in interest expense , primarily due to a reduction in the average principal balance of debt outstanding . 33 income tax expense ( benefit ) replace_table_token_16_th ( 1 ) refer to โ operating income โ for details of excluded items . the tax effect of excluded items is the difference between the tax provision calculation on a gaap basis and an adjusted non-gaap basis . ( 2 ) discrete net tax charges related to the act , primarily associated with the one-time deemed repatriation tax on accumulated foreign earnings . for fiscal 2017 , the effective tax rate was 80.9 % as compared to 321.9 % for fiscal 2016 , which was impacted by jurisdictional mix on low levels of absolute income . in fiscal 2017 , the effective tax rate was impacted by discrete net income tax charges of $ 19.9 million related to the act , primarily associated with the one-time deemed repatriation tax on accumulated foreign earnings , and discrete non-cash income tax charges of $ 10.6 million related to new share-based compensation accounting standards that went into effect in fiscal 2017. excluding the tax effect of items presented above under โ operating income , โ and charges related to the act of $ 19.9 million , the adjusted non-gaap effective tax rate was 42.3 % for fiscal 2017 compared to 98.0 % for fiscal 2016 . for fiscal 2016 , the effective tax rate was 321.9 % as compared to 29.4 % for fiscal 2015 . excluding the tax effect of items presented above under โ operating income , โ the adjusted non-gaap effective tax rate was 98.0 % for fiscal 2016 compared to 31.5 % for fiscal 2015. the effective tax rate and the adjusted non-gaap effective tax rate for fiscal 2016 reflect a benefit of $ 4.5 million related to the realization of foreign currency losses and a discrete benefit of $ 2.4 million related to a tax regulatory change , as well as the impact of jurisdictional mix on low absolute levels of income . in fiscal 2015 , the effective tax rate and the adjusted non-gaap effective tax rate reflect discrete benefits of $ 7.4 million and $ 5.4 million , respectively , related to a release of a valuation allowance and other discrete tax items . as of february 3 , 2018 , the company had approximately $ 61.4 million in net deferred tax assets , which included approximately $ 13.3 million and $ 13.8 million of net deferred tax assets in japan and the united kingdom , respectively . as of january 28 , 2017 , the company had approximately $ 90.4 million in net deferred tax assets , which included approximately $ 13.5 million and $ 11.3 million of net deferred tax assets in japan and switzerland , respectively . the realization of the net deferred tax assets will depend upon the future generation of sufficient taxable profits in these jurisdictions . while the company believes it is more likely than not that the net deferred tax assets will be realized , it is not certain . should circumstances change , the net deferred tax assets may become subject to a valuation allowance in the future . additional valuation allowances would result in additional tax expense . refer to note 10 , โ income taxes , โ of the notes to consolidated financial statements included in โ item 8. financial statements and supplementary data โ of this annual report on form 10-k , for further discussion . net income and net income per diluted share attributable to a & f replace_table_token_17_th ( 1 ) excludes items presented above under โ operating income , โ and โ income tax expense ( benefit ) . โ 34 liquidity and capital resources historical sources and uses of cash seasonality of cash flows the company 's business has two principal selling seasons : the spring
| results of operations fiscal 2017 compared to fiscal 2016 and fiscal 2016 compared to fiscal 2015 net sales replace_table_token_9_th ( 1 ) comparable sales is defined as the aggregate of : ( 1 ) year-over-year sales for stores that have been open as the same brand at least one year and whose square footage has not been expanded or reduced by more than 20 % within the past year , with the prior year 's net sales converted at the current year 's exchange rate to remove the impact of currency fluctuation , and ( 2 ) year-over-year direct-to-consumer sales with the prior year 's net sales converted at the current year 's exchange rate to remove the impact of currency fluctuation . excludes revenue other than store and direct-to-consumer sales . ( 2 ) includes abercrombie & fitch and abercrombie kids brands . for fiscal 2017 , net sales increased 5 % compared to fiscal 2016 , primarily attributable to a 3 % increase in comparable sales , with a 8 % increase in comparable sales for hollister , partially offset by a 2 % decrease in comparable sales for abercrombie . in addition , the additional week in fiscal 2017 benefited net sales by approximately $ 41 million , or 1 % , and changes in foreign currency exchange rates benefited net sales by approximately $ 20 million , or 1 % . for fiscal 2016 , net sales decreased 5 % compared to fiscal 2015 , primarily attributable to a 5 % decrease in comparable sales , with flat comparable sales for hollister offset by a 11 % percent decrease in comparable sales for abercrombie . cost of sales , exclusive of depreciation and amortization replace_table_token_10_th ( 1 ) inventory write-down charges related to a fiscal 2015 decision to accelerate the disposition of certain aged merchandise , net of recoveries .
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on april 28 , 2017 , the board granted mr. david an option to purchase 750,000 shares of our common stock at an exercise price of $ 0.62 . the option , which has a 5-year term expiring april 28 , 2022 , vested upon grant . see note 8 to our audited financial statements included elsewhere herein for assumptions used to determine the aggregate grant date fair value of the option grant . ( 2 ) ms. dalcourt 's salary consists of a management consulting fee , and a professional fee for physiotherapy services provided to patients . ( 3 ) represents $ 102,690 in management consulting fees , and $ 10,159 for professional physiotherapy services . ( 4 ) represents $ 76,713 in management consulting fees , and $ 32,482 for professional physiotherapy services . ( 5 ) mr. cirillo ceased to be an executive officer on may 9 , 2017. on february 19 , 2016 , the company entered into a future services agreement ( the โ future services agreement โ ) with mr. david regarding his services as a president , secretary and treasurer . the future services agreement was set to terminate on december 31 , 2017. pursuant to the terms of the future services agreement , the company agreed to grant mr. david an option to purchase 1,000,000 shares of common stock at a purchase price of $ 0.16 per share , 50 % of which vested upon execution of the agreement and 50 % of which vested on the first anniversary of the grant date , february 19 , 2017. the option expire five years from that date . on july 12 , 2017 , mr. david and the company entered into a six-month employment agreement ( the โ employment agreement โ ) with mr. david regarding his services as our president . this employment agreement replaces the future services agreement , dated february 19 , 2016. the employment agreement provides that mr. david will receive compensation in the form of ( 1 ) a monthly salary of $ 8,000 ; and ( 2 ) a grant to mr. david a 5-year option to purchase 1,000,000 shares of the company 's restricted common stock at an exercise price of $ 0.32 per share . the option will vest on july 12 , 2018 and expire on july 12 , 2022 . 23 outstanding equity awards at august 31 , 2017 replace_table_token_18_th ( 1 ) mr. cirillo ceased to be an executive officer on may 9 , 2017. director compensation directors receive no compensation for serving on the board . the following table summarizes compensation paid to all of our non-employee directors : name fees earned or paid in cash ( $ ) stock awards ( $ ) option awards ( $ ) non-equity story_separator_special_tag this filing contains forward-looking statements . the words โ anticipated , โ โ believe , โ โ expect , โ โ plan , โ โ intend , โ โ seek , โ โ estimate , โ โ project , โ โ will , โ โ could , โ โ may , โ and similar expressions are intended to identify forward-looking statements . these statements include , among others , information regarding future operations , future capital expenditures , and future net cash flow . such statements reflect the company 's current views with respect to future events and financial performance and involve risks and uncertainties , including , without limitation , general economic and business conditions , changes in foreign , political , social , and economic conditions , regulatory initiatives and compliance with governmental regulations , the ability to achieve further market penetration and additional customers , and various other matters , many of which are beyond the company 's control . should one or more of these risks or uncertainties occur , or should underlying assumptions prove to be incorrect , actual results may vary materially and adversely from those anticipated , believed , estimated , or otherwise indicated . consequently , all of the forward-looking statements made in this filing are qualified by these cautionary statements and there can be no assurance of the actual results or developments . the following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein . this discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions , operations , plans , objectives and performance that involve risk , uncertainties and assumptions . the actual results may differ materially from those anticipated in such forward-looking statements . for example , when we indicate that we expect to increase our product sales and potentially establish additional license relationships , these are forward-looking statements . the words expect , anticipate , estimate or similar expressions are also used to indicate forward-looking statements . story_separator_special_tag of 1218814 's stock ownership was $ 26,780,466 , based on the closing price of the company 's common stock of $ 0.84 on may 9 , 2017. the value of each of dr. dalcourt 's and ms. dalcourt 's ownership interests in 1218814 's company common stock as of may 9 , 2017 , based on the closing price of the company 's common stock on may 9 , 2017 , was $ 13,390,233 . 12 change in fiscal year end on may 9 , 2017 , our board of directors determined , in connection with the closing of the exchange , to change our fiscal year end from december 31 to august 31 , but did not memorialize such determination in writing . on july 17 , 2017 , the board ratified and memorialized in writing its may 9 , 2017 determination regarding the change in fiscal year end . story_separator_special_tag the shares were sold at a price of $ 0.30 per share , for an aggregate purchase price of $ 642,250. the $ 642,250 was provided to fund the company 's ongoing operational and product development expenses . the shares were issued in reliance upon the exemptions provided by regulation s promulgated pursuant to the securities act . the issuances involved offers and sales of securities outside the united states . the offers and sales were made in offshore transactions and no directed selling efforts were made by the issuer , a distributor , their affiliates or any persons acting on their behalf . on august 24 , 2017 , the company sold 779,202 restricted shares of common stock to an aggregate of three accredited investors . the shares were sold at a price of $ 0.30 per share , for an aggregate purchase price of $ 233,760. the $ 233,760 was provided to fund the company 's ongoing operational and product development expenses . the shares were issued in reliance upon the exemptions provided by regulation s promulgated pursuant to the securities act . the issuances involved offers and sales of securities outside the united states . the offers and sales were made in offshore transactions and no directed selling efforts were made by the issuer , a distributor , their affiliates or any persons acting on their behalf . off-balance sheet arrangements we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . 14 critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( โ u.s . gaap โ ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . we believe that the following critical policies affect our more significant judgments and estimates used in preparation of our financial statements . use of estimates the preparation of consolidated financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . the company regularly evaluates estimates and assumptions . the company bases its estimates and assumptions on current facts , historical experience and various other factors that it believes to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources . the actual results experienced by the company may differ materially and adversely from the company 's estimates . to the extent there are material differences between the estimates and the actual results , future results of operations will be affected . noncontrolling interest the company follows financial accounting standards board ( โ fasb โ ) accounting standards codification ( โ asc โ ) topic 810 , consolidation , which governs the accounting for and reporting of non-controlling interests ( โ ncis โ ) in partially owned consolidated subsidiaries and the loss of control of subsidiaries . certain provisions of this standard indicate , among other things , that ncis be treated as a separate component of equity , not as a liability , that increases and decreases in the parent 's ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses , and that losses of a partially owned consolidated subsidiary be allocated to the nci even when such allocation might result in a deficit balance . the net income ( loss ) attributed to the nci is separately designated in the accompanying consolidated statements of operations and other comprehensive income ( loss ) . revenue recognition revenue related to healthcare services provided is recognized at the time services have been performed . gross service revenue is recorded in the accounting records on an accrual basis at the provider 's established rates , regardless of whether the health care entity expects to collect that amount . the company will reserve a provision for contractual adjustment and discounts and deduct from gross service revenue . the company believes that recognizing revenue at the time the services have been performed is appropriate because the company 's revenue policies meet the following four criteria in accordance with fasb asc 605 , revenue recognition : ( i ) persuasive evidence that arrangement exists , ( ii ) services has occurred , ( iii ) the price is fixed and determinable and ( iv ) collectability is reasonably assured . the company reports revenues net of any sales , use and value added taxes . stock-based compensation the company records stock-based compensation in accordance with fasb asc topic 718 , compensation โ stock compensation . fasb asc topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the requisite service period . the company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees . basic and diluted earnings per share earnings per share is calculated in accordance with asc topic 260 , earnings per share .
| business overview novo integrated sciences , inc. was incorporated in delaware on november 27 , 2000 , under the name turbine truck engines , inc. on february 20 , 2008 , the company was re-domiciled to the state of nevada . effective july 12 , 2017 , the company 's name was changed to novo integrated sciences , inc. when used herein , the terms the โ company , โ โ we , โ โ us โ and โ our โ refer to novo integrated sciences , inc. and its consolidated subsidiaries . 11 we provide specialized physiotherapy , chiropractic care , occupational therapy , eldercare , laser therapeutics , massage therapy , acupuncture , chiropodist , neurological functions , kinesiology and dental services to our clients . our multi-disciplinary primary healthcare services and protocols are directed at assessment , treatment , management , rehabilitation and prevention through our 14 corporate owned clinics , 150 affiliate clinics , retirement homes , long-term care facilities and institutional locations throughout canada . directly and indirectly through our contractual relationships , we provide our specialized services to over 300,000 patients annually . no employee of the company or any of its subsidiaries practices primary care medicine and the company 's services do not require a medical or nursing license . our strict adherence to public regulatory standards , as well as self-imposed standards of excellence , have allowed us to navigate with ease through the industry 's licensing and regulatory framework . compliant treatment , data and administrative protocols are managed through a team of highly-trained , certified healthcare and administrative professionals . novo healthnet limited , our wholly owned subsidiary ( โ nhl โ ) , and its direct and indirect subsidiaries are regulated under the financial services commission of ontario ( โ fsco โ ) . in 2013 , nhl received its accreditation from the commission on accreditation of rehabilitation facilities ( โ carf โ ) . currently , nhl is undergoing the carf re-accreditation process .
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net cash provided by operating activities was $ 73.4 million for fiscal 2019 compared with net cash provided by operating activities of $ 111.9 million and $ 78.7 million in fiscal 2018 and fiscal 2017 , respectively . net cash provided by operating activities for fiscal 2019 compared to fiscal 2018 and fiscal 2017 was impacted by the following : ยท net income provided cash of $ 28.4 million , $ 35.0 million and $ 61.1 million during fiscal 2019 , fiscal 2018 and fiscal 2017 , respectively . ยท ending inventory per store increased 2.6 % at february 2 , 2019 and declined 9.9 % at february 3 , 2018 , compared to the prior year . fiscal 2019 inventory increased on a per store basis mainly due to the acquisition of city gear . fiscal 2018 inventory declined on a per store basis mainly due to vendor returns , cancellations and markdowns taken to liquidate excess inventory . the change in inventory provided cash of $ 16.8 million , $ 27.5 million and $ 2.4 million during fiscal 2019 , fiscal 2018 and fiscal 2017 , respectively . ยท the change in accounts payable used cash of $ 9.9 million in fiscal 2019 , provided cash of $ 16.4 million in fiscal 2018 and used cash of $ 11.4 million in fiscal 2017. the decrease in fiscal 2019 and increase in fiscal 2018 resulted mainly from the timing of receipts prior to our peak selling seasons . ยท non-cash charges included depreciation and amortization expense of $ 27.1 million , $ 24.2 million and $ 19.0 million during fiscal 2019 , fiscal 2018 and fiscal 2017 , respectively , and stock-based compensation expense of $ 4.3 million , $ 3.9 million and $ 4.6 million during fiscal 2019 , fiscal 2018 and fiscal 2017 , respectively . fluctuations in stock-based compensation generally result from the achievement of performance-based equity awards at greater or lesser than their granted level , fluctuations in the price of our common stock and levels of forfeitures in any given period . depreciation expense has increased in each fiscal year due to investments in facilities and information technology systems , and due to accelerated depreciation taken in fiscal 2019 resulting from an increase in store closures . depreciation is expected to decline slightly in fiscal 2020. investing activities . cash used in investing activities in fiscal 2019 , fiscal 2018 and fiscal 2017 totaled $ 103.9 million , $ 22.9 million and $ 29.4 million , respectively . the increase in fiscal 2019 over previous years was due to the investment in city gear of $ 86.8 million . gross capital expenditures used $ 17.7 million , $ 23.1 million and $ 29.7 million during fiscal 2019 , fiscal 2018 and fiscal 2017 , respectively . capital expenditures in all periods primarily consisted of new stores , relocations , remodels and expansions of existing stores and it projects . we acquired 136 stores through the acquisition of city gear in the fourth quarter of fiscal 2019. in addition , we opened 32 new stores and expanded and or relocated 10 existing stores in fiscal 2019. we opened 44 new stores , expanded 11 existing stores and relocated and or remodeled six additional existing stores during fiscal 2018. we opened 65 new stores , expanded eight existing stores and relocated and or remodeled two additional existing stores during fiscal 2017 . - 35 - index we estimate the cash outlay for capital expenditures in the fiscal year ending february 1 , 2020 will be approximately $ 18.0 million to $ 22.0 million , which relates to expenditures for : ยท the opening of new stores , the remodeling , relocation or expansion of selected existing stores ; ยท information system infrastructure , projects , upgrades and security ( including city gear integration ) ; and ยท other departmental needs . of the total budgeted dollars for capital expenditures for fiscal 2020 , we anticipate that approximately 51 % will be related to the opening new stores , store expansions and relocations and store remodels . approximately 30 % will be related to information technology , consisting primarily of expenditures for projects and software , city gear integration , omni-channel , infrastructure and various system enhancements , upgrades and security . the remaining 19 % relates primarily to specific department expenditures and includes facility upgrades , transportation equipment , automobiles , fixtures and security equipment for our stores . financing activities . net cash provided by financing activities was $ 18.7 million in fiscal 2019 and net cash used in financing activities was $ 54.4 million and $ 42.6 million in fiscal 2018 and fiscal 2017 , respectively . in fiscal 2019 , net cash provided by financing activities resulted from borrowings against our credit facilities to facilitate the acquisition of city gear . historically , the fluctuation in financing activity between years is primarily the result of repurchases of our common stock . we expended $ 16.5 million , $ 54.5 million and $ 43.1 million on repurchases of our common stock during fiscal 2019 , fiscal 2018 and fiscal 2017 , respectively , which included cash used to settle net share equity awards of $ 0.4 million , $ 0.7 million and $ 0.9 million during fiscal 2019 , fiscal 2018 and fiscal 2017 , respectively . financing activities also consisted of proceeds from stock option exercises and employee stock plan purchases . as stock options are exercised and shares are purchased through our employee stock purchase plan , we will continue to receive proceeds and expect a tax deduction ; however , the amounts and timing can not be predicted . story_separator_special_tag at february 2 , 2019 , we had two unsecured credit facilities that allow borrowings up to $ 50.0 million each , and which expire in october 2021. under the provisions of both facilities , we do not pay commitment fees . however , both are subject to negative pledge agreements that , among other things , restrict liens or transfers of assets including inventory , tangible or intangible personal property and land and land improvements . we plan to renew these facilities as they expire and do not anticipate any problems in doing so ; however , no assurance can be given that we will be granted a renewal or terms which are acceptable to us . as of february 2 , 2019 , a total of $ 65.0 million was available to us from these facilities . the following table lists the aggregate maturities of various classes of obligations and expiration amounts of various classes of commitments related to hibbett sports , inc. at february 2 , 2019 ( in thousands ) : replace_table_token_12_th ( 1 ) see โ part ii , item 8 , consolidated financial statements . note 7 โ leases. โ ( 2 ) purchase obligations include all material legally binding contracts such as software license commitments and service contracts . the table above also includes a stand-by letter of credit in conjunction with our self-insured workers ' compensation and general liability insurance coverage . contractual obligations that are not binding agreements , including purchase orders for inventory , are excluded from the table above . store utility contracts , including waste disposal agreements , are also excluded . ( 3 ) other liabilities include amounts accrued for various deferred compensation arrangements and contingent earnouts related to the city gear acquisition . see โ part ii , item 8 , consolidated financial statements . note 8 โ defined contribution benefit plans โ for a discussion regarding our employee benefit plans . - 36 - index non-current liabilities have been excluded from the above table to the extent that the timing and or amount of any cash payment are uncertain . excluded from this table are approximately $ 1.2 million of unrecognized tax benefits , which have been recorded as liabilities in accordance with asc topic 740 , income taxes , as the timing of such payments can not be reasonably determined . see โ part ii , item 8 , consolidated financial statements note 1 โ deferred rent โ for a discussion on our deferred rent liabilities . see โ part ii , item 8 , consolidated financial statements . note 10 โ income taxes โ for a discussion of our unrecognized tax benefits . off-balance sheet arrangements we have not provided any financial guarantees through february 2 , 2019. we have not created , and are not party to , any special-purpose or off-balance sheet entities for the purpose of raising capital , incurring debt or operating our business . we do not have any arrangements or relationships with entities that are not consolidated into the financial statements . inflation and other economic factors our ability to provide quality imported merchandise on a profitable basis may be subject to political and economic factors and influences that we can not control . national or international events , including changes in government trade or other policies , could increase our merchandise costs and other costs that are critical to our operations . consumer spending could also decline because of economic pressures . see โ risk factors . โ we do not believe that inflation has had a material impact on our financial position or results of operations to date . a high rate of inflation or other increases in the cost of conducting our business in the future may have an adverse effect on our ability to maintain current levels of gross profit and selling , general and administrative expenses as a percentage of net sales if the selling prices of our merchandise do not increase with these increased costs . our critical accounting policies our critical accounting policies reflected in the consolidated financial statements are detailed below . revenue recognition . we recognize revenue in accordance with accounting standards codification ( asc ) topic 606 , revenue from contracts with customers , when control of the merchandise is transferred to our customer . sales are recorded net of expected returns at the time the customer takes possession of the merchandise . net sales exclude sales taxes because we are a pass-through conduit for collecting and remitting these taxes . retail store sales : for merchandise sold in our stores , revenue is recognized at the point of sale when tender is accepted and the customer takes possession of the merchandise . retail store orders : retail store customers may order merchandise available in other retail store locations for pickup in the selling store at a later date . customers make a deposit with the remaining balance due at pickup . these deposits are recorded as deferred revenue until the transaction is completed and the customer takes possession of the merchandise . retail store customers may also order merchandise to be shipped to home . payment is received in full at the time of order and recorded as deferred revenue until delivery . - 37 - index layaways : some of our stores offer a retail store program giving customers the option of paying a deposit and placing merchandise on layaway . the customer may make further payments in installments , but the full purchase price must be received by us within 30 days . the payments are recorded as deferred revenue until the transaction is completed and the customer takes possession of the merchandise . digital channel sales : for merchandise shipped to home , customer payment is received when the order ships . revenue is deferred until control passes to the customer at delivery . shipping and handling costs billed to customers are included
| results of operations the following table sets forth the percentage relationship to net sales of certain items included in our consolidated statements of operations for the periods indicated . replace_table_token_9_th note : columns may not sum due to rounding . - 31 - index fiscal 2019 compared to fiscal 2018 net sales . net sales increased $ 40.5 million , or 4.2 % , to $ 1.0 billion for fiscal 2019 from $ 968.2 million for fiscal 2018. furthermore : ยท we acquired 136 city gear stores , opened 32 hibbett sports or city gear stores while closing 84 underperforming hibbett sports stores for a net addition of 84 stores in fiscal 2019. we expanded 7 high performing stores . ยท comparable store net sales for fiscal 2019 increased 2.2 % compared to fiscal 2018. stores not in the comparable store net sales calculation accounted for $ 97.1 million of net sales of which $ 49.1 million was attributable to the acquisition of city gear . during fiscal 2019 , 950 stores were included in the comparable store sales comparison . comparable store net sales were driven by gains in footwear , activewear and cleats , offset by declines in licensed product and equipment . significant increases were achieved in lifestyle footwear , men 's and women 's activewear , and cleats . significant declines were experienced in college apparel , mlb apparel , socks , hydration , and football equipment . in fiscal 2019 , we saw an increase in average ticket and a decrease in items per transaction . gross margin . cost of goods sold includes the cost of merchandise , occupancy costs for stores , occupancy and operating costs for our wholesale and logistics facility and ship-to-home freight .
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